TIDMSLE
RNS Number : 8191R
San Leon Energy PLC
08 July 2022
The information communicated within this announcement is deemed
to constitute inside information for the purposes of Regulation 11
of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310.
Upon the publication of this announcement, this inside information
is now considered to be in the public domain.
8 July 2022
San Leon Energy plc
("San Leon" or the "Company")
Proposed Midwestern Reorganisation and proposed Further ELI
Investments
San Leon, the independent oil and gas production, development
and exploration company focused on Nigeria, is pleased to announce
that it has 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 announces
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".
Together the Proposed Transactions constitute a reverse takeover
pursuant to rule 14 of the AIM Rules for Companies. Accordingly,
San Leon expects to publish an AIM Admission Document (the
"Admission Document" or "Document"), containing an updated CPR on
OML 18, later today. The Admission Document will provide
information on the Proposed Transactions and include notice of a
General Meeting to seek Shareholder approval for the Proposed
Transactions and certain resolutions. The General Meeting will be
convened for 5 August 2022 at 11.30am at the Herbert Park Hotel,
Ballsbridge, Dublin 4, Ireland.
Extracts from the Admission Document and the definitions used in
the Admission Document are set out in the Schedules and appendix to
this Announcement.
Highlights
Series of transformational conditional transactions entered into
by San Leon today to increase its exposure to OML 18 and the
related infrastructure.
-- Completion of the Proposed Transactions will consolidate and simplify the group structure:
o San Leon's exposure to the world class OML 18 asset increases
fourfold to a 44.1% initial indirect economic interest; and
o the Proposed Transactions will increase San Leon's ownership
of ELI to c.50%. ELI is progressing the ACOES pipeline project to
provide a dedicated oil export route for OML 18, with the potential
for third party fees.
-- CPR on OML 18 issued today with 2P reserves of 323 mmboe net
attributable to San Leon with an economic NPV10 value of US$1.1
billion (recent consensus long-term oil price and assuming
completion of the Proposed Transactions);
-- The Company has today entered into a US$50m loan facility
with MM Capital to provide funding to San Leon; and
-- Further Loan Note Waiver granted to Midwestern to allow for
the completion of the Proposed Transactions.
San Leon is proposing a capital restructuring and issue of
preference shares to San Leon Shareholders immediately prior to
completion with the preference shareholders having a preferential
right to the first US$40m of future dividends paid by San Leon.
In addition Eroton, the operator of OML 18, is seeking to
undertake a series of transactions to increase its interests in OML
18 and increase its funding facilities. Completion of these
transactions (which are yet to be entered into) will be a condition
of the Proposed Transactions.
Oisin Fanning, CEO of San Leon, commented:
"We are delighted to have entered into these agreements to
effect the Proposed Transactions. We believe that this series of
transactions, when completed, will be truly transformational for
the Company and will deliver value to our shareholders. The
transactions will not only increase our initial indirect economic
interest in OML 18, a world class asset with unrealised potential,
but also our interest in ELI and the new ACOES pipeline which we
have long considered to be critical to the future success of OML 18
through the expected reduction of pipeline losses and increase in
the uptime for export that it is expected to provide.
"Going forward 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."
Overview of the Proposed Transactions (including the
transactions Eroton is seeking to undertake)
Midwestern Reorganisation
On completion of the Proposed Midwestern Reorganisation (which
is expected to occur in Q4 2022 following the Eroton OML 18
Transactions) San Leon will own a 44.1% initial indirect economic
interest in OML 18 with the remaining 55% interest being held by
NNPC (the Nigerian State-owned oil company) and 0.9% by Bilton. The
Further ELI Investments will result in San Leon owning on
completion a c.50% interest in ELI (which is the owner of the ACOES
which will be utilised by OML18) and San Leon becoming a
significant holder of loan receivables from ELI.
The Proposed Midwestern Reorganisation is conditional, inter
alia, on the completion of the Eroton OML 18 Transactions and
regulatory approvals and includes the MLPL Reorganisation, the ELI
Reorganisation and the entry into certain associated documentation
(summaries of which are set out below). Further details of these
transactions and agreements are summarised in Schedule 1 and
Schedule 2 to this Announcement.
The Eroton OML 18 Transactions
Eroton, the operator of the OML 18 licence, currently holds a
27% effective economic interest in the OML 18 licence. Eroton has
negotiated an agreement with Sahara pursuant to which, when
executed, it will conditionally agree to acquire additional
interests in OML 18 through the Sahara OML 18 Transaction and the
Bilton OML 18 Transaction which has been entered into today. These
Eroton OML 18 Transactions will result in the acquisition of
Sahara's and Bilton's effective economic interests in OML 18 of
16.2% and 1.8% respectively. The MLPL Reorganisation and the ELI
Reorganisation are conditional, inter alia, upon completion of the
Eroton OML 18 Transactions.
In order to fund the Sahara OML 18 Transaction and Bilton OML 18
Transaction, Eroton proposes to enter into the New Eroton Debt
Facilities which represent senior secured reserve-based lending
facilities totaling US$750 million to be provided to Eroton by a
lending consortium led by Afreximbank for the purposes of, inter
alia: (i) facilitating the Eroton OML 18 Transactions; and (ii) the
repayment of Eroton's existing financing. A credit committee
approved term sheet associated with the New Eroton Debt Facilities
has been received from the lead lender, Afreximbank, and further
information is set out in the Schedule to this Announcement. The
New Eroton Debt Facilities are conditional, amongst other things,
upon definitive documentation in respect of the facility and
associated security package being entered into. Subject to
completion of the New Eroton Debt Facilities, the New Eroton Debt
Facilities will replace the Existing Eroton Debt Facility, which
will be repaid in full and GTB's security in connection with the
Existing Eroton Debt Facility will be discharged.
The MLPL Reorganisation
By virtue of the MLPL Reorganisation, Midwestern will subscribe
for shares in San Leon and San Leon will acquire from Midwestern
the remaining 60% equity interest in MLPL that it does not
currently own.
The MLPL Reorganisation will be conditional on, along with the
other conditions summarised in the Schedule, the completion of the
Eroton OML 18 Transactions and will be implemented immediately
prior to Re-Admission by completion of the following steps:
-- the issue of 344,334,257 New Ordinary Shares by San Leon to
Midwestern pursuant to the MLPL New Shares Subscription Agreement
with such subscription consideration being paid for by way of the
MLPL Reorganisation Loan Notes; and
-- the transfer by Midwestern of its equity interest in MLPL and
the benefit of the MLPL Receivable to a member of the San Leon
Group in return for the cancellation of the MLPL Loan Notes and the
release of Midwestern from its guarantee in relation the MLPL Loan
Notes.
The ELI Reorganisation
San Leon and Midwestern propose to effect a further
reorganisation to consolidate Midwestern's holdings in the Company
and ELI into a single holding in the Company, with the Company
holding an additional c.14% interest in ELI.
The ELI Reorganisation, which is conditional (amongst other
things) upon ELI Shareholder Consent and completion of the MLPL
Reorganisation, is made up of the following constituent parts:
-- the issue of 73,782,535 New Ordinary Shares pursuant to the
ELI New Shares Subscription Agreement with such amount being left
outstanding between San Leon and for the benefit of the
Company;
-- the transfer by Midwestern of its 13.77% equity interest in ELI Malta to San Leon ELI; and
-- the transfer by Midwestern of its associated loan receivable
of US$15,300,000 from ELI Malta to San Leon ELI.
The Further ELI Investments
San Leon currently holds 38,998 ELI Shares representing a 10%
equity interest in ELI. As part of the ELI Reorganisation, San Leon
will acquire an additional 53,700 ELI Shares, being Midwestern's
indirect 13.77% equity interest in ELI. The Company also currently
has a conditional interest in 12,959 ELI Shares representing a
3.323% equity interest in ELI as a result of a series of
transactions announced on 24 June 2021 and 12 February 2022,
details of which are contained in the Schedule.
San Leon has also today conditionally agreed to make a new loan
to ELI of US$16,000,000 at a coupon of 14% per annum over four
years, and repayable quarterly following a one-year moratorium,
which will be accompanied by San Leon subscribing for a further
48,748 new ELI Shares at nominal value, subject to ELI Shareholder
Consent.
San Leon has also today entered into an agreement for the
further conditional purchase of 52 ,647 ELI Shares currently held
by Ocean Pearl for US$15,000,000.
Upon completion of both the ELI Reorganisation and all of the
Further ELI Investments, San Leon would become the largest
shareholder in ELI, with its stake rising to 228,458 ELI Shares
representing 50.64% and will be a significant lender to ELI,
holding a total of US$48.3 million of loans (plus accrued interest)
to ELI. The Further ELI Investments are not conditional upon the
ELI Reorganisation or the MLPL Reorganisation but are all
conditional upon shareholder approval as well as the conditions
referred to in the Schedule.
The New Facility
The Company is also pleased to announce that it has today
entered into a loan facility agreement with MM Capital Holding
Limited (as lender) (the "New Facility") pursuant to which the
lender has agreed to provide a US$50 million secured loan facility
to San Leon. The Company has entered into the New Facility with the
purposes of funding its working capital requirements and financing
the Further ELI Investments and has agreed to grant a charge over
SLE Financing as security for the loan.
Issue of Preference Shares
As part of the Proposed Transactions, subject to and upon
completion of the MLPL Reorganisation, Midwestern will be released
from its obligations to guarantee performance of the MLPL Loan
Notes. In recognition of this and the associated positive cash
inflows anticipated from the increased initial indirect economic
interest in OML 18, immediately prior to Re-Admission, the Company
will, subject to shareholder approval at the EGM, issue the
Preference Shares to Shareholders on the Company's register of
members immediately prior to Re-Admission as part of the
Subdivision entitling the holders to receive the Preference Amount
which is US$40,000,000.
Competent Person's Report
San Leon commissioned PetroVision Energy Services Ltd to act as
San Leon's Competent Person as defined by the rules of the London
Stock Exchange and to prepare an independent competent person's
report to assist in the assessment of the Proposed Transactions.
The OML 18 development plan comprises CAPEX costs around new wells,
existing active wells, workovers (re-entries, recompletion and/or
side-tracks) and facilities estimated at $151 million for NFA,
$3,414 million for 1P and 2P reserves and $3,714 million for 3P
reserves, further details of which are available in the
Schedule.
Reasons for the Proposed Transactions
San Leon is committed to the long-term development of its
Nigerian assets, with a focus of delivering value to Shareholders.
This is driven by its technical expertise and operational
capabilities.
It is the Board's belief that the Proposed Transactions, are
expected to have the following benefits for the Company and its
Shareholders:
-- the consolidation of Midwestern's holdings in the Company and
MLPL into a single holding in the Company which, in conjunction
with the Eroton OML 18 Transactions, allows the Company to increase
its economic exposure to OML 18;
-- increasing the Company's economic interests in ELI will
complement the Company's proposed 100% interest in MLPL, as the
ACOES is being constructed to provide a dedicated oil export route
from OML 18 and therefore for the benefit of MLPL, including the
expected reduction of pipeline losses and increasing the uptime for
export;
-- San Leon's larger presence by virtue of its activities,
resources and commitments, will pave the way for the Company to
become a significant participant in the Nigerian oil and gas
market, thereby better positioning the Company to deliver value for
shareholders; and
-- increasing the Company's technical and management involvement
in the OML 18 asset, serving to help optimise the development of
the asset. This has been formalised through an Asset Management
Agreement.
Each of these benefits is expected to contribute to the
Company's main objectives which are to:
-- use the Company's interest in OML 18 as a platform to become
a leading independent production and exploration company focused on
Nigeria and West Africa by securing and developing further high
potential asset opportunities that yield value for
shareholders;
-- use the Company's technical and operational expertise in
securing production and near-term operating cash flow which will
yield value to shareholders whilst continuing to forge close links
with governments, partners and the local communities that it
operates in; and
-- continue to position the Company for further transactions.
The MLPL Reorganisation and ELI Reorganisation, together with
the Further ELI Investments, are considered by the Directors to
represent transformational transactions for the Company. The Board
appreciates that Eroton and OML 18 currently face a number of
challenges, several of which are intended to be overcome via the
refinancing of the Existing Eroton Debt Facility by the New Eroton
Debt Facilities, the completion of the Eroton OML 18 Transactions
and the associated Settlement Agreement and the ACOES coming into
full operation. Further details of these key challenges can be
found in paragraphs 4(b), (c) and (d) of Part 1 below.
It is emphasised that the MLPL Reorganisation is conditional,
amongst other things, on the entry into and the utilisation of the
New Eroton Debt Facilities and the Eroton OML 18 Transactions
completing and whilst the Terms of the New Eroton Debt Facilities
have been approved by the lead lender, Afreximbank, and the terms
of the Sahara OML 18 Acquisition Agreement have been negotiated and
the Bilton OML 18 Acquisition Agreement has been executed, subject
to certain conditions, they are dependent on, inter alia, the New
Eroton Debt Facilities being entered into and becoming
unconditional and being utilised. Furthermore, the New Eroton Debt
Facilities have not yet been entered into and once entered into
will be subject to additional conditions to drawdown which will
have to be satisfied prior to utilisation of the facilities and for
completion of the Sahara OML 18 Transaction and the Bilton OML 18
Transaction. These matters are not under the Company's control.
Accordingly, there is no certainty that the New Eroton Debt
Facilities will be entered into or that the Eroton OML 18
Transactions will proceed or that any of them will proceed on the
currently proposed terms. Only once the Eroton OML 18 Transactions
complete and the other conditions to the MLPL Reorganisation have
been satisfied will the Company be able to proceed with the MLPL
Reorganisation. There can therefore be no guarantee that the MLPL
Reorganisation will occur.
The Sahara OML 18 Acquisition Agreement has not been executed at
this point and is only expected to be executed once Eroton has
funds available to it to satisfy the consideration under the New
Eroton Debt Facilities. Accordingly, whilst the terms have been
negotiated, there can be no certainty that it will be entered into
or the terms on which it will be entered into.
Whilst the Bilton OML 18 Acquisition Agreement has been
executed, it is also conditional upon the Sahara OML 18 Acquisition
Agreement being entered into completing following the New Eroton
Debt Facilities proceeding. Accordingly as there can be no
certainty that the Sahara OML 18 Acquisition Agreement will be
entered into or the terms on which it will be entered into and
there is no certainty that this condition will be satisfied.
The Sahara OML 18 Acquisition Agreement, if executed, will be
and the Bilton OML 18 Acquisition Agreement is subject to certain
conditions before completion can occur. In particular, the Sahara
OML 18 Acquisition Agreement, if executed will be, and the Bilton
OML 18 Acquisition Agreement is conditional on the entry into the
Settlement Agreement associated with certain litigation between
Eroton, Bilton and Sahara.
The number of shares in the Company to be subscribed for by
Midwestern as part of the MLPL Reorganisation has been agreed and
fixed between Midwestern and the Company and is not subject to
adjustment by reference to the market price of the Ordinary Shares
or New Ordinary Shares. Accordingly, in order for the MLPL
Reorganisation to proceed the market price of the New Ordinary
Shares on the date of allotment of the MLPL New Shares must be not
greater than the value per share shown recorded in the MLPL
Valuation Report.
The Board are of the view that the Eroton OML 18 Transactions
and New Eroton Debt Facilities are important for several reasons,
including:
(i) the Eroton OML 18 Transactions underpin the valuation and
rationale of the MLPL Reorganisation by delivering, indirectly, to
San Leon a far greater interest in OML 18 than is currently held by
Eroton;
(ii) the Sahara OML 18 Transaction resolves a series of disputes
that have arisen between Eroton and its OML 18 joint venture
partner, Sahara. Several of these disputes have developed into the
Eroton Litigation, although none are currently being actively
pursued, and all legal actions between Eroton and Sahara will be
extinguished as part of the Sahara OML 18 Transaction via the
Settlement Agreement, thereby enabling Eroton to focus on the
commercial development of OML 18 as a world class oil and gas
field; and
(iii) the New Eroton Debt Facilities are a condition to and are
necessary to fund the Eroton OML 18 Transactions and also enable
the Existing Eroton Debt Facility to be refinanced.
If the New Eroton Debt Facilities are not entered into or once
entered into does not complete or the conditions to drawdown are
not satisfied and/or the Eroton OML 18 Transactions do not complete
then the MLPL Reorganisation cannot complete. The New Eroton Debt
Facilities and the Eroton OML 18 Transactions are not in the
Company's control and even if shareholders approve the Resolutions,
they may not occur. In any of these cases San Leon would retain a
40% equity interest in MLPL with Midwestern continuing to own the
remaining interest in MLPL and Eroton would retain a 27% economic
interest in OML 18, meaning that San Leon would continue to have a
10.58% initial indirect economic interest in OML 18. The
outstanding MLPL Loan Notes would become payable by MLPL (or by
Midwestern as guarantor to the MLPL Loan Notes) to San Leon within
90 days of termination of the MLPL Reorganisation Agreement.
The New Eroton Debt Facilities and the Eroton OML 18
Transactions are also important to the future financial condition
of Eroton, and given the Company's significant focus on OML 18 and
its operator Eroton, the failure of the New Eroton Debt Facilities
and the Sahara OML 18 Transaction to complete, could have a
material and adverse effect on Eroton, with a consequent adverse
effect on Company's business, financial condition and results.
The Directors have prepared a detailed cash flow forecast for
the Group for the period from 1 June 2022 to 31 December 2023.The
principal assumptions underlying the cash flow forecast and the
availability of finance to the Group are as follows:
(i) the Proposed Transactions complete in the second half of
2022. The Proposed Transactions comprises, inter alia, a proposed
consolidation of Midwestern's indirect debt and equity interests in
ELI Malta with those of the Company, as well as further new debt
and new and existing equity investments to be made by San Leon
pursuant to the Further ELI Investments;
(ii) 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;
(iii) the New Facility of $50 million has been secured to
finance the Proposed Transactions;
(iv) elimination of the MLPL Loan Notes on completion of the Proposed Transactions;
(v) under the Asset Management Agreement with Eroton, San Leon
receives $500,000 per month for technical and financial advisory
services following completion of the Proposed Transactions;
(vi) repayments from ELI of loan notes of US$37.6 million during 2022 and 2023;
(vii) repayment from Eroton under the Master Services Agreement, of $3m during 2022; and
(viii) a further loan of $2.5 million is given to Decklar in
relation to its Oza investment pursuant to current discussions.
Due to the Proposed Transactions not having completed at the
date of the Document there is an inherent material uncertainty that
completion will not occur as anticipated.
The Group has modelled various other scenarios assuming the
Proposed Transactions do not complete and given the Group's well
understood cost base, the principal uncertainty if the Proposed
Transactions do not complete relates to the quantum and timing of
receipt of interest and capital repayments on the MLPL Loan, 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
Loan Notes and ELI loan notes have both been credit impaired in the
annual report and accounts of the Company for the year ended 31
December 2021.
In the ultimate downside scenario where no repayments are
received from MLPL and ELI, the New Facility can be drawn by the
Company 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 Transactions creates significant
uncertainty upon the Group and Company's ability to continue as a
going concern beyond the 12-month period. The Directors' have
concluded that this represents a material uncertainty which may
cast significant doubt upon the Group and Company's ability to
continue as a going concern and that, therefore, the Group and
Company may be unable to continue realising its assets and
discharging its liabilities in the normal course of business.
Financial information on MLPL and ELI
For the 12 month period ended 31 December 2021, MLPL recorded an
audited profit before income tax of US$47,001,000 and at that date
had audited total assets of approximately US$558,807,000.
Historical financial information of MLPL can be found in Part 8B of
the Admission Document.
For the 12 month period ended 31 December 2021, ELI recorded an
audited loss before income tax of US$10,494,402 and at that date
had audited total assets of approximately US$226,958,434.
Historical financial information of ELI can be found in Part 8C of
the Admission Document.
Related party transactions under the AIM Rules
Midwestern is a related party of the Company for the purposes of
the AIM Rules for Companies by virtue of Midwestern holding more
than 10% of the Existing Ordinary Shares in the Company and the
level of Midwestern's current interest in MLPL. The MLPL
Reorganisation, and the ELI Reorganisation, are therefore related
party transactions under the AIM Rules for Companies. The Directors
of San Leon (excluding Adekolapo Ademola who is not considered to
be independent as he is a representative of Midwestern on the
Company's board) consider, having consulted with the Company's
nominated adviser, Allenby Capital, that the terms of the MLPL
Reorganisation, and the ELI Reorganisation are fair and reasonable
insofar as the Company's shareholders are concerned.
Following publication of this Document, the Company proposes to
grant awards pursuant to the LTIP over 18,938,209 Ordinary Shares
(representing 2.18 per cent. of the Fully Enlarged Ordinary Share
Capital) to certain of its employees and the Board, details of
which are set out in paragraph 6.2.16 of Part 12 of this Document.
The issuance of these awards to the Directors will be considered to
be a related party transaction under Rule 13 of the AIM Rules for
Companies and the Company will announce further details in relation
to this separately in due course once the issuance of these awards
has occurred.
Unless otherwise defined herein, the capitalised defined terms
used in this announcement have the same meaning as those used in
the Schedule.
The Company expects to publish the Admission Document later
today.
Enquiries:
San Leon Energy plc +353 1291 6292
Oisin Fanning, Chief Executive
Julian Tedder, Chief Financial Officer
Allenby Capital Limited
(Nominated adviser and joint broker to the Company) +44 20 3328 5656
Nick Naylor
Alex Brearley
Vivek Bhardwaj
Panmure Gordon & Co
(Joint broker to the Company) +44 20 7886 2500
Nick Lovering
James Sinclair-Ford
Tavistock
(Financial Public Relations) +44 20 7920 3150
Nick Elwes
Simon Hudson
Plunkett Public Relations +353 1 230 3781
Sharon Plunkett
Qualified Person's Statement
Pursuant to the requirements of the AIM Rules and in particular,
the AIM Note for Mining and Oil and Gas Companies, Joel Price has
reviewed and approved the technical information and resource reporting
contained in this announcement. Joel has more than 25 years' experience
in the oil & gas industry and is a member of the Society of Petroleum
Engineers. He holds a BA in Natural Sciences (Geology) from Cambridge
University, an MEng in Petroleum Engineering from Heriot-Watt University,
and an MBA from Durham University. Joel is Chief Operating Officer
for San Leon Energy and is based in the United Kingdom.
Schedule
Extracts from the AIM Admission Document Expected to be
published later today
PART 1 OF THE ADMISSION DOCUMENT
LETTER FROM THE CHAIRMAN
Dear Shareholder,
Proposed Midwestern Reorganisation comprising the MLPL
Reorganisation and the ELI Reorganisation
Proposed Further ELI Investments
Adoption of New Memorandum and Articles of Association
Proposed subdivision of the Existing Ordinary Shares into New
Ordinary Shares and Preference Shares
Re-Admission of the New Ordinary Shares to trading on AIM
following completion of the MLPL Reorganisation and satisfaction of
conditions precedent
and
Notice of Extraordinary General Meeting
1. Introduction
San Leon currently has a 40% equity interest in MLPL with the
remaining interest in MLPL being owned by Midwestern. MLPL is part
of the structure through which San Leon holds its current 10.58%
initial indirect economic interest in OML 18, a producing oilfield
located in the southern part of the Niger Delta, of which further
details are outlined in paragraph 4 below. MLPL has a 100% equity
investment in Martwestern, which in turn owns a 98% economic
interest in Eroton, which currently holds a 27% working interest in
OML 18 and is its operator.
San Leon also currently has a 10% equity interest in ELI Malta
and a conditional further 3.323% equity interest in ELI Malta as a
result of a series of transactions, announced on 24 June 2021 and
15 February 2022. San Leon has provided a total of US$17 million of
shareholder loans to ELI Malta to date. ELI Malta is the operator
and the 100% owner of the ACOES, which includes a pipeline that
will provide a dedicated oil export route from OML 18 to an
offshore floating storage and offloading (FSO) vessel.
Eroton expects that once the ACOES is commissioned it will
reduce the downtime and allocated pipeline losses currently
associated with reliance on the existing pipeline, NCTL. In
addition, it is anticipated that the FSO vessel project will
improve overall well uptime. Accordingly, the Directors consider
the ACOES to be important to the future success of OML 18.
Eroton is currently planning to increase its working interest in
OML 18 through the Eroton OML 18 Transactions, subject, amongst
other things, to the New Eroton Debt Facilities being entered into
and utilised. Subject to completion of the Eroton OML 18
Transactions, the Company is seeking to increase its interests in
OML 18 and ELI. Following (and subject to) completion of the MLPL
Reorganisation, the ELI Reorganisation and the Further ELI
Investments, San Leon expects its initial indirect economic
interest in OML 18 to have increased from 10.58% to 44.1% and its
interest in ELI to increase to up to 50.64%. The ELI Reorganisation
is not conditional upon any of the elements of the Further ELI
Investments and may proceed whether or not some or all of the
Further ELI Investments have completed.
The Company first announced that it was in negotiations for the
series of transactions described in this Document on 24 June 2021
and its Existing Ordinary Shares have been suspended from trading
on AIM since this date.
Table 1: Summary table of San Leon Energy's material assets
Licence Licence
Asset Operator Interest Status expiry area Comments
(%) date
OML 18, Eroton 22.5%* Production/ 21 October 1,035 km Five fields (Cawthorne,
Nigeria Development 2038 2 Akaso, Alakiri,
Krakama, and Awoba**)
are currently in
production.
Three fields (Orubiri,
Buguma Creek and
Asaritoru) are available
for production but
planned for development.
Only one field (Bille)
out of 9 fields
in OML 18 has remained
undeveloped.
========== ========== ============ ========== ======== ==========================
Source: PetroVision Energy Services Limited CPR - Table 1-1 on
page 163 of this Document
* Represents SLE working interest after completion of the Eroton
OML 18 Transactions and the MLPL Reorganisation at which point SLE
will have an initial indirect economic interest of 44.1% in OML 18.
Prior to this SLE's working interest in OML 18 as at the date of
this Document is 5.4% and SLE's initial indirect economic interest
in OML 18 is 10.58%.
** Awoba field is operated by Newcross E&P, with 50%
production allocation to OML 18 concession.
2. The Proposals
On 24 June 2021, San Leon announced that the Company and
Midwestern had agreed to enter into a series of transactions, being
the MLPL Reorganisation and the ELI Reorganisation, to consolidate
Midwestern's holdings in San Leon, MLPL and ELI into a single
holding in San Leon. The MLPL Reorganisation, the ELI
Reorganisation and the Further ELI Investments constitute a reverse
takeover pursuant to rule 14 of the Al M Rules for Companies and
therefore the purpose of this Document, which comprises an
Admission Document prepared under the AIM Rules for Companies, is
to provide you with information on the Proposals and to seek
approval by Shareholders of the Resolutions to be proposed at the
General Meeting, which is being convened on 5 August 2022 at 11.30
am at the Herbert Park Hotel, Ballsbridge, Dublin 4, Ireland,
notice of which is set out at the end of this Document.
Further details of the proposed series of transactions, being
the MLPL Reorganisation and the ELI Reorganisation, are set out in
Part 2 of this Document.
Subject to and upon completion of the MLPL Reorganisation,
Midwestern will be released from its obligations to guarantee
performance of the MLPL Loan Notes by MLPL, further details of
which are set out in section 6 of this Part 1.
In connection with the proposed series of transactions, the
Company will, subject to shareholder approval at the EGM, issue the
Preference Shares to Shareholders, further details of which are set
out in section 13 of this Part 1.
Taking into account its current 13.18% shareholding in the
Company and assuming that no additional shares are issued,
Midwestern is expected, upon completion of the MLPL Reorganisation,
to hold
50.82% of the Initially Enlarged Ordinary Share Capital and,
upon completion of the ELI Reorganisation, this is expected to
increase to 55.0% of the Fully Enlarged Ordinary Share Capital.
Eroton is seeking to enter into the New Eroton Debt Facilities
and to use part of the New Eroton Debt Facilities to acquire an
additional 18% interest in OML 18, thereby taking Eroton's initial
indirect economic interest in OML 18 to 45% through the Eroton OML
18 Transactions. Subject to the entry into and utilisation of the
New Eroton Debt Facilities and the Eroton OML 18 Transactions
occurring, the MLPL Reorganisation will result in San Leon
increasing its indirect economic interest in Eroton from 39.2% to
98.0% resulting in San Leon's initial indirect economic interest in
OML 18 increasing from the current 10.58% to 44.1%.
It is emphasised that the MLPL Reorganisation is conditional,
amongst other things, on the entry into and the utilisation of the
New Eroton Debt Facilities and the Eroton OML 18 Transactions
completing. Whilst the Terms of the New Eroton Debt Facilities have
been approved by the lead lender, Afreximbank, and the Sahara OML
18 Acquisition Agreement has been negotiated but is not expected to
be entered into until after the New Eroton Debt Facilities have
been entered into and the funds are available and the Bilton OML 18
Acquisition Agreement has been executed, subject to certain
conditions, they are dependent on, inter alia, the New Eroton Debt
Facilities being entered into and becoming unconditional and being
utilised. Furthermore, the New Eroton Debt Facilities have not yet
been entered into and once entered into will be subject to
additional conditions to drawdown which will have to be satisfied
prior to utilisation of the facilities and for the entry into and
completion of the Sahara OML 18 Transaction and the Bilton OML 18
Transaction. These matters are not under the Company's control.
Accordingly, there is no certainty that the New Eroton Debt
Facilities will be entered into or that the Eroton OML 18
Transactions will proceed or that any of them will proceed on the
currently proposed terms. Only once the Eroton OML 18 Transactions
complete and the other conditions to the MLPL Reorganisation have
been satisfied will the Company be able to proceed with the MLPL
Reorganisation and Re-Admission. There can therefore be no
guarantee that the MLPL Reorganisation and Re-Admission will
occur.
THE POTENTIAL EFFECT ON THE COMPANY IN THE EVENT THAT THAT THE
EROTON OML 18 TRANSACTIONS, THE MLPL REORGANISATION AND
RE-ADMISSION DO NOT OCCUR IS SET OUT IN PARAGRAPH 3.1 OF PART 2 OF
THIS DOCUMENT.
Following completion of the Eroton OML 18 Transactions (if the
New Eroton Debt Facilities and the Sahara OML 18 Transaction are
entered into) and the MLPL Reorganisation, San Leon's initial 44.1%
economic interest in OML 18 will be subject to reduction upon
meeting the following conditions:
(i) from the date of repayment of the original purchase price*
plus accrued interest accrued thereon until 20 million barrels of
gross OML 18 production is realised, Bilton's economic interest in
Eroton will increase from 2% to 10%, which would result in a
commensurate decrease in San Leon's economic interest in OML 18 to
40.5%; and
(ii) thereafter, when subsequent production hurdles are met,
Bilton's net economic interest in Eroton will increase
incrementally until cumulative gross OML 18 production reaches 40
million barrels, at which point San Leon's economic interest in OML
18 would be 22.5% as Bilton and San Leon's economic interests in
Eroton shall reflect their shareholdings (50% and 50%
respectively).
* Being US$1.1 billion the price paid for the 45% interest in
OML 18 in March 2015.
Further details of the Eroton OML 18 Transactions and the MLPL
Reorganisation, including details of the material contracts that
shall effect the Eroton OML 18 Transactions and the MLPL
Reorganisation, can be found in Part 2 of this Document.
In addition to the ELI Reorganisation, through a series of
transactions the Company proposes to further increase its interest
in ELI. These Further ELI Investments comprise the following:
1. Walstrand Acquisition and Option - On 24 June 2021, the
Company announced the further conditional purchase of an interest
in ELI, namely, that the Company will pay US$2,000,000 for 5,159
ELI Shares and receive an option to purchase an additional stake of
16,777 ELI Shares for US$6,500,000 prior to 31 December 2022. As at
the date of this Document the transfer of 5,159 ELI Shares is
pending the ELI Shareholder Consent which the Board wishes to
obtain upon completion of the Ocean Pearl ELI Acquisition or a
waiver of the requirement for consent being obtained. As at the
date of this Document, the option to acquire the additional 16,777
ELI Shares has not been exercised by the Company but is proposed to
be in Q3 2022.
2. February 2022 Loan and Subscription - In February 2022, San
Leon advanced US$2,000,000 to ELI by way of a loan and Walstrand
agreed to transfer 7,800 ELI Shares to San Leon. As at the date of
this Document, the transfer of the 7,800 ELI Shares is pending ELI
Shareholder Consent which the Board wishes to obtain upon
completion of the Ocean Pearl ELI Acquisition or a waiver of the
requirement for consent being obtained.
3. New ELI Loan and New ELI Subscription - The Company has
conditionally agreed to make a new loan to ELI of US$16,000,000 at
a coupon of 14% per annum over four years, and repayable quarterly
following a one-year moratorium, which will be accompanied by San
Leon subscribing for a further 48,748 new ELI Shares at nominal
value, subject to ELI Shareholder Consent which the Board wishes to
obtain upon completion of the Ocean Pearl ELI Acquisition or a
waiver of the requirement for consent is obtained. The relevant
documents are with the parties for signing.
4. Ocean Pearl ELI Acquisition - On 8 July 2022, the Company
announced the further conditional purchase of an interest in ELI,
namely, that the Company will pay US$15,000,000 for 52,647 ELI
Shares currently held by Ocean Pearl.
Assuming completion of the ELI Reorganisation and each of the
Further ELI Investments set out above, San Leon will become the
largest shareholder in ELI, with its stake comprising 228,548 ELI
Shares representing 50.6 per cent of ELI's issued share capital.
San Leon will also become a significant lender to ELI with a total
of US$48.3 million (principal) owed by ELI to the Company.
On 8 July 2022, the Company entered into the New Facility the
purposes of funding its working capital requirements and financing
the Further ELI Investments, details of which can be found at
paragraph
10.22 of Part 12 of this Document.
Whilst there are a number of conditions to the ELI
Reorganisation, and whilst the ELI Reorganisation is conditional
upon the MLPL Reorganisation occurring, the Further ELI Investments
are not conditional upon each other or the completion of the ELI
Reorganisation or Re-Admission.
Further details of the Further ELI Investments can be found in
Part 3 of this Document.
3. Reasons for the Proposed Transactions and Strategy of the Company
San Leon is committed to the long-term development of its
Nigerian assets, with a focus of delivering value to Shareholders.
This is driven by its technical expertise and operational
capabilities.
It is the Board's belief that the MLPL Reorganisation and the
ELI Reorganisation, together with the Further ELI Investments, are
expected to have the following benefits for the Company and its
shareholders:
-- the consolidation of Midwestern's holdings in the Company and
MLPL into a single holding in the Company in conjunction with the
Eroton OML 18 Transactions, allows the Company to increase its
economic exposure to OML 18;
-- increasing the Company's economic interests in ELI will
complement the Company's proposed 100% interest in MLPL, as the
ACOES is being constructed to provide a dedicated oil export route
from OML 18 and therefore for the benefit of MLPL, including the
expected reduction of pipeline losses and increasing the uptime for
export;
-- San Leon's larger presence by virtue of its activities,
resources and commitments, will pave the way for the Company to
become a significant participant in the Nigerian oil and gas
market, thereby better positioning the Company to deliver value for
shareholders; and
-- increasing the Company's technical and management involvement
in the OML 18 asset, serving to help optimise the development of
the asset. This has been formalised through the Asset Management
Agreement.
Each of these benefits is expected to contribute to the
Company's main objectives which are to:
-- use the Company's interest in OML 18 as a platform to become
a leading independent production and exploration company focused on
Nigeria and West Africa - by securing and developing further high
potential asset opportunities that yield value for
shareholders;
-- use the Company's technical and operational expertise in
securing production and near-term operating cash flow which will
yield value to shareholders whilst continuing to forge close links
with governments, partners and the local communities that it
operates in; and
-- continuing to position the Company for further transactions.
All of the MLPL Reorganisation and ELI Reorganisation, together
with the Further ELI Investments, are considered by the Directors
to represent transformational transactions for the Company. The
Board appreciates that Eroton and OML 18 currently face a number of
challenges, several of which are intended to be overcome via the
refinancing of the Existing Eroton Debt Facility by the New Eroton
Debt Facilities, the completion of the Eroton OML 18 Transactions
and the associated Settlement Agreement and the ACOES coming into
full operation. Further details of these key challenges can be
found in paragraphs 4(b), (c) and (d) of this Part 1 and in Part 4
of this Document.
The Board are of the view that the Eroton OML 18 Transactions
and New Eroton Debt Facilities are important for several reasons,
including:
(i) the Eroton OML 18 Transactions underpin the valuation and
rationale of the MLPL Reorganisation by delivering, indirectly, to
San Leon a far greater interest in OML 18 than is currently held by
Eroton;
(ii) the Sahara OML 18 Transaction resolves a series of disputes
that have arisen between Eroton and its OML 18 joint venture
partner, Sahara. Several of these disputes have developed into
legal actions (the "Eroton Litigation"), although none are
currently being actively pursued, and all legal actions between
Eroton and Sahara will be extinguished as part of the Sahara OML 18
Transaction, thereby enabling Eroton to focus on the commercial
development of OML 18 as a world class oil and gas field; and
(iii) the New Eroton Debt Facilities are a condition to and are
necessary to fund the Eroton OML 18 Transactions and also enable
the Existing Eroton Debt Facility with GTB to be refinanced.
If the New Eroton Debt Facilities are not entered into or once
entered into do not complete or the conditions to drawdown are not
satisfied and/or the Eroton OML 18 Transactions do not complete
then the MLPL Reorganisation cannot complete. The New Eroton Debt
Facilities and the Eroton OML 18 Transactions are not in the
Company's control and even if shareholders approve the Resolutions,
they may not occur. In any of these cases then San Leon would
retain a 40% equity interest in MLPL with Midwestern continuing to
own the remaining interest in MLPL and Eroton would retain a 27%
economic interest in OML 18, meaning that San Leon would continue
to have a 10.58% initial indirect economic interest in OML 18. The
outstanding MLPL Loan Notes would become payable by MLPL (or by
Midwestern as guarantor of the MLPL Loan Notes) to San Leon within
90 days of termination of the MLPL Reorganisation Agreement.
The New Eroton Debt Facilities and the Eroton OML 18
Transactions are also important to the future financial condition
of Eroton, and given the Company's significant focus on OML 18 and
its operator Eroton, the failure of the New Eroton Debt Facilities
and the Sahara OML 18 Transaction to complete, could have a
material and adverse effect on Eroton, with a consequent adverse
effect on the Company's business, financial condition and
results.
Further details of the Eroton Litigation are set out in
paragraph 4(d) of this Part 1 and in paragraph 3.4 of Part 2 of
this Document and the risks around the Existing Eroton Debt
Facility and the importance of the New Eroton Debt Facilities are
described in paragraph 2.1 of Part 4 of this Document.
4. Information about OML 18
(a) Background to OML 18
The OML 18 block lies within the Eastern swamp region of the
southern part of the Niger Delta in Rivers state, Nigeria and
covers an area of 1,035 km2. The current licence will expire on 21
October 2038, having been renewed in 2018. It cuts across the
entire Cawthorne Channel and Alakiri districts and a section of
Awoba on the boundary between OML 18 and OML 24. Nine fields have
been discovered in the block to date being: Akaso, Alakiri,
Asaritoru, Awoba, Bille, Buguma Creek, Cawthorne Channel, Krakama,
and Orubiri.
The Awoba field straddles the OML 18 licence boundary with OML
24, operated by Newcross Exploration and Production Limited. Whilst
Newcross operate Awoba, 50% of the field's costs and production are
allocated to OML 18 based on a 'pre-unitization' agreement which
was signed on 17 December 2018 between NNPC, Eroton and
Newcross.
Original In-place volumes (mid case) in the OML 18 assets are
estimated at approximately 3,804 million stb (oil and condensate)
and 9,836 Bscf of gas, which includes both associated gas (gas
which is produced with oil) and non-associated gas (produced from
dedicated gas wells). To date, 155 wells have been drilled on the
OML 18 block (excluding the 'water wet' wells drilled in Buguma
South, Bakana and Minama).
(b) San Leon's interest in OML 18
The parties in the above OML 18 shareholding structure are as
follows.
-- NNPC: The Nigeria National Petroleum Corporation is the state oil corporation of Nigeria.
-- Eroton:
o Eroton Exploration and Production Company Limited is the
current operator of OML 18 and has a 27% interest in the OML 18
licence. Pursuant to the Eroton OML 18 Transactions, it is
anticipated that Eroton's interest in OML 18 will rise to 45%.
o Eroton is an independent energy company based in Nigeria,
focused on the full cycle from exploration to development of oil
and gas. It was incorporated in 2013 to acquire the 45% interest in
OML 18 from Shell, Total and Eni, a transaction that was completed
in March 2015. The divestment was part of Shell's strategic review
of its onshore portfolio in Nigeria and was in line with the
Government of Nigeria's aim of developing Nigerian companies in the
country's upstream oil and gas sector.
o Eroton's principal asset is its 27% economic interest in OML
18 following a transfer of an 18% economic interest to Sahara and
Bilton following the purchase in 2015. It also has a 'non operated
venture partnership' with Newcross E & P Company Limited, as
the operator of the Awoba field, which straddles OML 18 and OML 24,
on a 50:50 equity ratio. NNPC has the remaining 55% economic
interest in OML 18.
o The oil from OML 18 is processed for export, whilst, in the
ordinary course, the gas from OML 18 is intended to be sold to the
Nigerian domestic gas market, with its principal customer being
Notore Chemical, the owner of a local fertiliser plant, pursuant to
a long term 'take or pay' offtake agreement. In recent years, sales
of gas to Notore Chemical have not always occurred in line with the
terms of the Notore Offtake Agreement and Notore Chemical is
significantly in arrears in relation to payment. When such sales of
gas occur as contemplated these will satisfy Eroton's DSO of gas
under Nigerian law.
o The Eroton board and senior leadership team is an experienced
team led by non-executive chairman, Mr Onajite Okoloko. Mr Okoloko
acts as the Chairman of the board of Eroton, in addition to his
roles as Chairman of Midwestern and non-executive director of
Notore Chemical.
o Eroton has over 150 employees, with its operations being based
in the Rivers state and its commercial headquarters being based in
Lagos state. Eroton has general memorandum of understandings with
five clusters of host communities in the area where OML 18 is
based, as part of its commitment to commodity development and a
general partnership with the local communities.
o Eroton entered into the Existing Eroton Debt Facility on 18
December 2018 between Eroton (as the borrower) and GTB (as the
lender, agent, arranger and security trustee) details of which are
set out in paragraph 10.24.8 of Part 12 of the Document. The
Existing Eroton Debt Facility is secured by way of an all assets
debenture (including the OML 18 licence) dated 21 December 2018
between Eroton (as chargor) and GTB (as security trustee), an deed
of security assignment dated 21 December 2018 between Eroton (as
chargor) and GTB (as security trustee), an deed of share charge
dated 21 December 2018 between Eroton (as borrower), Martwestern
(as shareholder) and GTB (as security trustee) and an undated deed
of share charge between Eroton (as borrower), Bilton (as
shareholder) and GTB (as security trustee). The Existing Eroton
Debt Facility is governed by English law. Further details in
relation to the Existing Eroton Debt Facility can be found in
section (d) of this section 4 of Part 1.
-- Sahara: OML 18 Energy Resource Limited is a Nigerian company
privately-owned by Sahara Field Production 18 Limited ("Sahara")
and Sahara Charitable Foundation. Sahara currently holds an
effective 16.2% economic interest stake in OML 18, which will be
transferred in whole to Eroton via the proposed Sahara OML 18
Transaction which has been negotiated but has not yet been executed
as the New Eroton Debt Facilities have not yet been executed.
-- Bilton: Bilton Energy Limited is an indigenous company whose
entry costs into OML 18 were carried by certain partners. Mr
Adekolapo Ademola, a non-executive director of San Leon, has a 44%
ownership interest in Bilton and is a director of Bilton. Bilton
has a 1.8% indirect economic interest in OML 18 held by its 100%
owned subsidiary Bilton OML 18 Limited, which will be transferred
in whole to Eroton via the Bilton OML 18 Transaction. The Bilton
OML 18 Transaction has been entered into but is subject to certain
conditions including that the Sahara OML 18 Transaction (which has
been negotiated but has not been signed and is itself conditional
upon the entry into and utilisation of the Eroton New Debt
Facilities) becomes unconditional. Bilton also has a 50% voting
interest in Eroton (Martwestern holds the remaining 50%) with a 2%
initial economic interest in Eroton, which will remain unchanged by
the Bilton OML 18 Transaction.
-- Martwestern: Martwestern Energy Limited is a Nigerian company
100% owned by MLPL. Martwestern owns 50% of the voting interests in
Eroton (Bilton owns the remaining 50%). Martwestern has a 98%
initial economic interest in Eroton.
-- MLPL: Midwestern Leon Petroleum Limited is a
Mauritian-incorporated special purpose vehicle, which, as at the
date of this Document, is 40% owned by San Leon with the remaining
60% held by Midwestern. Following completion of the MLPL
Reorganisation, MLPL will be owned 100% by San Leon. MLPL is the
100% shareholder of Martwestern and therefore holds the combined
OML 18 interest of both San Leon and Midwestern. MLPL is also the
borrower in respect of the MLPL Loan Notes, further information
regarding which can be found in paragraph 6 of this Part 1 and
paragraph 4.2 of Part 2 of this Document.
-- Midwestern:
o Midwestern is an independent Nigerian exploration and
production company with a portfolio of hydrocarbon assets. The
company was established in 2001 and commenced its upstream
activities in 2005.
o Midwestern is owned by Mr Onajite Okoloko, together with other
individuals and entities and the Delta State Government of Nigeria.
Mr Okoloko is the Chairman of the board of Midwestern.
It is emphasised that the MLPL Reorganisation is conditional,
amongst other things, on the entry into and the utilisation of the
New Eroton Debt Facilities and the Eroton OML 18 Transactions
completing. Whilst the Terms of the New Eroton Debt Facilities have
been approved by the lead lender, Afreximbank and the Sahara OML 18
Acquisition Agreement has been negotiated but is not expected to be
entered into until after the New Eroton Debt Facilities have been
entered into and the funds are available and the Bilton OML 18
Acquisition Agreement has been executed, subject to certain
conditions, they are dependent on, inter alia, the New Eroton Debt
Facilities being entered into and becoming unconditional and being
drawn down. Furthermore, the New Eroton Debt Facilities have not
yet been entered into and once entered into will be subject to
additional conditions to drawdown which will have to be satisfied
prior to utilisation of the facilities and for the entry into and
completion of the Sahara OML 18 Transaction and the Bilton OML 18
Transaction. These matters are not under the Company's control.
Accordingly, there is no certainty that the New Eroton Debt
Facilities will be entered into or that the Eroton OML 18
Transactions will proceed or that they will proceed on the
currently proposed terms. Only once the Eroton OML 18 Transactions
complete and the other conditions to the MLPL Reorganisation have
been satisfied will the Company be able to proceed with the MLPL
Reorganisation and Re-Admission. There can therefore be no
guarantee that the MLPL Reorganisation and Re-Admission will
occur.
(c) Other OML 18 matters and background to the Eroton Sahara OML 18 Transaction
As the operator of OML 18, Eroton may incur the costs of capital
expenditure and operating expenditure in relation to OML 18 on
behalf of its joint venture partners and recover this via a cash
call arrangement pursuant to the JOA after the amounts have been
reconciled. The Directors understand that Eroton's ability to
pre-fund capital expenditure and operating expenditure in relation
to OML 18 on behalf of its joint venture partners is a key
requirement for Eroton's role as operator and represents a
significant component of Eroton's working capital requirements.
Funding requirements of this nature would normally have been
approved in advance as part of an annual budget or specific work
progress, although the Directors understand that Eroton has faced
issues with being able to agree the OML 18 budget with its joint
venture partners.
As at 30 April 2022, Eroton had unaudited receivables of
approximately US$104.57 million from its OML 18 joint venture
partners, being Sahara, Bilton and NNPC, in relation to unpaid
joint venture cash calls. No amounts in relation to such
receivables have been received since 30 April 2022 but outstandings
continue to accrue. Of this, approximately US$66.84 million
represents amounts receivable from Sahara and Bilton which are to
remain outstanding as intercompany balances (within the Enlarged
Group) and approximately US$37.72 million represents amounts
receivable from NNPC, which the Directors are informed the majority
of which is expected to be recovered from NNPC in due course after
the necessary reconciliations, although there may be instances
where NNPC disagrees, disallows or requests a revision of costs
presented by Eroton.
(d) Eroton Litigation and Existing Eroton Debt Facility
The Directors understand that there are several disputes,
principally between Sahara and Eroton, which, among other things,
relate to: (i) indebtedness and delayed payments for gas under the
Notore Offtake Agreement; (ii) the agreement of budgets for the
operation of OML 18; (iii) disputes in respect of various legacy
issues regarding the acquisition of OML 18 and disputes regarding
the operation of OML 18 including cash calls; and (iv) disputes in
relation to various alleged payments in relation to shares of
profits from OML 18.
Notwithstanding the joint lifting arrangements in respect of OML
18 (which are currently still in effect), the Directors understand
that in 2020 Sahara started lifting directly according to their
interest in the OML 18 field.
A consequence of these disputes has been the Eroton Litigation,
being a number of litigation claims and/or counterclaims and other
legal actions involving Eroton, Bilton, Sahara and Notore Chemical,
which are detailed in paragraph 3.4 of Part 2 of this Document,
with the potential risks of these actions being considered in
paragraph 2.2 of the Risk Factors laid out in Part 4 of this
Document.
Given these disputes, the exit of Sahara from OML 18 has been
agreed in principle (although the Sahara OML 18 Acquisition
Agreement has been negotiated but has not yet been executed),
subject to the entry into and utilisation of the Eroton New Debt
Facilities, which is intended to be effected by the Sahara OML 18
Transaction, which is to occur in connection with the Settlement
Agreement to effect the settlement of the aforementioned litigation
and legal actions. The Directors therefore believe that completion
of the Sahara OML 18 Transaction will assist with enabling Eroton
to focus on the commercial development of OML 18.
On 18 December 2018, Eroton (as the borrower) and GTB (as the
lender, agent, arranger and security trustee) entered into the
Existing Eroton Debt Facility, a US$250,000,000 term loan facility
agreement, details of which are set out in paragraph 10.24.8 of
Part 12 of this Document.
Eroton has not complied with all of the conditions in the
Existing Eroton Debt Facility, including disruptions to the
repayment schedule and provision of loan covenant compliance
information, which could give rise to a right of GTB to call an
event of default or enforce security granted to it. The potential
risks of these actions are considered in paragraph 2.1 of the Risk
Factors laid out in Part 4 of this Document. The Board understands
that no such actions have been brought by GTB thus far, and the
intention is that the Existing Eroton Debt Facility will be
refinanced using some of the funds to be drawn from the New Eroton
Debt Facilities, should such facilities be entered into. Subject to
completion of the New Eroton Debt Facilities, the New Eroton Debt
Facilities will replace the Existing Eroton Debt Facility, which
will be repaid in full and GTB's security in connection with the
Existing Eroton Debt Facility will be discharged.
If the New Eroton Debt Facilities are not entered into or once
entered into does not complete or the conditions to drawdown are
not satisfied and/or the Eroton OML 18 Transactions do not complete
then the MLPL Reorganisation cannot complete. The New Eroton Debt
Facilities and the Eroton OML 18 Transactions are not in the
Company's control and even if shareholders approve the Resolutions,
they may not occur. In any of these cases then San Leon would
retain a 40% equity interest in MLPL with Midwestern continuing to
own the remaining interest in MLPL and Eroton would retain a 27%
economic interest in OML 18, meaning that San Leon would continue
to have a 10.58% initial indirect economic interest in OML 18. The
outstanding MLPL Loan Notes would become payable by MLPL to San
Leon within 90 days of termination of the MLPL Reorganisation
Agreement.
The New Eroton Debt Facilities and the Eroton OML 18
Transactions are also important to the future financial condition
of Eroton, and given the Company's significant focus on OML 18 and
its operator Eroton, the failure of the New Eroton Debt Facilities
and the Sahara OML 18 Transaction to complete, could have a
material and adverse effect on the Company's business, financial
condition and results.
Whilst the Sahara OML 18 Acquisition Agreement has been
negotiated it is not expected to be entered into until after the
New Eroton Debt Facilities have been entered into and the funds are
available and it is therefore dependent, inter alia, on the New
Eroton Debt Facilities being entered into and becoming
unconditional and being drawn down. Furthermore, the New Eroton
Debt Facilities have not been entered into and once entered into
will be subject to additional conditions to drawdown which will
have to be satisfied prior to utilisation of the facilities and for
entry into and completion of the Sahara OML 18 Transaction. These
matters are not under the Company's control. There can be no
certainty that: i) the New Eroton Debt Facilities will be entered
into; ii) or that the Sahara OML 18 Transaction will proceed; iii)
or the Settlement Agreement will be entered into or the terms on
which any of them will be entered into or that they will proceed on
the currently proposed terms. There can therefore be no guarantee
that the MLPL Reorganisation and Re-Admission will occur.
In addition, in the event that the Eroton OML 18 Transactions,
the MLPL Reorganisation and Re-Admission do not occur, the Eroton
Litigation is likely to continue (details of which is set out in
paragraph 3.4 of this Part 2 and further details of the risks
around the Eroton Litigation are set out in paragraph 2.2 of Part 4
of this Document.
Other Litigation
In addition to the Eroton Litigation, there are various claims
and debt recovery actions involving Eroton, which can be considered
to generally be of the nature usually encountered by oil
exploration and production companies in Nigeria. These broadly fall
into two categories and the most material of which summarised
below:
Claims made against Eroton
A number of actions have been made against Eroton by local
communities in and around OML 18 ("Host Communities"), specifically
claiming that such Host Communities have suffered loss as a result
of alleged spills. The relevant Host Communities in these cases
generally seek significant monetary compensation for the alleged
damage caused to their communities and livelihood, e.g. fishing.
Eroton considers these claims lacking in merit on the basis that:
(a) it has no record of the spills alleged to have occurred on the
specific dates and (b) the spills are alleged to have occurred in
relation to crude oil transported within the NCTL, which carries
crude from a number of oil fields and is not exclusively used by
Eroton. Accordingly, Eroton is vigorously contesting these
claims.
Local Host Community Claims
Eroton has entered into various memoranda of understanding
("MoUs") with a number of Host Communities. There are numerous
cases between these Host Communities, seeking either (a)
recognition and inclusion within one of the MoUs or (b) for Host
Communities that are already part of a MoU, changes to the sharing
formulae used to divide monies paid by Eroton under such MoU (in
order to obtain a larger share of such monies). In both cases
Eroton is named as a co-defendant due to having entered into an MoU
as the operator of OML 18, so that any judgment will also be
binding on Eroton. However, these cases do not increase Eroton's
exposure, they only affect the allocation of the monies it has
already agree to pay under the MoUs. Furthermore, under the PIA the
law relating to Host Community relations will change by the end of
August 2022 rendering a number of these claims irrelevant.
It should be noted that the aforementioned other litigation
matters will not be prospectively remedied by the Settlement
Agreement.
Environmental issues
There are certain environmental issues, relating to the
expiration of approvals and engagement with local communities that
the Company has been made aware of, in respect of Eroton and its
oil exploration activities in relation to OML 18.
Expired approvals
Eroton operates OML 18 with the benefit of certain approvals,
including Environmental Evaluation Study ("EES") approvals.
The EES approvals for OML 18 have expired. Eroton is in the
process of renewing these approvals as they are a requirement under
the Environmental Guidelines and Standards of the Petroleum
Industry in Nigeria ("EGASPIN"). Under EGASPIN, a person or body
corporate (and the management of a body corporate) operating under
an OML without any such approval may have that OML revoked (as well
as being at risk of criminal sanctions including imprisonment
and/or liability to pay fines).
Under EGASPIN, Eroton is also required to maintain Environmental
Social Impact Assessment Report ("ESIA") approvals for the Akaso,
Alakiri and Cawthorne channel fields within OML 18.
The status of the ESIA approvals in respect of the
above-mentioned fields are as follows:
-- NUPRC previously approved the ESIA report for the Akaso
field, and the approval remained valid until 3 March 2022.
Accordingly, the approval is now out of date and a new ESIA report
and approval in respect of the Akaso field is required; and
-- NUPRC has not approved the ESIA reports for the Alakiri and
Cawthorne channel fields due to the expired environmental data
submitted by Eroton. Although the revalidation of the required
field data has commenced and sampling for two seasons has been
planned for Q2 - Q4, 2022, the ESIA approval for these fields is
currently outstanding.
Accordingly, Eroton is required to obtain up to date ESIA report
approvals for the Akaso, Alakiri and Cawthorne channel fields and a
failure to do so could lead to enforcement action by the relevant
authorities in Nigeria, which could result in a material adverse
effect on the Eroton's business, operations, financial performance
and cash flow and future prospects and the market price of the
Ordinary Shares may be affected.
Local host communities
Eroton has engaged with various local communities in the area
surrounding the location in where it carries out its oil
exploration activities. As a result of the passing of the Petroleum
Industry Act 2021 ("PIA") which entered into force in Nigeria on 16
August 2021, Eroton is required to establish certain funds for the
economic benefit of such communities. A summary of those
obligations is set out below:
-- Eroton is required to, and has commenced the establishment
of, a decommissioning and abandonment fund (the "Fund"). However,
the provisions of the PIA require that the Fund be set up and
monies standing to the credit of the Fund to be placed in an escrow
account within 12 months of the Effective Date of the PIA, the
deadline for such action being 15 August 2022.
-- Eroton is also required to establish a host community
development trust (the "Trust") within 12 months of the Effective
Date of the PIA, the deadline for such action being 15 August 2022.
Eroton is still in the process of developing a road map for
establishing the Trust, however it has made the relevant budgetary
provision (3% of operating expenses) as stipulated under the PIA to
comply with the requirement of the Fund. Nonetheless, Eroton has
not yet complied with this requirement under the PIA.
Failure to comply with the provisions of the host community and
decommissioning obligations under the terms of an OML and the
provisions of the PIA is a ground for the revocation of the
relevant OML, so if Eroton should not meet the deadline specified
above it will be at risk of forfeiting its right to operate OML 18,
which could result in a material adverse effect on the Eroton's
business, operations, financial performance and cash flow and
future prospects and the market price of the Ordinary Shares may be
affected.
(f) Production Summary
Peak production levels of over 100,000 stb/d and 200 MMscf/d
were achieved from OML 18 in the early 1970s and early 1990s,
respectively. Cumulative production from the OML 18 fields
(including the 50% interest in Awoba) was approximately 1,099 MMstb
(including Alakiri condensate) and 1,994 Bscf of gas, as of 31
December 2021. Table 2 below shows a summary of the OML 18
production history by field up to the end of 2021.
Table 2: OML 18 Field Production Status & Production Summary
(Gross on Licence)
Current Oil Cum Gas
First Status/ (MMstb) Cum (Bscf)
Discovered Production Last
Production
Year Number 31-Dec- 2021
of Wells
Field Drilled Operator
=============================== ============================
Cawthorne
Channel 1963 1970 Producing 52 667.0 992.9 Eroton
============= ================ ============= =========== ============ ============== ===========
Akaso 1979 1980 Producing 17* 134.1 186.5 Eroton
============= ================ ============= =========== ============ ============== ===========
Alakiri 1959 1970 Producing 37 112.7 588.6 Eroton
============= ================ ============= =========== ============ ============== ===========
Awoba (50%)** 1981 1992 Producing 9/4*** 81.2 104.8 Newcross
============= ================ ============= =========== ============ ============== ===========
Krakama 1958 1972 Producing 16 48.4 34.9 Eroton
============= ================ ============= =========== ============ ============== ===========
Orubiri 1971 1973 Producing 12 33.3 35.6 Eroton
============= ================ ============= =========== ============ ============== ===========
Buguma Creek 1960 1972 Dec- 2000 10 18.8 47.0 Eroton
============= ================ ============= =========== ============ ============== ===========
Asaritoru 1990 1992 Aug- 2000 1 3.4 3.8 Eroton
============= ================ ============= =========== ============ ============== ===========
Bille 1971 - - 1 - - Eroton
============= ================ ============= =========== ============ ============== ===========
TOTAL 155/150 1,099 1,994
================ ============= =========== ============ ============== ===========
Source: PetroVision Energy Services Limited CPR - Table 1-2 on
page 165 of this Document
* Includes recently drilled Akaso-15, Akaso-16, and Akaso-17
(not tied-in yet).
** Awoba straddles OML 18 and OML 24. 50% of the Awoba
production is allocated to OML 18 as shown in the table. The
production figures are based on production reports from the
Operator and the previous operator and do not account for any
potential unreported production losses e.g., due to theft.
*** Nine wells have been drilled in Awoba but only four of them
are within in the OML 18 block area.
Average production (gross on licence) recorded in December 2021
for the OML 18 asset (including 50% of Awoba) is about 15,750 bopd
(plus water at a water cut of 42%), and about 56 MMscf/day of gas.
The last period of fully active field management of OML 18 was
during Q1 2020, prior to constraints resulting from the global
COVID-19 pandemic, OPEC restrictions, preparation for the ACOES and
budgetary challenges (particularly in the face of escalating
pipeline losses on NCTL, due to crude oil theft, illegal oil
bunkering, and pipeline vandalism). As a result of these
operational limitations, by January 2021 total asset production had
declined to circa 34,000 bopd (pre losses).
From March 2021, even higher crude losses were being recorded on
the NCTL (80-90% of injected barrels) which encouraged Eroton to
adopt a strategy of minimising production and deferring well
activities pending the completion of the ELI owned ACOES.
This field management strategy resulted in an artificial drop in
gross production to circa 16 kbopd (pre- losses) by December 2021.
Petrovision, the competent person and author of the CPR, considers
this drop in production to be an inaccurate reflection of the full
potential of the asset on which to benchmark future performance
forecasts, particularly with the potential additional production
from Akaso-17 well, which was successfully drilled between Q4
2019/Q1 2020, with an extensive oil column, and ready to be tied-in
for production (currently estimated for Q2-2022). Petrovision has
therefore benchmarked the performance forecasts for the developed
reservoirs against the most recent period through which the fields
were fully operational and under active field management.
The performance of OML 18, in terms of average oil production
measured in bopd, improved from the point of its acquisition by
Eroton up until Q1 2020, representing a period during which the
asset was being actively managed, in full production and prior to
disruptions due to community payment delays, OPEC restrictions, ELI
preparations and recent minimal production mode, which occurred
from Q2 2020 onwards.
In terms of gas production, average gas sales in FY21 were 10.8
Bscf, compared with average gas sales of 50.0 and 32.7 Bscf in FY19
and FY20 respectively. Although the Notore Offtake Agreement is
principally a 'take or pay' offtake agreement, the Directors
understand that Eroton has not utilised the take or pay provisions
in the agreement and the agreement has not always performed in line
with the terms and the reduction in gas production was mainly
customer driven as Notore Chemical requests for gas based on the
consumption profile of its fertilizer plant. The Board understands
that the significant dips observed in gas sales is due to the
shutdown of Notore Chemical's fertilizer plant and consequently,
its inability to receive gas from the field. The major decline
observed in FY21 was due to an extended shutdown of the Notore
Chemical plant. The gross receivable from Notore in relation to gas
payments as at 31 December 2021 and as at 30 April 2022 was over
US$40 million and has continued to accrue since the end of April
2022.
Some of the gas produced from OML 18's Cawthorne oil wells has
been flared over previous years and this continues. Eroton's
accrued net position in respect of gas flaring penalties was US$7.2
million and US$1.3 million in FY20 and FY21 respectively.
Following completion of the MLPL Reorganisation, the Directors
intend to use San Leon's rights pursuant to the Asset Management
Agreement to review arrangements with respect to OML 18's gas
production and the offtake of gas, with a view to seeking
improvements to the performance and economics of such
arrangements.
Further production details for OML 18 can be found in paragraph
1.2 and 4 of the Competent Person's Report in Part 7 of this
Document.
(g) Current Crude Evacuation
OML 18 currently has four flow stations, one central gas
gathering plant and one non-associated gas plant. Oil produced from
Cawthorne Channel, Akaso and Alakiri has historically been
transported to Bonny Oil terminal via the NCTL.
The current handling capacity of the existing OML 18 facilities
is 180,000 bpd. The non-operated Awoba facility has a further
40,000 bpd capacity. Optimisation of the OML 18 facilities is
planned to capture additional volume, further details of which are
contained within the CPR.
Eroton had challenges evacuating crude oil due to significant
NCTL downtimes during FY19. Eroton did not lift oil volumes for six
months in FY20 and two months in FY21 partly due to NCTL
downtimes.
Further details of the current crude evacuation facilities at
OML 18 can be found in section 1.3 of the Competent Person's Report
in Part 7 of this Document.
Further information regarding the ACOES being constructed by ELI
can be found in paragraph 5 of this Part 1 of this Document.
(h) Current Gas Evacuation
There are three gas pipelines linked to OML 18
infrastructure.
Produced gas is typically exported from the Cawthorne Channel
and Alakiri to the Notore Chemical fertilizer plant.
Associated gas from the Cawthorne Channel is compressed in the
Cawthorne gas processing plant before evacuation to the Notore
Chemical fertilizer plant. The Cawthorne gas processing plant was
shut down prior to 2018, as this plant requires a stable operating
environment for oil production and cannot be run in a manner where
it comes online and offline due to the frequent shutdowns
experienced with the NCTL. The Directors understand that Eroton
plans for operations at the Cawthorne gas processing plant to
resume following the ACOES coming online.
The current gas processing capacity of the existing OML 18
facilities (including the Cawthorne gas processing plant) is 275
MMscf/d. A proposed gas development plan includes the undeveloped
NAG reserves in Awoba, Buguma Creek and Bille and requires
expansion of the gas processing facilities, further details of
which are contained within the CPR, located in Part 7 of this
Document.
Notore Chemical currently purchases the gas under a take or pay
arrangement under the Notore Offtake Agreement, pursuant to which
gas supplied to Notore Chemical from OML 18 is priced at
US$1.46/MMscf if used for fertilizer production and US$2.50/MMscf
if used for power generation at Notore Chemical's facility. The
gross receivable from Notore Chemical in relation to gas payments
as at 31 December 2021 and as at 30 April 2022 was over US$40
million and has continued to accrue since the end of April 2022.
The Notore Offtake Agreement is intended to satisfy Eroton's 2022
DSO which requires it to deliver a minimum of 55 MMscf/d of gas to
the Strategic Sectors which if not met incurs financial
penalties.
Further details of the Notore Offtake Agreement can be found in
paragraph 10.3.8 of Part 12 of this Document. Further details of
the DSO are set out in paragraph 2.15 of Part 5 of this
Document.
Further details of the gas evacuation facilities at OML 18 can
be found in section 2.1 of the Competent Person's Report in Part 7
of this Document.
Asset Development
Capital expenditure declined between 2019 and 2021 due to
several factors, including: Sahara's refusal to approve the 2021
budget; delays in obtaining vendor approval from National Petroleum
Investment Management Services; and the impact of the COVID-19
pandemic on operations and high NCTL losses and the significant
reduction in volume of crude delivery to the terminal. This led to
projects not being executed, and delays in execution of work
programs where financial commitments had already been made during
prior periods.
The main activities associated with the future development of
OML 18 fields include well workovers, interventions, new drilling,
artificial lift and secondary recovery via water injection (with
the added benefit of the planned infield dehydration). Three
forecast sensitivities have been evaluated: Proved (1P), Proved
& Probable (2P), and Proved, Probable & Possible (3P).
A combined total of one hundred and three notional new wells
have been proposed by Eroton for full development of the OML 18
fields, including non-associated gas NAG reservoirs. Eroton's
proposed development programme envisages a capital expenditure
budget of circa US$2.9 billion over the next 10 years, for both the
1P and 2P cases. This workover programme is expected to be
predominantly financed from OML 18's future cashflows. Mobilisation
of the Hydraulic Workover Unit (HWU) is currently estimated for Q4
2022 with the arrival of three drilling rigs anticipated in Q3
2023, Q3 2024 and Q3 2025 (for non-associated gas). An additional
twelve new wells have been estimated for the 3P case with an
associated cost of about US$300 million.
The total facilities development CAPEX required for the OML 18
asset is estimated by Petrovision at approximately US$549 million
and includes the gas capacity expansion to 500 MMscf/d, to
accommodate additional gas volumes from the Non-Associated Gas
(NAG) wells, and in-field dehydration, to reduce water handling and
transport requirements.
The oil development plan presented in the CPR is anticipated to
see oil production ramp up from the current approximately 16,000
stb/d to approximately 100,000 stb/d (gross on license and pre
downtime and losses) by 2026 in the mid case (2P) scenario. The gas
development is anticipated to take OML 18 gas production levels up
to 500 MMscf/d (gross on license and pre downtime and losses) by
2032.
Based on the development activities outlined in the CPR, the
forecasted 2P oil and gas technical recoveries (TR), which do not
incorporate an economic cut-off, are approximately 660 million stb
and 3,453 Bscf, respectively. This translates to 2P ultimate
recovery (EUR) from the OML 18 asset (including 50% of Awoba) of
approximately 1,759 MMstb oil (including condensate) and
approximately 5,447 Bscf of gas.
Further details of the Asset Development programme for OML 18
can be found in section 1.4 and 4 of the Competent Person's Report
in Part 7 of this Document.
(i) Reserves and Resources
Reserves
Table 3 below summarises OML 18's economic reserves per field
(being the forecasted technical recoveries less deductions for
production losses/downtime, economic limits, and utility/fuel for
gas). The economic reserves are presented both as gross on license
and indirect net economic interest attributable to San Leon (i.e.,
before deduction for royalty). The net attributable reserves were
allocated to SLE by field on an annualised pro-rated production
basis.
Table 3: OML 18's economic reserves per field
Gross SLE net attributable*
Proved, Proved,
Proved Proved Probable Proved Proved Probable
& & Possible & & Possible
Fields Status Probable Probable Operator
=========== ============ =========== ========== ============ ===========
Oil & Liquids Reserves (million bbls)
Cawthorne Producing 163.3 233.1 295.7 49.8 64.8 76.8 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Akaso Producing 27.6 58.2 92.0 7.8 17.1 25.6 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Alakiri Producing 47.8 75.2 127.1 16.1 21.8 32.7 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Krakama Producing 61.8 87.8 114.5 19.5 24.1 29.1 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Not
producing
Orubiri - Available 25.2 37.1 58.6 8.4 11.1 15.5 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Not
Buguma producing
Creek - Available 33.3 48.3 67.3 11.3 13.7 17.2 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Not producing
Asaritoru - Available 6.6 8.3 10.8 2.2 2.6 3.2 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Awoba (50%) Producing 38.0 53.4 83.9 11.7 14.0 20.1 Newcross
============= =========== ============ =========== ========== ============ =========== ==========
Bille Planned for Eroton
development
============= =========== ============ =========== ========== ============ =========== ==========
Total for
Oil & Liquids 403.5 601.4 849.7 126.9 169.3 220.1
=========== ============ =========== ========== ============ =========== ==========
Gas Reserves (Billion scf)
Cawthorne Producing 283.7 431.8 634.3 91.4 122.9 164.5 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Akaso Producing 115.2 273.1 458.0 35.8 81.9 127.0 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Alakiri Producing 484.5 674.2 1,190.0 160.4 202.1 314.0 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Krakama Producing 285.3 354.4 468.0 89.9 97.3 116.4 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Not producing
Orubiri - Available 99.4 156.1 260.6 35.6 47.8 67.7 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Buguma Not producing
Creek - Available 603.0 913.7 1,378.8 181.9 225.1 323.3 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Not producing
Asaritoru - Available 6.3 7.9 10.3 2.2 2.5 3.1 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Awoba (50%) Producing 268.9 453.8 914.2 78.6 112.8 210.7 Newcross
============= =========== ============ =========== ========== ============ =========== ==========
Planned for
Bille development 126.4 140.6 159.9 30.6 32.1 36.0 Eroton
============= =========== ============ =========== ========== ============ =========== ==========
Total for
Gas 2,272.7 3,405.6 5,474.2 706.3 924.5 1,362.9
=========== ============ =========== ========== ============ =========== ==========
Source: PetroVision Energy Services Limited CPR - Table 1-6 on
page 168 of this Document
* Post-completion of the MLPL Reorganisation, based upon 44.1%
economic interest in OML 18 until hurdles met.
Petrovision, the competent person and author of the CPR,
considers that these results show significant recoverable
(technical) oil and gas volumes remaining in OML 18 and the
existing well stock confirms good deliverability, high pressures
and generally favourable reservoir properties.
Contingent Resources
Table 4 below summarises the estimated contingent (unrisked) oil
and gas recoverable resources, post field development plan (FDP)
studies. These are generally constituted by reservoirs with
insufficient information to appropriately characterise and quantity
(well logs and/or fluid sampling data). The contingent resources
also include the recoverable volumes beyond the forecast cut-off
date (Jan-2060).
Table 4: OML 18 Oil & Gas Contingent Resources
Gross SLE net attributable*
Predominant
status of Low Best High Low Best High Estimated
Contingent Estimate Estimate Estimate Estimate Estimate Estimate Risk
Field Resource Factor Operator
============ ============ ============= =========== =========== ============
Oil & Liquids Contingent Resources - Unrisked (million bbls)
Largely
Cawthorne development
Channel not viable 9.5 12.2 14.0 2.1 2.7 3.2 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Largely
development
Akaso pending 9.6 11.8 13.4 2.2 2.7 3.0 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Largely
development
Alakiri not viable 6.2 8.8 11.6 1.4 2.0 2.6 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Largely
development
Krakama not viable 0.7 1.3 1.5 0.2 0.3 0.3 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Largely
development
Orubiri not viable 0.6 0.8 1.2 0.1 0.2 0.3 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Total for
Oil & Liquids 26.6 34.9 41.7 6.0 7.9 9.4
============ ============ ============= =========== =========== ============ ========== =========
Gas Contingent Resources - Unrisked (Billion scf)
Largely
Cawthorne development
Channel not viable 20.7 29.1 39.7 4.7 6.5 8.9 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Largely
development
Alakiri not viable 184.7 209.7 254.5 41.6 47.2 57.3 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Largely
development
Krakama not viable 1.0 1.4 1.3 0.2 0.3 0.3 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Largely
development
Orubiri not viable 0.9 2.3 3.0 0.2 0.5 0.7 0.7 Eroton
============ ============ ============ ============= =========== =========== ============ ========== =========
Total for
Gas 207.3 242.5 298.5 46.6 54.6 67.2
============ ============ ============= =========== =========== ============ ========== =========
Source: PetroVision Energy Services Limited CPR - Table 1-7 on
page 169 of this Document
* Post-completion of the MLPL Reorganisation
Current contingent resources for Akaso are based on proved
recoverable volumes from water injection (secondary recovery) which
was originally classified as proved reserves category, but are now
removed following the non-approval of the Akaso water injection
scheme by the regulatory body. However, Eroton is actively engaging
with the NUPRC to demonstrate the benefits of water injection in
the Akaso field.
Prospective and Lead Resources
Eroton has also identified thirty-nine exploration / appraisal
targets, comprising one discovery, thirty-six prospects and two
leads within and/or near existing fields on the OML 18 block that
were evaluated by PetroVision as part of the CPR. The estimated
gross prospective oil and gas resources for OML 18 are shown below
in Table 5. The low, best, and high cases were determined
probabilistically using range of uncertainties for each volumetric
parameter, such as GRVs, petrophysical properties, and PVT
properties.
Table 5: OML 18 prospective oil/liquids resources
Gross SLE Net attributable*
Total
No of Low Best High Low Best High
Exploration Estimate Estimate Estimate Estimate Estimate Estimate
/ Appraisal Risk
Near-field Targets Status Factor Operator
============= ============= ============= ============= ============= =============
Oil & Liquids Prospective Resources - Unrisked (million bbls)
Cawthorne
Channel 6 Prospect 22.0 92.0 268.4 5.0 20.7 60.4 0.4 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Akaso 3 Prospect 11.6 68.6 147.0 2.6 15.4 33.1 0.3 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Alakiri 6 Prospect 16.9 110.6 465.8 3.8 24.9 104.8 0.6 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Krakama 3 Prospect 23.8 112.9 366.2 5.4 25.4 82.4 0.2 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Orubiri 4 Prospect 9.6 31.5 145.0 2.2 7.1 32.6 0.3 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Asaritoru 3 Prospect 4.4 33.6 117.6 1.0 7.6 26.5 0.4 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Bakana 3 Prospect 2.5 8.6 23.4 0.6 1.9 5.3 0.2 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Buguma
East ** 1 Prospect 2.5 14.9 49.9 0.6 3.4 11.2 0.3 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Minama
East 1 Prospect 3.1 21.3 95.1 0.7 4.8 21.4 0.3 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Tema 1 Appraisal+ 4.4 8.2 14.2 1.0 1.8 3.2 1.0 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Awoba
** 2 Prospect 0.0 1.0 7.0 0.0 0.2 1.6 0.2 Newcross
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Bille 2 Prospect 22.9 51.0 106.4 5.2 11.5 23.9 0.2 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Calabar
River
South 1 Lead 34.4 70.6 143.0 7.7 15.9 32.2 0.0 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Calabar
River
SE 1 Lead 40.3 62.5 94.2 9.1 14.1 21.2 0.1 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Idama** 1 Prospect 1.5 5.9 15.9 0.3 1.3 3.6 0.3 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Isia 1 Prospect 2.4 16.5 65 0.5 3.7 14.6 0.3 Eroton
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Total
for Oil
/
Liquids 39 202.3 709.7 2,124.1 45.5 159.7 477.9
============= ========== ============= ============= ============= ============= ============= ============= ========= ==========
Source: PetroVision Energy Services Limited CPR - Table 1-8 on
page 170 of this Document
* Post-completion of the MLPL Reorganisation
** OML 18 area only
+ Tema is a discovery, hence no risk associated with discovery.
The field is subject to further appraisals.
Table 6: OML 18 prospective gas resources
Gross SLE Net attributable*
Total
No of Low Best High Low Best High
Exploration Estimate Estimate Estimate Estimate Estimate Estimate
/ Appraisal Risk
Near-field Targets Status Factor Operator
============= ============= ============= ============= ============= =============
Gas Prospective Resources - Unrisked (Billion scf)
Cawthorne
Channel 6 Prospect 89.3 371.0 1,069.8 20.1 83.5 240.7 0.4 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Akaso 3 Prospect 45.1 263.1 544.7 10.1 59.2 122.6 0.3 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Alakiri 6 Prospect 60.6 382.9 1,547.3 13.6 86.2 348.1 0.6 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Krakama 3 Prospect 85.2 401.9 1,280.6 19.2 90.4 288.1 0.2 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Orubiri 4 Prospect 32.5 106.1 505.4 7.3 23.9 113.7 0.3 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Asaritoru 3 Prospect 16.4 127.9 451.7 3.7 28.8 101.6 0.4 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Bakana 3 Prospect 7.4 26.1 70.1 1.7 5.9 15.8 0.2 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Buguma
East** 1 Prospect 7.9 47.4 154.6 1.8 10.7 34.8 0.3 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Minama
East 1 Prospect 10.2 78.2 369.7 2.3 17.6 83.2 0.3 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Tema ++ 1 Discovery 75 116.6 176.7 16.9 26.2 39.8 1.0 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Awoba
** 2 Prospect 0.2 4.0 25.3 0.0 0.9 5.7 0.2 Newcross
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Bille 2 Prospect 86.0 181.9 360.9 19.4 40.9 81.2 0.2 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Calabar
River
South 1 Lead 124.1 241.5 474.8 27.9 54.3 106.8 0.0 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Calabar
River
SE 1 Lead 142.7 209.3 299.0 32.1 47.1 67.3 0.1 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Idama** 1 Prospect 5.9 21.7 57.4 1.3 4.9 12.9 0.3 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Isia 1 Prospect 7.3 52.7 207.4 1.6 11.9 46.7 0.3 Eroton
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Total
for Gas 39 795.8 2,632.3 7,595.4 179.1 592.3 1,709.0
============= ========= ============= ============= ============= ============= ============= ============= ========= ==========
Source: PetroVision Energy Services Limited CPR - Table 1-9 on
page 171 of this Document
* Post-completion of the MLPL Reorganisation
** OML 18 area only
++ Tema is a discovery, hence no risk associated with
discovery
Petrovision considers that, as a significant portion of the
contingent and prospective resources defined are quite tangible,
they will never be far from infrastructure and many of the
potential targets can easily be appraised as part of the
development drilling programme. Petrovision considers that
exploration targets could be tagged on to development wells either
by deepening certain wells or optimising trajectories to tag
exploration/appraisal blocks/zones etc. This optimisation will be
factored into the Eroton's development plan/drilling schedule with
the objective of moving some of the prospective resources into
reserves without a requirement for dedicated exploration CAPEX.
Further details of OML 18's reserves, contingent resources and
prospective resources can be found in section 1.5 of the Competent
Person's Report in Part 7 of this Document.
(j) Economic Evaluation
PetroVision developed a detailed economic model that estimated
the net present value (NPV) (the model runs on OML 18 and NPV were
allocated by field based on technical production) based on
discounted cash flow of future net revenues at a discount rate of
10% ("NPV10") going forward, as of 1 January 2022, to determine the
value of the indirect net economic interest attributable to San
Leon. The economic model includes the effect of Eroton's debt
funding expected downtime and significantly reduced pipeline
losses. The net attributable cash flow to SLE was allocated to SLE
by field on an annualised pro-rated production basis.
NPV10 values were calculated using base price assumptions for
two cases:
i. Pre-finance , an NPV 10 after tax value is calculated based
on cashflow to San Leon excluding the effects of paying RBL costs
and Withholding Tax ("WHT"), which gives the NPV 10 of cash flow
from SLE's interests (post completion of the MLPL Reorganisation)
without financing deductions
ii. Post-finance , an NPV 10 after tax value is provided which
includes the effects of RBL and WHT, which provides a view on the
NPV 10 of cash flows receivable by SLE at the MLPL level.
Table 7: NPV 10 After Tax Net Cashflow (SLE Entitlement only) -
post completion of the MLPL Reorganisation
NPV 10 After Tax Net Cashflow (US$ million)
@ Base Oil Price
Proved (1P) Proved & Probable Proved, Probable
Fields (2P) & Possible (3P)
======================= ======================== ====================
Cawthorne Channel 401 435 472
======================= ======================== ====================
Akaso 139 224 298
======================= ======================== ====================
Alakiri 283 325 407
======================= ======================== ====================
Krakama 171 172 183
======================= ======================== ====================
Orubiri 83 92 104
======================= ======================== ====================
Buguma Creek 168 166 163
======================= ======================== ====================
Asaritoru 17 19 23
======================= ======================== ====================
Awoba (50% share) 96 101 124
======================= ======================== ====================
Bille 8 9 10
======================= ======================== ====================
TOTAL Pre-Finance 1,366 1,543 1,784
======================= ======================== ====================
TOTAL Post-Finance 917 1,093 1,334
======================= ======================== ====================
Source: PetroVision Energy Services Limited CPR - Table 1-10 on
page 173 of this Document
In addition to San Leon's indirect net economic interest on OML
18 block, the Company also has an exclusive right (subject to
conditions) to provide certain drilling-related oil field services
to OML 18 under a Master Services Agreement. Eroton's proposed
development program envisages a capital expenditure budget over the
next 10 years more than US$2.9 billion, largely funded from cash
flow. San Leon has a separate contract in place to provide
management and technical services to Eroton, in addition to the
Asset Management Agreement.
Further details regarding the Economic Evaluation of OML 18 can
be found in sections 1.6 and 5 of the Competent Person's Report in
Part 7 of this Document.
5. Information about ELI
Corporate Background
ELI is a midstream infrastructure group, serving the oil and gas
sector and builds crude transportation and storage systems within
the Niger Delta area of Nigeria.
ELI comprises ELI Malta and its subsidiary, ELI Nigeria. ELI
Malta was incorporated on 6 September 2017, while ELI Nigeria was
incorporated on 19 February 2016. ELI Malta holds 99.99% of the
shares in ELI Nigeria. ELI Malta's shareholders are currently Ocean
Pearl Marine MA, San Leon ELI Limited (a subsidiary of the
Company), Umugini Pipeline Infrastructure Limited ("UPIL") and
Walstrand (Malta) Limited ("Walstrand"). Midwestern has an indirect
shareholding in UPIL. Midwestern has a 68% shareholding in
Midwestern Hydrocarbon Pipeline Company Limited which in turn owns
75% of UPIL (i.e. a 51% effective interest in UPIL).
ELI is governed by a board of directors and a management team
responsible for overseeing ELI's operations. As at 31 May 2022, ELI
had an eight person board comprising seven non-executive directors
and one executive director. ELI's operations are predominantly
conducted through its subsidiary, ELI Nigeria. ELI and its
subsidiary as at 31 May 2022 had seventeen full time employees and
sixteen contract staff, although both of these are increasing as
ELI is currently conducting a recruitment exercise to grow its
technical personnel by 50% as it prepares for its live operations
and personnel numbers are expected to continue to increase as ELI
expands its operations.
Business Model
The business model of ELI is the construction, delivery and
deployment of the ACOES at the approved location in Nigeria by ELI
Malta, and will involve ELI Malta leasing the ACOES assets through
a finance lease to ELI Nigeria over the life of the Crude Handling
and Transportation Agreement. Following the completion of the
ACOES, ELI Nigeria is to be responsible for operating the asset and
handling the crude from OML 18. Eroton (the operator of the OML 18
joint venture) and ELI Nigeria have entered into a crude handling
and transportation agreement (the "Crude Handling and
Transportation Agreement") pursuant to which ELI Nigeria agreed to
provide services relating to handling, storage and transportation
of crude oil produced from OML 18.
ELI's ACOES project is being constructed to provide a dedicated
oil export route from OML 18, comprising a new pipeline from OML 18
and a floating storage and offloading vessel approximately 30
kilometres offshore. ELI Nigeria has entered into a floating
storage and offloading vessel operations and management contract
with World Carrier Offshore Services Corporation.
The NCTL is currently used as one of the main methods for the
export of oil from OML 18 to the Bonny Terminal. OML 18 has
suffered from significant levels of NCTL downtime and pipeline
losses over the past five years, as can be seen in Figure 2 below.
High crude pipeline losses on the NCTL have been reported for 2021.
During Q1/Q2 2021 a crude pipeline loss of up to 90% was reported.
In Q3 2021, the pipeline loss averaged 97%. The ACOES project has
been designed to reduce the downtime and allocated pipeline losses
currently associated with OML 18's reliance on the NCTL.
Further details of the NCTL downtime and pipeline losses can be
found in section 3.6 of the Competent Person's Report in Part 7 of
this Document.
In 2017, ELI working with Eroton received approval from the NNPC
and the Department of Petroleum Resource to construct the ACOES at
OML 18. The ACOES is an evacuation system designed to provide
alternative export channels from the OML 18 export pipeline running
from within the OML 18 acreage and down to the open sea to a
dedicated floating storage and the offloading vessel ELI Akaso. ELI
Nigeria has obtained a number of licenses to establish and operate
the ACOES pipeline and the floating storage and offloading vessel,
further details of which can be found in paragraph 5.2.5 of Part 2
of this Document. ELI Nigeria is the first local company to receive
an oil pipeline licence alongside a terminal establishment order
via Eroton.
ELI's ACOES project was financed initially in 2019 via a
facility from Petro-Gap Limited. In December 2019, ELI signed an
exclusivity agreement with Shell Trading & Supply Limited
("SWST"), whereby SWST and ELI collaborate to ensure SWST is the
exclusive off taker of crude from the ELI Akaso terminal. ELI's
current financing is provided through a combination of equity and
debt from San Leon, UPIL, Ocean Pearl and Walstrand, together with
bank debt.
The ACOES involves laying 47 km of thick wall pipe, equipped
with a five-core fibre optic cable from OML 18 17 km through the
New Calabar river and then 30 km out into the open sea to the ELI
Akaso floating storage and offloading vessel. The ELI Akaso
floating storage and offloading vessel has a name plate storage
capacity of two million barrels and was purchased at a cost of
US$60 million. The pipeline construction is expected to complete
during late 2022.
The ACOES is expected to reduce the recent downtime
(predominantly a result of NCTL downtime) and reduce high crude
pipeline losses from a 2021 average of 73% (peaks of 80-90%) to
around 5%. Figure 2 above shows the downtime and crude loss over
the past five years on the NCTL. High crude pipeline losses have
been reported for 2021 with up to 90% in Q1/Q2 2021 and averaged at
about 97% loss in Q4 2021. The ACOES is also anticipated to reduce
gas flaring charges.
The current penalty for gas flaring in Nigeria is US$2 per
thousand cubic feet, which is treated like a royalty payment and
reconciled and payable quarterly. In addition to the ACOES, Eroton
is currently planning for an in-field dehydration (IFD) system to
remove water from crude oil, thereby reducing liquid handling cost
through the ACOES by eliminating water tariffs.
Eroton has commenced the implementation of an interim evacuation
programme utilising a barge mounted production facility with
storage of both water and crude, with crude export to the ELI Akaso
floating storage and offloading vessel operated by ELI. Process
testing of the barging facilities, to confirm water separation
quality and due diligence on installed equipment, was completed in
September 2021 and about 18,000 bbls of export quality crude was
successfully injected into the storage barges.
As at the date of the CPR, the OML 18 pilot project has
successfully been completed to the mother vessel and the marine
spread is being deployed, after which oil is expected to be
received via barging to the FSO. Eroton now expects to complete the
approval process and commence transhipment in Q3 2022, with
transhipment at the Cawthorne flowstation in Q3 2022 while a third
barge is expected to become fully operational at Alakiri and
Krakama flowstations by the start of Q4 2022.
The full ACOES, including the pipeline, is expected by Eroton to
be operational in Q4 2022. The Board expects that the ACOES will
reduce the substantial pipeline losses and downtime which have
hampered cash flow from OML 18's production.
ELI intends for its pipeline infrastructure to eventually earn
fees from third parties for transporting and storing crude oil from
the surrounding oil and gas fields in the Eastern Niger Delta. This
is considered by the Board to be feasible as the pipeline is
planned to be positioned adjacent to several other oil mining
leases. In addition, the floating storage and offloading vessel has
been designed with capacity in excess of what may be required for
OML 18. In this regard, the ACOES pipeline is ultimately intended
to play a key role in resolving the local issues with oil
production losses.
In 2019, ELI entered into a pipeline development agreement with
Newcross Exploration Production Limited, the operator of the nearby
OML 24 licence, in relation to the development of a prospective
pipeline that will traverse the OML 24 corridor and ultimately
connect OML 24 to the ELI Akaso FSO. Whilst preliminary work based
around the feasibility of such a pipeline has been undertaken, the
development of this is yet to commence.
ELI Malta earned US$5.7 million in revenue from a short-term
vessel charter hire to Trafigura for six months during FY20,
pending receipt of necessary approvals from the Government of
Nigeria's Department of Petroleum Resources and the Nigerian
Customs.
During FY21, ELI Malta received US$1 million from Shell Western
Trading Limited as part payment of a US$3 million exclusivity fee
under a sole offtake arrangement executed with ELI in 2019, under
which Shell Western Supply and Trading Limited is to be the sole
crude oil offtaker from the floating storage and offloading vessel.
The remaining US$2 million will be due from Shell Western Trading
Limited on completion of the mooring of the FSO.
From May 2020 onwards, Eroton has made quarterly payments to ELI
Nigeria, as advances under the Crude Handling and Transportation
Agreement between Eroton and ELI Nigeria. Advance payments received
from Eroton in FY20 were US$43.4 million while in FY21 these were
US$56.2 million.
As at the date of this Document, ELI's main debt facilities are
a US$130 million senior secured term loan facility agreement from
Africa Finance Corporation and Zenith Bank Plc to replace an
existing facility with GTB but which is conditional upon the New
Eroton Debt Facilities. ELI also has a US$30.0 million mezzanine
loan from Umugini Pipeline Infrastructure (UPIL) and US$17 million
of shareholder loans from San Leon (before any of the Further ELI
Investments).
The budgeted cost to completion for the ACOES is approximately
US$42 million which largely relates to unfunded capital commitments
and other associated costs for pipeline development. The Directors
understand that ELI plans for this to be funded by a cash backed
stand by letter of credit of US$39.2 million from GTB, the
disbursement of which is contingent upon performance and the
achievement of milestones, with the remainder being provided by San
Leon pursuant to the New ELI Investment.
Further details of the ACOES can be found in section 2.1 of the
Competent Person's Report in Part 7 of this Document.
6. MLPL Loan Notes
On completion of the OML 18 Production Arrangement in 2016, the
Company received US$173.05 million of MLPL Loan Notes together with
a 40% shareholding in MLPL. The MLPL Loan Notes are also
accompanied by interest payments accruing at a fixed rate of 17%
per annum on the outstanding principal at the time. The shares held
by MLPL in Martwestern have also been pledged as security to the
obligations under the MLPL Loan Notes.
Further information on the background to the MLPL Loan Notes can
be found in paragraph 4.2 of Part 2 of this Document.
Midwestern and Mart Resources Limited jointly and severally
guaranteed the payment of the MLPL Loan Notes in the event of a
default and to make immediate payment and performance of all
obligations to holders of the MLPL Loan Notes. It was originally
envisaged that the MLPL Loan Note repayments due to San Leon would
be sourced by MLPL from the receipt of dividends through its
indirect interest in Eroton. The Directors understand that OML 18's
performance has not provided sufficient cash flow to allow Eroton
to pay dividends, and since 2017 MLPL has borrowed from Midwestern
in order to be able to make repayments to San Leon on the MLPL Loan
Notes. Midwestern has charged MLPL a 7% guarantee fee on the
outstanding balance of the MLPL Loan Notes. Pursuant to the MLPL
Reorganisation, Midwestern will assign the benefit of such
receivable owed by MLPL to San Leon Energy Nigeria.
In relation to the outstanding MLPL Loan Notes, further to the
announcements on each of 7 July 2021,
20 September 2021, 1 October, 2021, 2 November 2021, 1 December
2021, 4 January 2022,
1 February 2022, 28 February 2022, 29 April 2022 and 24 June
2022, San Leon agreed an extension and then further extensions of
the payments in relation to three instalments that were originally
due to be repaid on 5 July 2021, 30 September 2021, 31 December
2021 and 24 June 2022 until 8 July 2022, which will be payable 90
days after such expiry, save for, inter alia, if there is an event
of default (the "Extended Conditional Payment Waivers"). Interest
continues to accrue on the principal amounts waived whilst the
Extended Conditional Payment Waivers are in effect. As at 30 June
2022, the Extended Conditional Payment Waivers relate to US$103.8
million, being a principal amount due of US$82.2 million and total
accrued interest due of US$21.6 million.
Pursuant to the MLPL Reorganisation Agreement, the Extended
Conditional Payment Waiver has been superseded and San Leon has
agreed with MLPL, Midwestern and Martwestern to a tenth extension
of the Extended Conditional Payment Waivers until the sooner of
completion of the MLPL Reorganisation or termination of the MLPL
Reorganisation Agreement. Interest continues to accrue on the
principal amounts waived pending completion of the MLPL
Reorganisation.
Upon completion of the MLPL Reorganisation, the MLPL Loan Notes
will become intra group indebtedness and pursuant to the MLPL
Reorganisation Agreement, Midwestern will be released from its
obligations to guarantee performance of the MLPL Loan Notes by
MLPL.
7. Company History
San Leon is incorporated in Ireland. Its Ordinary Shares have
been admitted to trading on AIM since September 2008.
The Company has conducted a number of transactions since 2008
and previously had interests in oil and gas assets in Poland and
the Netherlands as well as several other locations. Details of San
Leon's non-core residual interests in its legacy assets can be
found in paragraph 8.
Since September 2016, the Company has been focused on oil and
gas in Nigeria and has been exiting its other investments. San
Leon's exposure to the Nigerian exploration and production segment
currently is via its indirect investments in OML 18 and the ACOES,
together with its debt and equity investment in the Oza Field,
onshore Nigeria.
8. Information on the Group's non-core assets
In addition to its interests in OML18, San Leon holds certain
other non-core assets as follows:
8.1 Net Profit Interests in relation to the Group's former Polish assets
Following a strategy of divesture in relation to San Leon's
assets in Poland, San Leon currently holds Net Profit Interests in
relation to licenses/concessions in Poland which range from 5 per
cent to 10 per cent including in the following licenses or
concessions: Rawicz, Bielsko-Biala, Cieszyn, Nowa Sol, Gora and
Poznan East - 207.
8.2 Overriding Royalty Interest in relation to its former Dutch assets
San Leon is the beneficiary of the Amstel Royalty Agreements on
Block Q13A, which is located offshore the Netherlands (together the
"Amstel Oil Field"), including an overriding royalty agreement
entered into with Encore Oil Limited as part of a sale and purchase
agreement entered into in 2007. TAQA Offshore BV subsequently
purchased the interest from Encore Oil Limited.
In January 2022, San Leon received payments totalling more than
EUR5.7 million from the legal actions relating to the Amstel Oil
Field. The Amstel Royalty Agreements represent legacy interests and
any potential net future benefit to San Leon going forward from the
Amstel Oil Field on a monthly basis is not expected to be material
to San Leon.
8.3 Net Profit Interest in the SEL 1/11 (Barryroe) licence in
the North Celtic Sea, offshore Ireland
Providence, through its wholly owned subsidiary Exola DAC, holds
an 80% working interest in and is the operator of SEL 1/11 which
contains the Barryroe oil accumulation. SEL 1/11 is located in the
North Celtic Sea Basin, c. 50 km off the south coast of Ireland,
being situated in circa 100 metres water depth. SEL 1/11 expired in
July 2021 in accordance with its terms. Providence has made an
application to the Department of Environment, Climate and
Communications to secure a Lease Undertaking in respect of
Barryroe. A Lease Undertaking gives the holder the right to a
Petroleum Lease over that part of the area covered by the Lease
Undertaking and a Petroleum Lease would give Providence the
exclusive right to produce petroleum from the leased area.
In the past, under different operators, five wells were
successfully drilled on Barryroe. All of these wells successfully
logged hydrocarbon-bearing reservoirs with three successfully
flowing oil to surface. In 2011, having acquired new 3D seismic
data, a sixth well was drilled on this field. In March 2012, the
Barryroe partners announced the flow rates from this well, which
included oil rates in excess of 3,500 BOPD from a seven-metre
vertical section of reservoir. Most recently, following a strategic
review by Providence and subject to regulatory consent, Providence
intends to proceed with an appraisal well in 2023, and assuming a
satisfactory outcome, to proceed to first production in 2026,
initially focused on the central area in Barryroe only.
San Leon holds a 4.5 per cent Net Profit Interest in SEL
1/11.
8.4 Loan notes and subscription in relation to the OML 11 (Oza) field in Nigeria
San Leon has provided a total loan of US$5,500,000 to Decklar
(US$750,000 was provided in August 2020, with a further
US$4,750,000 provided in January 2022), which was accompanied by an
equity subscription at nominal value. Consequently, San Leon is
interested in US$5,500,000 of 10 per cent unsecured subordinated
Decklar loan notes and a 11 per cent equity interest in
Decklar.
San Leon was seeking to pay a further US$2,500,000 to Decklar by
30 June 2022 which would increase its shareholding in Decklar to
15.0 per cent and increase the unsecured subordinated loan notes to
US$8,000,000, and an extension beyond 30 June 2022 is now being
discussed.
Decklar is the holder of a Risk Service Agreement ("RSA") with
Millennium Oil and Gas Company Limited ("Millennium") on the Oza
Field in Nigeria. The Oza Field is a 20 square kilometres
concession located onshore in the northern part of OML 11 in
Nigeria. The Oza Field is a conventional stacked sands reservoir
(12 zones) allowing for vertical drilling and horizontal
development drilling. The Oza Field has proven reserves and was
formerly operated by Shell Petroleum Development Company of Nigeria
Ltd., the local subsidiary of Shell at the time. The Oza Field had
three wells and one side track drilled by Shell between 1959 and
1974. Well tests on two wells estimated 2,000 boe/d at 35deg/43deg
API gravity crude oil. More than one million barrels of oil were
produced from three zones.
Decklar has performed the workover of the Oza-1 well and the
Directors consider that the Oza-1 well test has indicated positive
oil results from the lowermost zone, encountered gas in the middle
zone and oil in the uppermost zone. San Leon is to be involved in
future development planning and determining the location of the
first new well to be drilled on the Oza Field.
More recently Decklar announced initial shipments of
approximately 4,000 barrels of crude oil from the Oza-1 storage
facilities.
8.5 Non-core assets being relinquished
The Company holds non-core interests in licences in Albania and
Spain, which are in the process of being relinquished.
9. Financial information
The annual reports and accounts for the Company for the
financial years ending 31 December 2021, 2020 and 2019 are
incorporated by reference under the exemption set out in Rule 28 of
the AIM Rules for Companies. These annual reports and accounts are
available online at the Company's website:
www.sanleonenergy.com.
The results for the financial year ended 31 December 2021 were
announced on 8 July 2022.
10. Current trading and prospects
San Leon
The Directors believe that San Leon's holdings in MLPL and ELI
and its MLPL Loan Note receivables provide a mix of future income,
split between loan income expected to be received in the
short-to-mid- term and equity dividend distributions from MLPL and
ELI expected to be received in the mid- to-long- term. However, as
described above in section 6 of this Part 1, upon completion of the
MLPL Reorganisation, the MLPL Loan Notes will become intra group
indebtedness and pursuant to the MLPL Reorganisation Agreement,
Midwestern will be released from its obligations to guarantee
performance of the MLPL Loan Notes.
In the year to date, the Company has only received US$0.3
million in repayments pursuant to the MLPL Loan Notes and no income
from its existing debt or equity investments in ELI. This has been
principally due to poor trading performance in Eroton and given
that discussions with Midwestern regarding the Proposals have been
taking place since 2021, has resulted in the MLPL Loan Notes being
the subject of a series of publically announced conditional
repayment waivers since July 2021. Therefore, the Company's cash
position as at 8 July 2022 was US$0.2 million. To mitigate the
Company's low cash position and provide funding for the Group's
working capital requirements and financing for the Further ELI
Investments, San Leon has entered into the New Facility for US$50
million, as described at paragraph 10.22 of Part 12 of this
Document.
ELI has not generated income to pay dividends to its
shareholders, including San Leon, and has not been in a position to
repay creditors such as the Company. This is because it has not
received revenue from Eroton as the ACOES has not yet been
commissioned and therefore ELI has not yet started generating
revenues. The completion and full commissioning of the ACOES will
require further financing, including that provided within the New
ELI Investments.
The Board believes that the recovery of the oil price during
2021 and into 2022 assists the business case for the Company's
assets and their continued development. The expected near-term
start-up of the barging component of the ACOES is considered to be
an important step in unlocking the value in OML 18, and the Board
looks forward to the pipeline portion of the ACOES coming online
following its anticipated completion by the end of 2022.
All of the MLPL Reorganisation and ELI Reorganisation, together
with the Further ELI Investments, are considered by the Directors
to represent transformational transactions for the Company, which
are expected to be cash flow positive in the near to medium
term.
The Company will continue to monitor the performance of OML 18
and its other assets, and will consider pursuing any appropriate
opportunities that may arise in the current market.
Further details of the Board's views regarding the prospects for
the Company and ELI can be found in the Chairman's and Chief
Executive's statements in the Company's annual report and accounts
for the year ending 31 December 2021, which are incorporated into
this Document by reference and are available online at the
Company's website.
ELI - additional loan from San Leon
On 15 February 2022, the Company provided a further loan of
US$2.0 million (the "Loan") to ELI Malta.
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 was
accompanied by a transfer to San Leon by Walstrand, ELI's largest
shareholder, of shares in ELI which at the time represented a 2.0%
equity interest, which San Leon will acquire at nominal value,
representing a consideration payable of approximately US$91.
The Loan was to be used by ELI to facilitate a funding
requirement to allow for completion of the mooring for the FSO,
which the Board considered to be a critical step in the progression
of the ACOES. Providing loans to Nigerian oil and gas related
projects, which are often accompanied by associated equity
interests, has been a key part of San Leon's business and strategy
in recent years. San Leon has had debt and equity interests in ELI
since August 2020 and, given the longer-term ongoing strategic
importance of ELI's ACOES project to OML 18, the Board believed
that it was important for San Leon to assist ELI Malta with the
funding requirements for achieving its key project milestones.
San Leon has now lent a total of US$17.0 million to ELI with a
coupon of 14% per annum and from which repayment instalments
totalling US$6.0 million are now due. The Company has elected not
to enforce the repayment of outstanding amounts, in recognition of
the fact that ELI's development is critical to the success of OML
18 and ELI's cash balances at this time are required to progress
the overall ACOES project. As announced on 9 August 2021, the
Company has previously agreed with ELI that, should the New ELI
Investments in ELI be made, then loan repayment instalments would
be offset from any investment monies payable to ELI by San Leon
under these new arrangements.
Decklar - loan notes and equity interest
On 27 January 2022, the Company announced that it had lent
US$4.75 million to Decklar via 10% unsecured subordinated Decklar
loan notes (bringing the total of such loan notes to US$5.5
million), which were accompanied by a 11% equity interest in
Decklar, which was subscribed for at a nominal value. San Leon is
in discussions to provide a further loan of US$2.5 million to
Decklar on similar terms, in order to increase its shareholding in
Decklar from 11% to 15%. San Leon will be entitled to one seat on
the board of Decklar. In terms of the outlook for the remainder of
FY 2022, the Directors anticipate that the export of oil from Oza
will continue in 2022.
MLPL
As described above, MLPL has not recently received funds from
its investment in Eroton, and repayments to San Leon pursuant to
the MLPL Loan Notes have been the subject of a series of publicly
announced conditional repayment waivers since July 2021. The
Directors expect dividend flow to MLPL once the Proposed
Transactions are completed and Eroton returns to budgeted
operational performance and the later generates distributable
income, as described below.
The Company expects to continue to have technical and other
input into the OML 18 asset through its shareholdings and the Asset
Management Agreement signed between San Leon Energy Nigeria and
Eroton. MLPL and its subsidiary are effectively holding companies,
although MLPL is the borrower from San Leon pursuant to the MLPL
Loan Notes.
OML 18
Oil delivered from OML 18 to the Bonny terminal for sales was
approximately 4,400 bopd in FY 2021 (21,100 bopd in FY 2020) and
was affected by combined losses and downtime of approximately 79%.
The FY 2021 figure was also affected by OPEC oil production quota
restrictions, and some Covid-related delays. Field operations to
boost production were largely put on hold, pending the start-up of
the ACOES. Together, the losses, downtime, OPEC restrictions and
Covid-related delays have caused the majority of the difference
between gross production when there is minimal disruption to
production, and oil is received at Bonny terminal for sales. In the
three months to 31 March 2022, oil delivered from OML 18 to the
Bonny terminal for sales was approximately 2,300 bopd as a result
of similar issues to 2021.
Gas sales from OML 18 in FY 2021 averaged 29.6 million mmscf/d
after downtime (32.7 mmscf/d in FY 2020). In the three months to 31
March 2022, OML 18's gas sales averaged approximately 41.7 mmscf/d
after downtime, with the shortfall relative to the 50 mmscf/d
(being the rate that is expected within the Notore Offtake
Agreement) being due to maintenance activity at the Notore Chemical
plant.
The Directors understand that the restarting of field operations
on OML 18 should occur later in 2022.
ELI
The Directors believe that ELI is positioned for strong cash
flow and potential organic growth, given its strategic positioning
and proposed offering of efficient oil export facilities in a
region which has suffered from material oil export losses and
downtime. Such losses have increased significantly in 2021 and
2022, emphasising the business case for the new pipeline and FSO
for OML 18 and third parties. Whilst there have been delays in
installation of the ACOES, principally due to Covid, and delays in
mooring the FSO, limited barging to the mother vessel has commenced
in June 2022, with fuller barging operations from OML 18 to the FSO
expected by ELI to commence during July 2022 and the pipeline being
expected to be commissioned in late 2022.
The loan repayments due to San Leon from ELI were due to start
in 2021 but have been delayed due to operational readiness of the
FSO and ACOES being delayed. The Directors expect that ELI will be
revenue generating in Q3 2022 with the commencement of barging
operations, and while loan repayments to San Leon have been
delayed, they should commence in the second half of 2022.
The budgeted cost to completion for the ACOES is approximately
US$42 million which largely relates to the remaining unfunded
capital commitments and other associated costs for pipeline
development. The Directors understand that ELI plans for this to be
funded by a cash backed stand by letter of credit of US$39.2
million from GTB, the disbursement of which is contingent upon
performance and the achievement of milestones, with the remainder
being provided by San Leon pursuant to the New ELI Investment.
Since 31 December 2021 ELI's net liabilities and net current
liabilities have increased as ELI has continued to incur operating
losses.
As stated in section 5 of this Part 1, ELI intends for its
pipeline infrastructure to eventually earn fees from third parties
for transporting and storing crude oil from the surrounding oil and
gas fields in the Eastern Niger Delta, with the ACOES pipeline
ultimately being intended to play a key role in resolving the local
issues with oil production losses. ELI is in advanced negotiations
with other third-party injectors for use of its pipeline and
terminalling facilities.
Prospects for the Enlarged Group
The Directors believe that the Enlarged Group has considerable
growth opportunities, both organically and via further acquisitions
or production arrangements, and views the future with confidence.
The Enlarged Group is expected by the Directors to benefit both
from increased scale in existing projects, and also by enabling the
increased application of San Leon's managerial and technical
involvement in Eroton (via its increased ownership of MLPL, via the
MLPL Reorganisation), through its Asset Management Agreement to
provide such services to Eroton, and its involvement in ELI.
Further details in relation to the Board's reasons for the Proposed
Transactions and the strategy of the Company can be found in
paragraph 3 of this Part 1.
Following completion of the MLPL Reorganisation and the ELI
Reorganisation, it is the Company's intention to evaluate the
potential for and benefits of, in due course, seeking a listing of
its Ordinary Shares on the Official List, Premium Segment and the
admission of those shares to the main market of the London Stock
Exchange, subject to satisfaction of all regulatory requirements
and approvals.
11. Board
The Board will not change as a consequence of Re-Admission and
will therefore consist of the following individuals:
Mutiu Olaniyi Adio Sunmonu , Non-Executive Chairman (aged
67)
OisÃn Brendan Fanning , Chief Executive Officer (aged 64)
Joel David Price , Chief Operating Officer (aged 50)
Julian Lester Tedder , Chief Financial Officer (aged 52)
John Davies Brown , Independent Non-Executive Director (aged
58)
Adekolapo Ademola , Non-Executive Director (aged 55)
Further details about the Directors and their business
experience are set out in Part 6 of this Document. Adekolapo
Ademola is not considered to be independent as he is a
representative of Midwestern on the Company's Board.
12. Corporate governance
The Board is committed to maintaining high standards of
corporate governance to ensure the Company is run effectively. In
accordance with Rule 26 of the AIM Rules for Companies, the Company
confirms that it has adopted the QCA Code. San Leon aims to conduct
its business in an open, honest and ethical manner. The Board is
accountable to shareholders for good corporate governance and has
adopted the procedures set out below in this regard. Further
details of the QCA Code and how the Company applies the principles
are set out in Part 6 of this Document.
The Company has agreed with Midwestern that it will seek to
identify and appoint an additional independent non-executive
director in the 12 months following the publication of this
Document. Aside from this, the Board does not expect for the
Proposals to have a material impact on the Company's corporate
governance and the Proposals are not expected to result in future
changes in the Board and the Composition of its committees.
Midwestern has the right to appoint a director to the Board under
the Relationship Agreement. Details of the Relationship Agreement
between Midwestern, Allenby Capital and the Company which is
designed to ensure that the Group's business shall be managed for
the benefit of the Shareholders as a whole and independently from
Midwestern can be found in section 15 of this Part 1 and paragraph
10.2 of Part 12 of this Document.
13. Dividend policy
Dividend Policy
The Directors may consider the payment of dividends (or other
methods of returning funds to Shareholders in a tax efficient
manner) in the future when, in their view, the Company has
sufficient distributable profits after taking into account the
working capital needs of and investment opportunities available to
the Enlarged Group. Ultimately, on that basis, the Board intends
that, once the Company's conditional obligations pursuant to the
Preference Shares have been discharged and following the
commencement of payment of dividends, 50% of free cash flows would
be returned to shareholders by way of dividends.
As a result of the Proposed Midwestern Reorganisation and the
associated positive cash inflows anticipated from the increased
initial indirect economic interest in OML 18, immediately prior to
Re-Admission, the Company will, subject to shareholder approval at
the EGM, issue the Preference Shares to Shareholders on the
Company's register of members immediately prior to Re-Admission as
part of the Subdivision. The Preference Shares will entitle the
holders to receive the Preference Amount which is US$40,000,000 in
aggregate and which shall on the date falling forty-two months
after the date of issue of the Preference Shares and semi-annually
thereafter, be increased by the Shortfall Amount. The Shortfall
Amount is 5% of the amount by which the aggregate of all dividends
paid to the holders of the Preference Shares is less than the
Preference Amount immediately prior to such six-month interval.
The payment by the Company of any dividends, including the
Preference Amount and the Shortfall Amount, is subject to the
availability of distributable reserves and the declaration of a
dividend by the Directors and as such there is no certainty that a
dividend will be declared.
14. Share Schemes
The Company currently has two existing Share Schemes in place,
being: (i) a share based payment scheme for executives and senior
employees of the Group in place prior to 31 December 2012 (the
"share based payment scheme"); and (ii) a formal unapproved share
option plan (the "formal option plan") adopted during the first
quarter of 2013. The formal option plan replaced the share based
payment scheme and since its date of adoption, has governed all
awards of share options made by the Company.
In addition, the Company has also adopted a new discretionary
share plan called the San Leon Energy Long Term Incentive Plan (the
"LTIP") and a plan for making awards to certain consultants to the
Company (the "Consultant Plan"). Awards under the LTIP and the
Consultant Plan may be satisfied by new Ordinary Shares, Ordinary
Shares purchased in the market or by the transfer of Ordinary
Shares held in treasury.
Further details of the Company's incentive arrangements and
proposed awards to be granted pursuant to the LTIP on or around the
date of this Document are set out in paragraph 6.2 of Part 12 of
this Document.
15. Relationship Agreement
Midwestern will hold 403,633,865 New Ordinary Shares on
Re-Admission and 477,416,400 New Ordinary Shares upon completion of
the ELI Reorganisation Shares Admission, representing approximately
50.82% of the Initially Enlarged Ordinary Share Capital and 55.0%
of the Fully Enlarged Ordinary Share Capital respectively based on
the shares in issue at the date of this Document. Midwestern has
entered into the Relationship Agreement with Allenby Capital and
the Company pursuant to which it, amongst other things, undertakes
to the Company and Allenby Capital that from the date of this
Document and for so long as Midwestern, individually or together
with the members of Midwestern and its group, is interested in more
than 10% of the voting rights in the Company, it shall exercise its
voting rights to procure and, in the case of other members of
Midwestern's group, holding voting rights in the Company, use
reasonable endeavours to procure, that the Group's business shall
be managed for the benefit of the Shareholders as a whole and
independently from Midwestern and members of the Midwestern's group
and that all transactions and arrangements between: (i) the Company
and (ii) Midwestern and the members of Midwestern's group will be
at arm's length and on normal commercial terms. Midwestern has also
provided further undertakings as to the composition of the Board,
ensuring certain reserved matters are considered solely by
Directors independent of Midwestern. For so long as Midwestern,
individually or together with the members of Midwestern's group, is
interested in more than 10% of the voting rights in the Company, it
shall be entitled under the Relationship Agreement to nominate one
non-executive Director to the Board. In addition, the Company has
agreed with Midwestern that it will seek to identify and appoint an
additional independent non- executive director in the 12 months
following publication of this Document.
Whilst at the date of this Document Funds managed by Toscafund
Asset Management LLP own
72.62 per cent. of the Existing Share Capital, there is not
currently a relationship agreement with Toscafund. Following
completion of the Midwestern Reorganisation it is expected that
Funds managed by Toscafund Asset Management LLP will own 37.64 per
cent. of the issued share capital of the Company and it is not
proposed that a relationship agreement will be put in place with
Toscafund or any funds managed by them.
Further details on the Relationship Agreement are set out in
paragraph 10.2 of Part 12 of this Document.
16. Lock In Arrangements
The Locked-in Persons, being Midwestern and the Directors, have
undertaken to the Company and Allenby Capital, that they will not
sell or dispose of, except in certain limited circumstances
permitted under Rule 7 of the AIM Rules for Companies, any of their
respective interests in the New Ordinary Shares and Preference
Shares, including any acquired after Re-Admission, at any time from
the date of publication of this Document until the first
anniversary of Re-Admission or, if sooner termination of the MLPL
Reorganisation. In addition, Midwestern and the Directors have
further undertaken that they will be subject to orderly market
arrangements during the following twelve months after the initial
one-year lock-in period.
Midwestern entered into two all-assets debentures with GTB dated
29 July 2013 (the "2013 GTB Debenture"), and 31 December 2019 (the
"2019 GTB Debenture") (together the "GTB Debentures"). Under the
2013 GTB Debenture, Midwestern has charged, by way of way of first
charge, all of Midwestern's undertaking and property (both present
and future), such that a fixed charge is created on all of
Midwestern's undertaking, goodwill, properties and assets (present
and future), and in particular, "all stocks, shares and other
securities now, or in the future belonging to Midwestern together
with all dividends and other". Under the 2019 GTB Debenture,
Midwestern has charged, among other charges, by way of fixed
charge, among other items, all present and future shares, or rights
or assets relating to such shares owned by Midwestern in its
Subsidiaries (as defined under section 338 of the Companies and
Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria,
2004). As such, Midwestern's shares in the Company are subject to
the GTB Debentures and enforcement of such debentures will not be
subject to the lock-in. Any receiver appointed under the GTB
Debentures has broad powers, including the power to sell and
or/dispose of any secured assets.
Enforcement by GTB of the GTB Debentures and subsequent sales of
Midwestern's shares in the Company could potentially have a
material adverse effect on the share price of the Company, as
Midwestern's holding in the Company upon Re-Admission will
represent a very substantial amount of the Company's New Ordinary
Shares.
Further details of the lock-in and orderly market arrangements
are set out in paragraph 10.1 of Part 12 of this Document.
17. Takeovers UK Takeover Code
The Company is incorporated in Ireland and the place of central
management and control of the Company is located outside of the UK,
the Channel Islands and the Isle of Man. Accordingly, as the
Company is one to which paragraph 3(a)(ii) of the introduction to
the UK City Code applies, the Directors believe that the Company is
not subject to the UK City Code and Shareholders will not be
afforded any protections under the UK City Code.
If circumstances change, including if changes to the Board are
made, the Company will consult with the UK Takeover Panel to
ascertain whether this will affect the central place of management
of the Company. If the UK Takeover Panel determines that, as a
result of such changes, the place of central management of the
Company is located in the UK, the Channel Islands or the Isle of
Man such that the UK City Code then becomes applicable to the
Company, an announcement will be made.
Irish Takeover Rules
The Company is subject to the Irish Takeover Rules and
Shareholders are therefore afforded protections under the Irish
Takeover Rules. A summary of these Irish Takeover Rules relating to
mandatory bids is set out in paragraph 16 of Part 12 of this
Document.
Waiver of the obligations to make a general offer under Rule 9
of the Irish Takeover Rules in respect of the MLPL Reorganisation
and the ELI Reorganisation
Midwestern will participate in the MLPL Reorganisation and the
ELI Reorganisation (together the Proposed Midwestern
Reorganisation). Following the completion of the Proposed
Midwestern Reorganisation, the maximum shareholdings of Midwestern
and the Toscafund Managed Funds and their proposed maximum voting
rights in the Initially Enlarged Ordinary Share Capital and the
Fully Enlarged Ordinary Share Capital will be as set out in table 7
below.
Table 7: maximum shareholdings of Midwestern and the Toscafund
Managed Funds and their proposed maximum voting rights in the
Initially Enlarged Ordinary Share Capital
and the Fully Enlarged Ordinary Share Capital
Shareholding (being New
Ordinary Shares)
in the enlarged San Leon
Shareholding share capital following
(being New Ordinary Shares) the MLPL Reorganisation
in the enlarged San Leon and the ELI Reorganisation
Current shareholding share capital following assuming Midwestern is
Item (being Ordinary Shares) the MLPL Reorganisation issued its full entitlement
1.Total number of ordinary
shares in issue in San Leon 449,913,026 794,247,283 868,029,818
------------------------- ----------------------------- -----------------------------
2. Shareholding of
Midwestern in San Leon -
number of MLPL N/A 344,334,257 N/A
New Shares issued
------------------------- ----------------------------- -----------------------------
3.Shareholding of Midwestern
in San Leon - number of ELI
New Shares issued N/A N/A 73,782,535
------------------------- ----------------------------- -----------------------------
4.Shareholding of Midwestern
in San Leon - total number
of New Ordinary Shares held 59,299,608 403,633,865 477,416,400
------------------------- ----------------------------- -----------------------------
5.Shareholding of Midwestern
in San Leon - percentage of
total issued ordinary
shares 13.18 % 50.82% 55.00%
------------------------- ----------------------------- -----------------------------
6.Shareholding of the
Toscafund Managed Funds in
San Leon - total number of
ordinary shares
held by the Toscafund
Managed Funds 326,736,082 326,736,082 326,736,082
------------------------- ----------------------------- -----------------------------
7.Shareholding of the
Toscafund Managed Funds in
San Leon - percentage of
total issued ordinary
shares 72.62% 41.14% 37.64%
------------------------- ----------------------------- -----------------------------
Note: the percentages in this table in each case exclude the
Preference Shares and assume that no options or other convertible
securities are exercised prior to allotment of the MLPL New Shares
and the ELI New Shares.
The allotment of shares pursuant to the MLPL Reorganisation and
the ELI Reorganisation give rise to certain considerations under
the Irish Takeover Rules. Brief details of the Irish Takeover Rules
and some of the protections that they afford to Shareholders are
described below.
The Irish Takeover Rules are administered by the Irish Takeover
Panel. The Irish Takeover Rules operate to ensure fair and equal
treatment of shareholders in relation to takeovers and other
relevant transactions, and also provide an orderly framework within
which takeovers are conducted. The Irish Takeover Rules apply to
all takeovers and certain other transactions, where the offeree
company is, among others, an AIM-listed public limited company
incorporated in Ireland. San Leon is such a company and accordingly
its Shareholders are entitled to the protections afforded by the
Irish Takeover Rules.
For the purposes of the Irish Takeover Rules, a person or group
of persons acting in concert "controls" a relevant company that is
subject to the Irish Takeover Rules, such as San Leon where that
person or group of persons acting in concert acquires securities of
the company that confer in aggregate not less than 30 per cent, of
the voting rights of that company. Under Rule 9.1 of the Irish
Takeover Rules, except with the consent of the Irish Takeover
Panel, if:
(a) any person, or any persons acting in concert, acquire
control of a relevant company that is subject to the Irish Takeover
Rules, such as San Leon; or
(b) any person, or any persons acting in concert, who control a
relevant company such as the Company acquire within any period of
12 months additional securities of such an amount as will increase
by more than 0.05 per cent. the aggregate percentage of the voting
rights in that company conferred by the securities held by it or
them,
such person or, in the case of persons acting in concert, such
one or more of those persons as the Irish Takeover Panel shall
direct shall extend an offer, in accordance with the requirements
of the Irish Takeover Rules, to the holders of each class of equity
share capital of the relevant company, whether or not such class
confers voting rights, and also to the holders of each other class
of transferable voting securities of the company. This is subject
to the caveat that a single holder of securities who holds
securities which confer more than 50 per cent. of the voting rights
in a relevant company may acquire additional securities of that
company without incurring an obligation under Rule 9.1. Any such
offers made by the offeror for different classes of share capital
of the relevant company shall be comparable.
Except with the consent of the Irish Takeover Panel and subject
as otherwise provided by Rule 9.4 of the Irish Takeover Rules, an
offer made under Rule 9 shall in respect of each class of shares
the subject of the offer be in cash, or be accompanied by a cash
alternative offer, at a price per share which shall not be less
than the highest value of the price per share paid by the offeror
or any person acting in concert with it for shares of the offeree
of that class during the period beginning 12 months prior to the
announcement by the offeror of a firm intention to make that offer
and ending on the date on which the offer closes for
acceptance.
As set out in table 7 above, on the allotment of the MLPL New
Shares, since the percentage of the total Initially Enlarged
Ordinary Share Capital held by Midwestern would be not less than 30
per cent., this would oblige Midwestern to make a mandatory offer
pursuant to Rule 9 of the Irish Takeover Rules for the remaining
issued ordinary share capital of the Company not held by Midwestern
unless a waiver of such obligation were to be granted by the Irish
Takeover Panel.
Following the allotment of the MLPL New Shares on the basis set
out above, Midwestern will hold securities in the Company
conferring in the aggregate 50.82 per cent. of the voting rights in
the Company. As a result, Midwestern by virtue of being a single
holder of more than 50 per cent. of the voting rights in the
Company, will then be permitted under the Irish Takeover Rules to
increase its holding of securities in the Company without incurring
any obligation to make an offer under Rule 9 of the Irish Takeover
Rules.
Waiver of Rule 9 obligation
The conditional waiver granted by the Irish Takeover Panel on
the terms set out in this Document of any obligation of Midwestern
that may arise pursuant to Rule 9 of the Irish Takeover Rules to
make an offer for the remaining ordinary shares and Preference
Shares in the Company not already owned by Midwestern as a result
of the allotment of the MLPL New Shares to Midwestern is referred
to as the "Rule 9 Waiver".
Under Note 1 of the Notes on Possible Waivers of and Derogations
from Rule 9 contained in the Irish Takeover Rules, the Irish
Takeover Panel may, in certain circumstances, waive the requirement
for a general offer to be made in accordance with Rule 9 of the
Irish Takeover Rules (a "Rule 9 Offer") if, inter alia, those
shareholders who are independent of the person who would otherwise
be required to make such an offer (in this case, Midwestern) and of
any person acting in concert with that person (the "Independent
Shareholder(s)") pass an ordinary resolution on a poll at a general
meeting of the shareholders of the Company approving such a waiver
(the "Rule 9 Waiver Resolution").
Pursuant to a letter dated 29 March 2022 from the Irish Takeover
Panel to Whitney Moore LLP, the Irish Takeover Panel stated that
having regard to the very specific and exceptional circumstances of
this case, it decided to grant a waiver of Rule 9 in respect of any
mandatory offer obligation which may be acquired by Midwestern as a
result of the New Ordinary Shares in the Company being issued to it
pursuant to the Proposed Midwestern Reorganisation subject to:
(i) the Toscafund Managed Funds holding securities in the
Company conferring 50 per cent. or more of the voting rights of the
Company which would be capable of being cast on a Rule 9 Waiver
Resolution confirming in writing to the Irish Takeover Panel that
they approve of the Rule 9 Waiver and would vote in favour of any
resolution to that effect at a general meeting of the Company. In
this regard, Toscafund has provided a confirmatory letter to the
Irish Takeover Panel setting this out (see below);
(ii) appropriate text being included in the Company's
Re-Admission document, to be approved in advance by the Irish
Takeover Panel, setting out the Irish Takeover Panel's decision,
the basis for it and the confirmations provided to the Irish
Takeover Panel by Toscafund; and
(iii) Midwestern providing the Irish Takeover Panel with
confirmation that there are no disqualifying transactions as
referred to in note 3 on the Whitewash Guidance Note of the Irish
Takeover Rules. Midwestern has provided such a confirmation to the
Irish Takeover Panel.
In deciding to grant the waiver, the Irish Takeover Panel noted
inter aliathat the Company Shareholders will be required to approve
the Proposed Midwestern Reorganisation at the EGM and will be
provided in that regard with a Re-Admission document (being this
Document) containing all of the relevant information in relation to
the transactions.
Confirmations
Toscafund, on behalf of the Toscafund Managed Funds (being the
holders holding more than 50 per cent. of the Company's shares
capable of being voted on a resolution to approve a Rule 9 Waiver
Resolution (the "Independent Shares")) has confirmed the following
to the Irish Takeover Panel:
1. the Toscafund Managed Funds are the beneficial owner of
326,736,082 Ordinary Shares in the issued share capital of the
Company, representing at the date hereof 72.62 per cent. of the
voting rights in the Company and has absolute discretion over the
manner in which the related shares are voted and voting rights are
exercised. These shares are held free of all liens, pledges,
charges and encumbrances;
2. that: (a) there is no connection between the Toscafund
Managed Funds and Midwestern; and (b) the Toscafund Managed Funds
are an Independent Shareholder of the Company, as defined above;
and
3. that, in connection with the Proposed Midwestern Reorganisation:
a. the Toscafund Managed Funds consent to the Irish Takeover
Panel granting a waiver from the obligation for Midwestern to make
a Rule 9 Offer to the shareholders of the Company;
b. the Toscafund Managed Funds, being the Independent
Shareholder holding more than 50 per cent. of the voting rights
capable of being exercised on a Rule 9 Waiver Resolution to approve
the waiver from the obligation for Midwestern to make a Rule 9
Offer, have consented to the Irish Takeover Panel dispensing with
the requirement that the waiver
a.
from such obligation be conditional on a Rule 9 Waiver
Resolution being approved by a vote of Independent Shareholders of
the Company at a general meeting; and
c. the Toscafund Managed Funds would vote in favour of a Rule 9
Waiver Resolution to waive the obligation for Midwestern to make a
Rule 9 Offer were one to be put to the Independent Shareholders of
the Company at a general meeting.
In giving the confirmations referred to above, Toscafund
acknowledges:
1. that, as a result of the Tosca Managed Funds (being the
Independent Shareholder holding more than 50% of the voting rights
capable of being exercised on a Rule 9 Waiver Resolution) giving
such confirmations, the Irish Takeover Panel would grant a waiver
from the obligation for Midwestern to make a Rule 9 Offer without
the requirement for the waiver to be approved by Toscafund Managed
Funds as the Independent Shareholder at a general meeting of the
shareholders of the Company; and
2. that if no Rule 9 Waiver Resolution is included in the
resolutions at the EGM to be held in connection with the Proposed
Midwestern Reorganisation, there would be no requirement for the
Company either (i) to obtain and make known to its shareholders
competent independent advice under Rule 3 of the Irish Takeover
Rules on the Proposed Midwestern Reorganisation and the waiver of
the obligation for Midwestern to make a Rule 9 Offer; or (ii) to
publish a circular to shareholders of the Company in compliance
with the Whitewash Guidance Note in connection with that matter
(albeit that a shareholder circular and re-admission document would
be required to be published pursuant to the AIM Rules).
On the basis that the confirmations from Toscafund and
Midwestern referred to above have been provided to the Irish
Takeover Panel, all of the conditions attaching to the granting of
the Rule 9 Waiver in respect of any obligation on Midwestern to
make a general offer under Rule 9 as a result of the New Ordinary
Shares in the Company to be issued to it pursuant to the Proposed
Midwestern Reorganisation have now been satisfied.
18. Related party transactions under the AIM Rules
Midwestern is a related party of the Company for the purposes of
the AIM Rules for Companies by virtue of Midwestern holding more
than 10% of the Existing Ordinary Shares in the Company and the
level of Midwestern's current interest in MLPL. The MLPL
Reorganisation, and the ELI Reorganisation, are therefore related
party transactions under the AIM Rules for Companies. The Directors
of San Leon (excluding Adekolapo Ademola who is not considered to
be independent as he is a representative of Midwestern on the
Company's board) consider, having consulted with the Company's
nominated adviser, Allenby Capital, that the terms of the MLPL
Reorganisation, and the ELI Reorganisation are fair and reasonable
insofar as the Company's shareholders are concerned.
Following publication of this Document, the Company proposes to
grant awards pursuant to the LTIP over 18,938,209 Ordinary Shares
(representing 2.18 per cent. of the Fully Enlarged Ordinary Share
Capital) to certain of its employees and the Board, details of
which are set out in paragraph 6.2.16 of Part 12 of this Document.
The issuance of these awards to the Directors will be considered to
be a related party transaction under Rule 13 of the AIM Rules for
Companies and the Company will announce further details in relation
to this separately in due course once the issuance of these awards
has occurred.
19. Taxation
General information relating to Irish and UK taxation with
regards to Re-Admission is summarised in Part 10 of this
Document.
This Document has been prepared on the basis of current
legislation, rules and practice and the advisers' interpretation
thereof. Such interpretation may not be correct and it is always
possible that legislation, rules and practice may change. Any
changes in legislation and in particular any changes to bases of
taxation, tax relief and rates of tax may affect the availability
of reliefs.
A Shareholder who is in any doubt as to their personal tax
position, or is subject to tax in a jurisdiction other than the UK
or Ireland, should consult their own independent financial advisers
immediately.
20. Nigeria country, regulatory and legislative environment
Summary information on Nigeria and its regulatory and
legislative framework for the oil and gas market is set out in Part
5 of this Document.
21. Re-Admission to AIM and dealings
The MLPL Reorganisation, the ELI Reorganisation and the Further
ELI Investments constitute a 'reverse takeover' under the AIM Rules
for Companies and are therefore dependent upon the approval of
Shareholders being given at the EGM, details of which are set out
below.
Resolutions will be proposed at the EGM to approve the
Proposals. If the Resolutions are duly passed at the EGM, then upon
Re-Admission, the admission of the Company's Existing Ordinary
Shares to trading on AIM will be cancelled (immediately prior to
Re-Admission) and the Initially Enlarged Ordinary Share Capital
will be admitted to trading on AIM. For uncertificated holders,
Euroclear Bank accounts, will be credited (as applicable) with New
Ordinary Shares and Preference Shares on the day of Re-Admission.
For certificated holders only, dispatch of share certificates for
New Ordinary Shares and Preference Shares should occur no later
than 14 days following Re-Admission. On Re-Admission, share
certificates in respect of the Existing Ordinary Shares will cease
to be valid and they should be destroyed on receipt of the
appropriate share certificate representing the New Ordinary Shares.
Transfers between the date on which the Subdivision becomes
effective and the date on which share certificates in respect of
the New Ordinary Shares are sent out will be certified against the
register if required. No temporary or renounceable documents of
title in respect of any of the New Ordinary Shares will be issued.
It is anticipated that the Company will publish a Supplementary
Admission Document ahead of Re-Admission. Re-Admission will
constitute the admission of the enlarged entity pursuant to Rule 6
and Rule 14 of the AIM Rules for Companies and will effect the
completion of the reverse takeover.
Application will be made by the Company for the Initially
Enlarged Ordinary Share Capital to be admitted to trading on AIM
and it is anticipated, following the requisite shareholder and
NUPRC's Approval, Ministerial Consent, NFCCPC Negative Clearance
and the satisfaction of the other conditions precedent of MLPL
Reorganisation as set out in Part 2 of this Document that
Re-Admission will become effective and that trading in the
Initially Enlarged Ordinary Share Capital on AIM will commence in
Q4 2022. It is anticipated that the Further ELI Investments will be
completed in Q3 2022.
However, if the MLPL Reorganisation is not completed, the
Existing Ordinary Shares will continue to be traded on AIM, and the
Subdivision will not occur and the New Ordinary Shares will not be
issued or admitted to trading on AIM. San Leon would retain a 40%
equity interest in MLPL with Midwestern continuing to own the
remaining interest in MLPL. The outstanding MLPL Loan Notes would
be payable by MLPL (or by Midwestern as guarantor of the MLPL Loan
Notes) to San Leon within 90 days of termination of the MLPL
Reorganisation Agreement. If the Eroton OML 18 Transactions are not
completed, Eroton would retain a 27% effective economic interest in
the OML 18 licence, Sahara and Bilton would retain effective
economic interests in the OML 18 licence of 16.2% and 1.8%
respectively and the Eroton Litigation as set out in paragraph 3.4
of Part 2 of this Document would continue.
Working Capital effect
The Directors have prepared a detailed cash flow forecast for
the Group for the period from 1 June 2022 to 31 December 2023.
The principal assumptions underlying the cash flow forecast and
the availability of finance to the Group are as follows:
(i) the proposed reorganisation to consolidate Midwestern's
shareholdings in: i) the Company; and
ii) MLPL into a single shareholding in the Company completes in
the second half of 2022. The Proposed Transaction also comprises,
inter alia, a proposed consolidation of Midwestern's indirect debt
and equity interests in ELI Malta with those of the Company, as
well as further new debt and new and existing equity investments to
be made by San Leon pursuant to the Further ELI Investments;
(ii) 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;
(iii) the New Facility of $50 million has been secured to finance the Proposed Transaction;
(iv) elimination of the MLPL Loan Notes on completion of the Proposed Transaction;
(v) under the Asset Management Agreement with Eroton, San Leon
receives $500,000 per month for technical and financial advisory
services following completion of the Proposed Transaction;
(vi) repayments from ELI of loan notes of US$37.6 million during 2022 and 2023;
(vii) repayment from Eroton under the Master Services Agreement of $3m during 2022; and
(viii) a further loan of $2.5 million is given to Decklar in
relation to its Oza investment pursuant to current discussions.
Due to the Proposed Transaction not having completed at the date
of this Document there is an inherent material uncertainty that
completion will not occur as anticipated.
The Group has modelled various other scenarios assuming the
Proposed Transaction does not complete and given the Group's well
understood cost base, the principal uncertainty if the Proposed
Transaction does not complete relates to the quantum and timing of
receipt of interest and capital repayments on the MLPL Loan, 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
Loan Notes and ELI loan notes have both been credit impaired in the
annual report and accounts of the Company for the year ended 31
December 2021.
In the ultimate downside scenario where no repayments are
received from MLPL and ELI, the New Facility can be drawn by the
Company to facilitate completion of the Further ELI Investments,
with the remaining balance being used for general corporate
purposes. In this scenario the working capital requirements of the
Group can be met for the 12-month period from the date of approval
of the financial statements, although a reduction to administrative
costs is required in 2023, which the Directors believe is
achievable and within their control.
However, while the working capital requirements of the Group can
be met for the 12-month period, the Directors believe that the
continued viability of the Group and Company into the future is
dependent on the completion of the Proposed Transaction. As such,
the completion of the Proposed Transaction creates significant
uncertainty upon the Group and Company's ability to continue as a
going concern beyond the 12-month period. The Directors' have
concluded that this represents a material uncertainty which may
cast significant doubt upon the Group and Company's ability to
continue as a going concern and that, therefore, the Group and
Company may be unable to continue realising its assets and
discharging its liabilities in the normal course of business.
The Risks for the Company in the event that the MLPL
Reorganisation is not completed are set out in paragraph 5.1 of
Part 4 of this Document.
22. Further details of the Preference Shares and the Deferred Shares
Preference Shares
In addition to the payment of the Preference Amount of
US$40,000,000 and any Shortfall Amount as detailed in paragraph
11.4 of Part 4 of this Document, the Preference Shares confer the
following rights on their holders and have the following
attributes:
(a) the right to the payment of the preference dividend in
priority to the payment of dividends or on a winding up of the
Company right to the payment of the preference dividend before the
repayment of capital to the holders of any other class or classes
of shares in the Company;
(b) they may be freely transferred;
(c) they confer no right to attend, speak or vote at any general meeting of the Company;
(d) they will not be listed or traded on any stock exchange or other trading facility; and
(e) on the payment in full of the Preference Amount and any
Shortfall Amount, each Preference Share will automatically convert
into one Deferred Share.
Where title to Ordinary Shares is currently held in certificated
(i.e. paper) form, the title to the Preference Shares resulting
from the Subdivision can continue to be held in certificated form
and paper certificates will be issued to the holders. It is
expected that the Preference Shares will be issued to Euroclear
Nominees and that the Preference Shares will be held in the
Euroclear System for underlying holders and, where such holders are
not EB Participants, as CDIs via the CREST System in the same
manner as New Ordinary Shares. The Preference Shares may be
withdrawn from the Euroclear System and holders may be entered on
the register of members of the Company. Holders may be issued with
a share certificate, in which event transfer and settlement of the
Preference Shares will take place via the Company registrars by
physical delivery of paper share transfers and certificates, which
may mean a delay in effecting transfer and settlement when compared
to settlement via the Euroclear System or CREST System.
It is emphasised that there is no intention to seek a listing or
admission to trading on AIM or any other stock exchange for the
Preference Shares.
Deferred Shares
Following the payment of the Preference Amount, the Preference
Shares will convert into Deferred Shares. The rights attached to
the Deferred Shares are very limited in nature and they have
virtually no economic or participation rights in the Company. The
most significant attributes of the Deferred Shares are as
follows:
(a) no right to participate in the profits of the Company either
by the payment of dividend or any return of capital save that it
can participate in a return of capital only after the holder of
every New Ordinary Share has received the sum of EUR10,000,000 on
each such share;
(b) confer no right to attend, speak or vote at any general meeting of the Company;
(c) will not be listed or traded on any stock exchange or other trading facility;
(d) save for transmission on death or bankruptcy and save for
transfer from Euroclear may not be freely transferred;
(e) no share certificates shall be issued in respect of Deferred Shares; and
(f) may be redeemed by the Company for an aggregate redemption
price of EUR1 in respect of all the Deferred Shares in issue in the
Company or may be acquired by the Company or surrendered for nil
consideration.
It is emphasised that there is no intention to seek a listing or
admission to trading on AIM or any other stock exchange for the
Deferred Shares.
New Memorandum and Articles of Association
A copy of the New Memorandum and Articles of Association in the
form proposed to be amended by Resolution 4 (marked to highlight
the proposed changes) is available and (will be so available until
the conclusion of the EGM) on the Company's website
www.sanleonenergy.com/ and at its registered office at 2 Shelbourne
Buildings, Crampton Avenue, Dublin 4 D04 W3V6, Ireland and will
also be available at the EGM for at least fifteen minutes before,
and for the duration of, the EGM. With a view to being responsible
and cautious in the light of the ongoing risk of COVID and also
with a view to prioritising the health and safety of our
Shareholders and employees, Shareholders are requested not to
attend at the address above to inspect the New Memorandum and
Articles of Association but instead to inspect them on the
Company's website.
23. Euroclear Bank & Euroclear System, CREST & CREST Depository Interests
23.1 New Ordinary Shares and Preference Shares
(a) Electronic settlement of transactions in the New Ordinary
Shares or Preference Shares of the Company following Re-Admission
may take place within the Euroclear System or the CREST System.
While trades may be settled in the Euroclear System or the CREST
System, holders who wish to withdraw their shares from the
Euroclear System and become registered as holders and (in the case
of the Ordinary Shares, for so long as required by law before
implementation in Ireland of the provisions of CSDR relating to
dematerialisation of traded shares) retain share certificates will
be able to do so.
(b) Under the Euroclear System, instead of holding an ordinary
share or a Preference Share a holder has a co-ownership right to a
corresponding interest in a pool of the ordinary shares or as the
case may be, Preference Shares which are registered in the name of
Euroclear Nominees and admitted in the Euroclear System. The
holder's interest in such pool of ordinary shares is governed and
regulated by Belgian law and is, accordingly referred to as the
Belgian Law Rights. Further details of Belgian Law Rights are set
out in paragraph 2 of Part 11 and in the EB Rights of Participants
Document. Alternatively, a holder may hold their Belgian Law Rights
through a CREST Depository Interest (or CDI), as set out in
paragraph 3 of Part 11. Settlement of such trades takes place in
the CREST System through a CDI representing the Belgian Law
Rights.
(c) Persons who hold their interests in ordinary shares as
Belgian Law Rights under the Euroclear System or as CDIs under the
CREST System, should consult with their stockbroker or other
intermediary at the earliest opportunity for further information on
the processes and timelines for submitting proxy votes for the EGM
through the respective systems. For voting services offered by
custodians holding Irish corporate securities directly with
Euroclear Bank, please contact your custodian.
(d) As the Preference Shares do not confer any voting rights on
their holders, persons who hold their interests in Preference
Shares as Belgian Law Rights under the Euroclear System or as CDIs
under the CREST System will not have any ability to use the
processes and mechanisms of such systems to exercise voting
rights.
(e) It is emphasised that no application will be made of the
Preference Shares to trading on AIM or any other stock
exchange.
24. Valuation Report
The consideration being provided by Midwestern to San Leon in
subscribing pursuant to the MLPL New Shares Subscription for the
MLPL New Shares is the MLPL Reorganisation Loan Notes being a loan
note to be issued by Midwestern in favour of San Leon in an amount
equal to the value of Midwestern's 60% equity interest in MLPL and
the benefit of a US$239.9 million receivable owed to Midwestern by
MLPL to be transferred to San Leon Energy Nigeria. To the extent
that such consideration may be deemed to be non-cash consideration
under the Irish Companies Act 2014 San Leon has commissioned BDO
LLP to produce a valuation report (the "MLPL Valuation Report")
which will be required to be sent to Midwestern, before issuing the
MLPL New Shares to Midwestern. Under section 1028 of the Irish
Companies Act 2014 the MLPL Valuation Report must be made by an
independent person, being a person qualified at the time of the
report to be appointed or to continue to be the statutory auditor
of San Leon.
The Irish Companies Act 2014 sets out the contents of the MLPL
Valuation Report regarding the MLPL New Shares, which are:
(a) the nominal value and the amount of any premium payable on the shares;
(b) the description of the consideration and, as respects the
consideration that the independent person itself has valued, a
description of that part of the consideration, the method used to
value it and the date of the valuation; and
(c) the extent to which the nominal value and any premium are to
be treated as paid up by the consideration and in cash.
The MLPL Valuation Report will contain a note by the independent
person:
(a) in the case of a valuation made by another person, that it
appeared to the independent person reasonable to arrange for it to
be so made, or to accept a valuation so made;
(b) irrespective of whether the valuation has been by that
person or the independent person, that the method of valuation was
reasonable in all the circumstances;
(c) that it appears to the independent person that there has
been no material change in the value of the consideration in
question since the valuation; and
(d) that on the basis of the valuation the value of the
consideration, together with any cash by which the nominal value of
the shares or any premium payable on them is to be paid up, is not
less than so much of the aggregate of the nominal value and the
whole of any such premium as is treated as paid up by the
consideration and any such cash.
A copy of the MLPL Valuation Report will be obtained by San Leon
during the six months immediately preceding the date of the
allotment of the MLPL New Shares and a copy of the MLPL Valuation
Report has to be sent to Midwestern before the MLPL New Shares are
issued. San Leon will deliver a copy of the MLPL Valuation Report
to the Registrar of Companies in Ireland at the same time that it
delivers to the Registrar particulars of the allotments of those
shares being within 30 days after the date of allotment.
The consideration to be provided by Midwestern in subscribing
pursuant to the ELI New Shares Subscription Agreement for the ELI
New Shares is the ELI Reorganisation Loan Notes, being a loan note
issued by Midwestern in favour of San Leon in an amount equal to
the value of 13.77% of the entire issued share capital of ELI Malta
and the loan receivable of US$15,300,000 from ELI Malta to be
transferred to San Leon ELI. To the extent that such consideration
may be deemed to be non-cash consideration under the Irish
Companies Act 2014 San Leon has as a precaution commissioned BDO to
produce a valuation report (the "ELI Valuation Report") which will
be required to be sent to Midwestern, before issuing the ELI New
Shares to Midwestern. As with the MLPL Valuation Report, the ELI
Valuation Report must be made by an independent person, being a
person qualified at the time of the report to be appointed or to
continue to be the statutory auditor of San Leon. The contents and
the arrangements regarding the delivery to Midwestern and the
Registrar of Companies of the ELI Valuation Report will be similar
to those
set out above in relation to the MLPL Valuation Report.
The number of shares to be subscribed for by Midwestern as part
of the MLPL Reorganisation has been agreed and fixed between
Midwestern and the Company and is not subject to adjustment by
reference to the market price of the Ordinary Shares or New
Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed,
under the Irish Companies Act 2014, the market price of the New
Ordinary Shares on the date of allotment of the MLPL New Shares
must be not greater than the value per share to be recorded in the
MLPL Valuation Report. Similarly, in order for the ELI
Reorganisation to proceed, the MLPL Reorganisation must complete
and the market price of the New Ordinary Shares on the date of
allotment of the ELI New Shares must be not greater than the value
per share to be recorded in the ELI Valuation Report.
It should be noted that in the event that the value of the
consideration to be received by San Leon in consideration of the
allotment of (i) the MLPL New Shares on the date of allotment is
lower than the nominal value of the MLPL New Shares which will be
EUR0.005 per share, the MLPL New Shares will not be allotted and
the MLPL Reorganisation will not complete and/or (ii)
the ELI New Shares on the date of allotment is lower than the
nominal value of the ELI New Shares which will be EUR0.005 per
share, the ELI New Shares will not be allotted and the ELI
Reorganisation will not complete. This is because under the Irish
Company Act 2014 the amount of the consideration to be received by
the Company in consideration of the allotment of the shares must
exceed the nominal value of the shares.
25. Further information
This Document should be read in its entirety. Your particular
attention is drawn to:
-- This Part 1, which includes background to the Proposals and a
summary of the Enlarged Group's assets;
-- Part 2 of this Document which contains further information on
the Midwestern Reorganisation;
-- Part 3 of this Document which contains further information on the Further ELI Investments
-- Part 4 of this Document which contains risk factors relating
to: (i) the Company; (ii) the oil and gas markets; (iii) OML 18 and
Nigeria; and Re-Admission;
-- Part 5 of this Document, which contains country information
focusing on Nigeria's regulatory and legislative framework for the
oil and gas market;
-- Part 6 of this Document which contains details of the Board
and the Group's corporate governance arrangements;
-- Part 7 of this Document, which contains a CPR in respect of OML 18;
-- Part 8A of this Document, which contains financial
information on the Company (incorporated by reference);
-- Part 8B of this Document, which contains financial information on MLPL;
-- Part 8C of this Document, which contains financial information on ELI;
-- Part 9 of this Document, which contains an 'Unaudited pro
forma net asset statement' illustrating the effect of the Proposals
and the New Facility on the net assets of the Group as if the
Proposals and New Facility had been completed on 31 December
2021;
-- Part 10 of this Document, which contains a summary of Irish and UK taxation;
-- Part 11 of this Document, which includes information
regarding the settlement of the New Ordinary Shares, the Euroclear
System and CREST System;
-- Part 12 of this Document, which includes additional
information on the Company and the Enlarged Group; and
-- Part 13 of this Document, which contains the Notice of EGM.
26. Extraordinary General Meeting
Set out in Part 13 of this Document is a notice convening an EGM
to be held at the Herbert Park Hotel, Ballsbridge, Dublin 4, D04
R2T2, Ireland at 11:30 am on 5 August 2022. A summary and
explanation of the Resolutions is set out below. Please note that
the summary and explanation is not the full text of the Resolutions
and Shareholders should review the full text of the Resolutions
before deciding whether or not to approve them.
At the EGM of the Company to be held on 5 August 2022, authority
will be sought from Shareholders,
inter alia , to:
(i) approve the MLPL Reorganisation and ELI Reorganisation;
(ii) approve the Further ELI Investments;
(i)
(iii) sub-divide each issued Existing Ordinary Share into one
New Ordinary Share and one Preference Share;
(iv) sub-divide each of the 224,956,513 unissued Existing
Ordinary Shares into two Deferred Shares;
(v) sub-divide each of the 2,172,536,486 unissued Existing
Ordinary Shares into two New Ordinary Shares;
(vi) grant authority for the directors to allot New Ordinary
Shares (including the New Shares); and
(vii) grant authority to waive statutory pre-emption rights in
respect of, inter alia, the MLPL New Shares and the ELI New
Shares.
A summary of the resolutions proposed at the EGM is as
follows:
Resolution 1 - Ordinary Resolution
MLPL Reorganisation and the ELI Reorganisation
Under the AIM Rules for Companies, the MLPL Reorganisation, the
ELI Reorganisation and the Further ELI Investments constitute a
reverse takeover. An ordinary resolution will therefore be proposed
in order to:
(i) authorise the proposed completion of the transfer to the
Company of 60% of the shares in MLPL and the transfer to the
Company of Midwestern's interest in ELI and to approve such
transfers as reverse-takeovers in accordance with the requirements
of Rule 14 of the AIM Rules for Companies. This will enable the
Company to obtain a 44.1% initial indirect economic interest in the
OML 18 block, onshore Nigeria and a 27.093% interest in ELI;
and
Further ELI Investments
(ii) authorise the proposed completion of the Further ELI
Investments by the Company in ELI and to approve the Further ELI
Investments as a reverse-takeover in accordance with the
requirements of Rule 14 of the AIM Rules for Companies. This will
enable the Company to obtain an interest of up to 50.64% in ELI and
San Leon becoming a significant holder of loans to ELI.
Resolution 2 - Special Resolution
Approval of the subdivision and creation of the Preference
Shares
A special resolution will be proposed to result in the
subdivision of the 449,913,026 Existing Ordinary Shares in issue in
the Company into one New Ordinary Share and creation of one
Preference Share, to subdivide each of the 224,956,513 of the
unissued Existing Ordinary Shares in the Company into two Deferred
Shares, and to subdivide each of the 2,172,536,486 being the
balance of the unissued Existing Ordinary Shares in the Company
into two New Ordinary Shares, in each case subject to the rights
set out in the New Memorandum and Articles of Association.
This will result in each holder of one Existing Ordinary Share
immediately prior to the Subdivision holding one New Ordinary Share
and one Preference Share.
Resolution 3 - Special Resolution
Amendment of Share Capital Clause in the Memorandum and Articles
of Association
A special resolution will be proposed to amend the capital
clauses in the Existing Memorandum and Articles of Association to
provide for the share capital to be divided into New Ordinary
Shares, Preference Shares and Deferred Shares.
Resolution 4 - Special Resolution
Adoption of New Memorandum and Articles of Association
A special resolution will be proposed that the New Memorandum
and Articles of Association in the form produced to the EGM and
which have been available for inspection at the registered office
of the Company and on the Company's website since the date of the
Notice of EGM, be adopted in substitution for the Existing
Memorandum and Articles of Association of the Company. The New
Memorandum and Articles of Association will contain the rights
attaching to the Preference Shares and
the Deferred Shares as set out in paragraph 22 of this Part 1
above and the changes to the share capital as described in
Resolution 2 above.
Resolution 5 - Ordinary Resolution
Authority for the Directors to allot New Ordinary Shares.
An ordinary resolution will be proposed so as to give the
Directors authority, pursuant to section 1021 of the Irish
Companies Act 2014, in place of the existing authority granted at
the AGM in 2021, to exercise all the powers of the Company to: (i)
allot the New Shares (ii) allot up to an additional amount of
EUR1,446,571.68 being 33% of the issued ordinary share capital of
the Company as increased by the allotment of the MLPL New Shares
and the ELI New Shares. This authority will commence immediately
prior to Re-Admission on and shall expire at the conclusion of the
AGM of the Company in 2023 or, if earlier, the date which is
fifteen months from the date of the passing of this resolution.
Resolution 6 - Special Resolution
Disapplication of statutory pre-emption rights.
A special resolution will be proposed to give the Directors
power at their discretion, in place of the existing powers granted
at the AGM in 2021, without applying statutory pre-emption rights
for shareholders (i) to allot equity securities by way of a rights
issue, open offer or otherwise in favour of ordinary shareholders
and/or any persons having a right to subscribe for or convert
securities into ordinary shares in the capital of the Company
(including, without limitation, any person entitled to options
under any of the Company's shares option schemes for the time
being); and (ii) to allot the MLPL New Shares and ELI New Shares
and (iii) to allot equity securities with an aggregate nominal
value of an amount up to EUR434,014.91 being approximately 10% of
the issued ordinary share capital of the Company following the
issue of the MLPL New Shares. The power will have effect
immediately prior to Re-Admission and will expire at the conclusion
of the AGM of the Company in 2023, or if earlier, the date which is
fifteen months from the date of passing of this resolution.
27. Action to be taken
All Shareholders on the register at the requisite time will be
eligible to vote on all the Resolutions. The full text of the
Resolutions is set out in the Notice of EGM in Part 13 of this
Document.
Attendance at the EGM
The Company expects to be able to welcome shareholders to attend
the EGM in person. In the event that it becomes necessary or
appropriate to make alternative arrangements for the holding of the
EGM, or it is not possible to hold the EGM either in compliance
with public health guidelines or applicable law or where it is
otherwise considered that proceeding with the EGM as planned poses
an unacceptable health and safety risk, the EGM may be adjourned or
postponed or relocated to a different time and/or venue, we will
ensure that shareholders are given as much notice as possible via
RNS announcement and the Company's website: www.sanleonenergy.com.
Should you choose not to physically attend the EGM, we encourage
Shareholders to avail of the proxy voting service to ensure they
can vote on the Resolutions proposed at the EGM and be represented
at the EGM. By submitting a proxy as soon as possible, you can
ensure that your vote on the Resolutions is cast in accordance with
your wishes without attending in person.
Voting by proxy
Should we need to change the arrangements for the holding of the
EGM in this way, it is possible that we will not be in a position
to accommodate shareholders beyond the minimum required to hold a
quorate meeting. In light of this uncertainty, we strongly
encourage shareholders to submit a proxy vote in advance of the EGM
and to appoint the Chair of the EGM as their proxy, rather than a
named person who, if circumstances change, may not be permitted to
attend and vote at the EGM because of public health guidance. The
process for appointing a proxy and/or voting in connection with the
Resolutions to be proposed at the EGM depends on the manner in
which you hold your shares. Further details are set out in the
notes to the Notice of EGM.
Please note that persons holding their interests in the Company
through the Euroclear Bank or CREST (CDI) systems must comply with
any earlier or other voting submission deadline imposed by those
systems. Further information in this respect is provided on page 2
of this Document and in the notes to the Notice of EGM.
28. Recommendation
The Directors consider that the completion of the MLPL
Reorganisation, the ELI Reorganisation and the Further ELI
Investments and Resolutions 1 to 6 are in the best interests of the
Company and the Shareholders as a whole. Accordingly, the Directors
unanimously recommend that you vote in favour of Resolutions 1 to
6, as those Directors who own Existing Ordinary Shares have
irrevocably undertaken to do in respect of their entire beneficial
holdings of 9,495,864 Existing Ordinary Shares (representing
approximately 2.11% of the issued ordinary share capital of the
Company as at the date of this Document).
In addition, Midwestern has given an irrevocable undertaking to
the Company to vote in favour of Resolutions 1 to 6 to be proposed
at the EGM in respect of their holdings totalling, in aggregate
59,299,608 Existing Ordinary Shares, representing approximately
13.18% of the Existing Share Capital as at the date of this
Document. Details of the irrevocable undertakings are set out in
paragraph 10.3 of Part 12 of this Document.
In total, therefore, the Company has received irrevocable
undertakings to vote in favour of Resolutions 1 to 6 to be proposed
at the EGM in respect of holdings totalling, in aggregate,
68,795,472 Existing Ordinary Shares, representing 15.29% of the
Existing Share Capital as at the date of this Document.
Yours faithfully,
Mutiu Sunmonu
Non-Executive Chairman
PART 2
THE PROPOSED MIDWESTERN REORGANISATION
1. Introduction
The Proposed Midwestern Reorganisation is conditional on the
completion of the Eroton OML 18 Transactions and includes the MLPL
Reorganisation, the ELI Reorganisation and the entry into certain
associated documentation. The Midwestern Reorganisation will result
in San Leon owning on completion a 44.1% initial indirect economic
interest in OML 18 with the remaining 55% interest being held by
NNPC and 0.9% by Bilton. The ELI Reorganisation will result in San
Leon owning on completion a 27.1% interest in ELI which is the
owner of the ACOES to be utilised by OML18 and San Leon becoming a
significant holder of loans to ELI.
2. Current Structure
The following structure chart shows the respective holdings of
San Leon and Midwestern in ELI and MLPL as at the date of this
Document:
3. The Eroton OML 18 Transactions
3.1 Overview of the Eroton OML 18 Transactions
Eroton, the operator of the OML 18 licence, currently holds a
27% effective economic interest in the OML 18 licence. Eroton has
conditionally agreed, or will conditionally agree, to acquire
additional interests through the Sahara OML 18 Transaction and the
Bilton OML 18 Transaction resulting in the acquisition of their
effective economic interests in OML 18 of 16.2% and 1.8%
respectively. The MLPL Reorganisation and the ELI Reorganisation
are conditional, inter alia, upon completion of the Eroton OML 18
Transactions.
In order to fund the Sahara OML 18 Transaction and Bilton OML 18
Transaction, Eroton proposes to enter into the New Eroton Debt
Facilities which represent senior secured reserve- based lending
facilities totalling US$750,000,000 to be provided to Eroton by a
lending consortium led by Afreximbank for the purposes of, inter
alia: (i) facilitating the Eroton OML 18 Transactions; and (ii) the
repayment of Eroton's existing financing. The details of the
credit
committee approved term sheet associated with the New Eroton
Debt Facilities from the lead lender, Afreximbank is set out in
paragraph 3.2.5 below. The New Eroton Debt Facilities are
conditional, amongst other things, upon definitive documentation in
respect of the facility and associated security package being
entered into. Subject to completion of the New Eroton Debt
Facilities, the New Eroton Debt Facilities will replace the
Existing Eroton Debt Facility, which will be repaid in full and
GTB's security in connection with the Existing Eroton Debt Facility
will be discharged.
The Sahara OML 18 Acquisition Agreement has been negotiated but
has not been executed at this point and is only expected to be
executed once Eroton has funds available to it to satisfy the
consideration under the New Eroton Debt Facilities. Accordingly,
whilst the terms have been negotiated, there can be no certainty
that it will be entered into or the terms on which it will be
entered into.
Whilst the Bilton OML 18 Acquisition Agreement has been
executed, it is also conditional upon the Sahara OML 18 Acquisition
Agreement being entered into completing following the New Eroton
Debt Facilities proceeding. Accordingly as there can be no
certainty that the Sahara OML 18 Acquisition Agreement will be
entered into or the terms on which it will be entered into and
there is no certainty that this condition will be satisfied.
The Sahara OML 18 Acquisition Agreement, if executed, will be
and the Bilton OML 18 Acquisition Agreement is subject to certain
conditions before completion can occur, details of the key
conditions are summarised in paragraphs 3.3.1 and 3.3.2 below. In
particular, the Sahara OML 18 Acquisition Agreement, if executed
will be, and the Bilton OML 18 Acquisition Agreement is conditional
on the entry into the Settlement Agreement associated with certain
litigation between Eroton, Bilton and Sahara. Further details of
the Settlement Agreement and the associated litigation are included
in paragraphs 3.3.3 and
3.4 below.
It is emphasised that the MLPL Reorganisation is conditional,
amongst other things, on the entry into and the utilisation of the
New Eroton Debt Facilities and the Eroton OML 18 Transactions
completing. Whilst the terms of the New Eroton Debt Facilities have
been approved by the lead lender, Afreximbank, the Sahara OML 18
Acquisition Agreement has been negotiated it is not expected to be
entered into until after the New Eroton Debt Facilities have been
entered into and the funds are available and the Bilton OML 18
Acquisition Agreement has been executed, subject to certain
conditions, they are dependent on, inter alia, the New Eroton Debt
Facilities being entered into and becoming unconditional and being
drawn down. Furthermore, the New Eroton Debt Facilities have not
been entered into and once entered into will be subject to
additional conditions to drawdown which will have to be satisfied
prior to utilisation of the facilities and for completion of the
Sahara OML 18 Transaction and the Bilton OML 18 Transaction. These
matters are not under the Company's control. Accordingly, there is
no certainty that the New Eroton Debt Facilities will be entered
into or that the Eroton OML 18 Transactions will proceed or that
they will proceed on the currently proposed terms. Only once the
Eroton OML 18 Transactions complete and the other conditions to the
MLPL Reorganisation have been satisfied will the Company be able to
proceed with the MLPL Reorganisation and Re-Admission. There can
therefore be no guarantee that the MLPL Reorganisation and
Re-Admission will occur.
A summary of the key risks relating to the Eroton OML 18
Transactions and associated financing are set out in paragraph 2 of
Part 4 of this Document.
The number of shares in the Company to be subscribed for by
Midwestern as part of the MLPL Reorganisation has been agreed and
fixed between Midwestern and the Company and is not subject to
adjustment by reference to the market price of the Ordinary Shares
or New Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed the
market price of the New Ordinary Shares on the date of allotment of
the MLPL New Shares must be not greater than the value per share
shown recorded in the MLPL Valuation Report.
The Board are of the view that the Eroton OML 18 Transactions
and New Eroton Debt Facilities are important for several reasons,
including:
(i) the Eroton OML 18 Transactions underpin the valuation and
rationale of the MLPL Reorganisation by delivering, indirectly, to
San Leon a far greater interest in OML 18 than is currently held by
Eroton;
(ii) the Sahara OML 18 Transaction resolves a series of disputes
that have arisen between Eroton and its OML 18 joint venture
partner, Sahara. Several of these disputes have developed into the
Eroton Litigation, although none are currently being actively
pursued, and all legal actions between Eroton and Sahara will be
extinguished as part of the Sahara OML 18 Transaction via the
Settlement Agreement, thereby enabling Eroton to focus on the
commercial development of OML 18 as a world class oil and gas
field; and
(iii) the New Eroton Debt Facilities are a condition to and are
necessary to fund the Eroton OML 18 Transactions and also enable
the Existing Eroton Debt Facility to be refinanced.
If the New Eroton Debt Facilities are not entered into or once
entered into does not complete or the conditions to drawdown are
not satisfied and/or the Eroton OML 18 Transactions do not complete
then the MLPL Reorganisation cannot complete. The New Eroton Debt
Facilities and the Eroton OML 18 Transactions are not in the
Company's control and even if shareholders approve the Resolutions,
they may not occur. In any of these cases then San Leon would
retain a 40% equity interest in MLPL with Midwestern continuing to
own the remaining interest in MLPL and Eroton would retain a 27%
economic interest in OML 18, meaning that San Leon would continue
to have a 10.58% initial indirect economic interest in OML 18. The
outstanding MLPL Loan Notes would become payable by MLPL (or by
Midwestern as guarantor to the MLPL Loan Notes) to San Leon within
90 days of termination of the MLPL Reorganisation Agreement.
The New Eroton Debt Facilities and the Eroton OML 18
Transactions are also important to the future financial condition
of Eroton, and given the Company's significant focus on OML 18 and
its operator Eroton, the failure of the New Eroton Debt Facilities
and the Sahara OML 18 Transaction to complete, could have a
material and adverse effect on Eroton, with a consequent adverse
effect on Company's business, financial condition and results.
The Directors have prepared a detailed cash flow forecast for
the Group for the period from 1 June 2022 to 31 December 2023.
The principal assumptions underlying the cash flow forecast and
the availability of finance to the Group are as follows:
(i) the Proposed Transaction completes in the second half of
2022. The Proposed Transaction also comprises, inter alia, a
proposed consolidation of Midwestern's indirect debt and equity
interests in ELI Malta with those of the Company, as well as
further new debt and new and existing equity investments to be made
by San Leon pursuant to the Further ELI Investments;
(ii) 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;
(iii) the New Facility of $50 million has been secured to finance the Proposed Transaction;
(iv) elimination of the MLPL Loan Notes on completion of the Proposed Transaction;
(i)
(v) under the Asset Management Agreement with Eroton, San Leon
receives $500,000 per month for technical and financial advisory
services following completion of the Potential Transaction;
(vi) repayments from ELI of loan notes of US$37.6 million during 2022 and 2023;
(vii) repayment from Eroton under the Master Services Agreement, of $3m during 2022; and
(viii) a further loan of $2.5 million is given to Decklar in
relation to its Oza investment pursuant to current discussions.
Due to the Proposed Transaction not having completed at the date
of this Document there is an inherent material uncertainty that
completion will not occur as anticipated.
The Group has modelled various other scenarios assuming the
Proposed Transaction does not complete and given the Group's well
understood cost base, the principal uncertainty if the Proposed
Transaction does not complete relates to the quantum and timing of
receipt of interest and capital repayments on the MLPL Loan, 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
Loan Notes and ELI loan notes have both been credit impaired in the
annual report and accounts of the Company for the year ended 31
December 2021.
In the ultimate downside scenario where no repayments are
received from MLPL and ELI, the New Facility can be drawn by the
Company to facilitate completion of the Further ELI Investments,
with the remaining balance being used for general corporate
purposes. In this scenario the working capital requirements of the
Group can be met for the 12-month period from the date of approval
of the financial statements, although a reduction to administrative
costs is required in 2023, which the Directors believe is
achievable and within their control.
However, while the working capital requirements of the Group can
be met for the 12- month period, the Directors believe that the
continued viability of the Group and Company into the future is
dependent on the completion of the Proposed Transaction. As such,
the completion of the Proposed Transaction creates significant
uncertainty upon the Group and Company's ability to continue as a
going concern beyond the 12-month period. The Directors' have
concluded that this represents a material uncertainty which may
cast significant doubt upon the Group and Company's ability to
continue as a going concern and that, therefore, the Group and
Company may be unable to continue realising its assets and
discharging its liabilities in the normal course of business.
3.2 Ownership of OML 18 following completion of the Eroton OML 18 Transactions
Following the completion of the Eroton OML 18 Transactions, the
ownership of OML 18 (including any indirect economic interests)
will be as follows:
Bilton's initial indirect economic interest in OML 18 through
Eroton is, however, subject to increase on the following hurdles
being met:
(i) from the date of repayment of the original purchase price*
plus accrued interest accrued thereon until 20 million barrels of
gross OML 18 production is realised, Bilton's economic interest in
Eroton will increase from 2% to 10%, which would result in a
commensurate decrease in San Leon's economic interest in OML 18 to
40.5%; and
(ii) thereafter, when subsequent production hurdles are met,
Bilton's net economic interest in Eroton will increase
incrementally until cumulative gross OML 18 production reaches 40
million barrels, at which point San Leon's economic interest in OML
18 would be 22.5% as Bilton and San Leon's economic interests in
Eroton shall reflect their shareholdings (50% and 50%
respectively).
* Being the price of US$1.1 billion paid for the 45% interest in
OML 18.
Upon Bilton's initial indirect economic interest in OML 18
through Eroton increasing, the Company's indirect economic interest
in OML18 through Eroton will decrease.
Further details of OML 18 are set out in the Competent Persons
report in Part 7 of this Document.
3.3 Material contracts in relation to the Eroton OML 18 Transactions
3.3.1 Sahara OML 18 Acquisition Agreement
Whilst it has been negotiated but not executed, the terms of a
proposed acquisition agreement proposed to be entered into between
Sahara Field Production 18 Limited ("SFP") and Sahara Charitable
Foundation ("SCF") (together, the "Sellers") and Eroton pursuant to
which Eroton will purchase the entire issued share capital of OML
18 Energy Resource Limited ("OML 18 ER ") have been negotiated as
between the parties. The consideration will be US$485,000,000,
comprising a cash consideration of US$410,000,000 and a funding
advance of US$75,000,000, lent by Sahara Field Production Limited
to Eroton, pursuant to part of the New Eroton Debt Facilities in
order to finance the transaction contemplated by the Sahara OML 18
Acquisition Agreement. The Sahara OML 18 Acquisition Agreement has
been negotiated but has not been executed at this point and is not
expected to be executed until after the New Eroton Debt Facilities
have been agreed and entered into.
The acquisition of OML 18 ER by Eroton is expected to be subject
to a number of conditions (the "Sahara OML 18 Conditions")
including, amongst others:
(i) the release of GTB's security over the shares which are
subject to (a) a deed of share charge dated 29 November 2019
between OML 18 ER (as the Borrower), SFP (as Shareholder) and GTB
(as Security Trustee); and (b) a deed of share charge dated 29
November 2019 between OML (as the Borrower), SCF (as Shareholder)
and GTB (as Security Trustee);
(ii) the execution of the Settlement Agreement in the negotiated
form, in full and final settlement of the litigation detailed in
paragraph 3.3 below and the associated filing of the notice of
withdrawal and court-approved settlement of the lawsuits in the
relevant courts; and
(iii) the written consent of the Minister (the "Minister's
Consent") or any other person or entity for the time being
responsible for Petroleum and/or related substances in the Federal
Republic of Nigeria to the transactions which are contemplated
under the Sahara OML 18 Acquisition Agreement (the "Minister's
Consent Condition").
Eroton shall be responsible for paying all costs and other
expenses in respect of obtaining the Minister's Consent. If the
Minister's Consent Condition has not been satisfied on or before
5:00pm on the date falling nine months from the execution of the
Sahara OML 18 Acquisition Agreement (the "Sahara OML 18 Long Stop
Date"), Eroton may extend the Long Stop Date for up to 90 Business
Days (the "Sahara OML 18 Extended Long Stop Date ").
Under the terms of the Sahara OML 18 Acquisition Agreement, the
Sellers respectively agree (in the period up to completion) to
procure that from execution of the Sahara OML 18 Acquisition
Agreement OML 18 ER does not undertake any acts which is outside
the ordinary course of business other than where Eroton has consent
to such acts in writing, and that certain material actions in
relation to the business of Eroton are not undertaken without the
consent of Eroton.
Under the terms of the Sahara OML 18 Acquisition Agreement, the
Sellers will provide certain warranties and indemnities to Eroton
and Eroton has given certain warranties to the Sellers. The
warranties will be given at signing of the Sahara OML 18
Acquisition Agreement and will be repeated on completion. The
warranties will be subject to matters disclosed in the disclosure
letter which is to be exchanged between the Sellers and Eroton or
otherwise disclosed during the conduct of the due diligence
exercise by Eroton.
The warranties and indemnities are subject to certain
limitations including the aggregate total liability of the Sellers
being limited to and shall not exceed an amount equal to 100% of
the consideration under the Sahara OML 18 Acquisition Agreement.
The Sellers will not be liable for any claim under a warranty or
indemnity given by them under the Sahara OML 18 Acquisition
Agreement unless they receive from Eroton written notice in respect
of a claim for breach of either (i) the tax warranties or before
the date falling on the sixth anniversary of the completion date,
or in respect of either of; (ii) the fundamental warranties; or
(iii) the general warranties, on or before the date falling on the
sixth anniversary of the completion date.
The Sahara OML 18 Acquisition Agreement once entered into may be
terminated with immediate effect if (i) the Minister's Consent
Condition has not been satisfied by 5:00 pm
on the Sahara OML 18 Long Stop Date (if this has not been
extended); or (ii) the Sahara OML 18 Conditions remain unfulfilled
by 5:00 pm on the Sahara OML 18 Extended Long Stop Date, by
notifying the other party of termination as a result of the
non-satisfaction of a Condition within the stipulated timeline.
Either party can terminate if the completion arrangements have not
been complied with in all material respects. The meaning of
material for the purposes of the termination provisions is set out
in the Sahara OML 18 Acquisition Agreement.
The Sahara OML 18 Acquisition Agreement will be governed by
English law.
The Sahara OML 18 Acquisition Agreement has been negotiated but
has not been executed at this point and is only expected to be
executed once Eroton has funds available to it to satisfy the
consideration which will require the New Eroton Debt Facilities to
be entered into and the conditions precedent to draw down to have
been satisfied. Accordingly, whilst the terms have been negotiated,
there can be no certainty that they will be entered into or the
terms on which they will be entered into. There can therefore be no
guarantee that the Sahara OML 18 Acquisition Agreement will be
entered into.
In the event that the Eroton OML 18 Transactions do not occur,
Eroton may be in breach of the Existing Eroton Debt Facility
(details of which are set out in paragraph 10.23.14 of Part 12 of
this Document) which was proposed to be remedied through the
refinancing of such facilities through the New Eroton Debt
Facilities.
In the event that repayment of the Existing Eroton Debt Facility
is accelerated then, in the absence of alternative facilities, GTB
would be entitled to effect any of its default remedies under the
Existing Eroton Debt Facility, including the enforcement of its
security.
In addition, in the event that the Eroton OML 18 Transactions do
not occur, the Eroton Litigation is likely to continue (details of
which is set out in paragraph 3.4 of this Part 2) and further
details of the risks around the Eroton Litigation are set out in
paragraphs 2.2 - 2.3 of Part 4 of this Document.
If the Eroton OML 18 Transactions are not completed and the
benefits to the Company expected to result from these transactions
are not achieved this could result in the enforcement of security
by GTB and ultimately Eroton being wound up either as part of the
Eroton litigation or as a result of such default. Any of these
circumstance could result in a material adverse effect on the
Company's business, operations, financial performance and cash flow
and future prospects and the market price of the Ordinary Shares
may be affected.
3.3.2 Bilton OML 18 Acquisition Agreement
An acquisition agreement has been entered into between Bilton
and Bilton Nominees Limited (together, the "Sellers") and Eroton
pursuant to which Eroton will purchase the entire issued share
capital of Bilton OML 18 Limited ("Bilton OML 18"). The
consideration is US$12.5 million.
The acquisition of Bilton OML 18 is subject to a number of
conditions (the "Bilton OML 18 Conditions") including, amongst
others:
(i) the execution of the Sahara OML 18 Acquisition Agreement in the agreed form;
(ii) the release of GTB's security over the shares which are
subject to an undated deed of share charge between Eroton (as the
Borrower), and GTB (as Security Trustee);
(ii) the execution of the Settlement Agreement in the agreed
form, in full and final settlement of the litigation detailed in
paragraph 3.3.3 below and the associated filing of the notice of
withdrawal and court-approved settlement of the lawsuits in the
relevant courts; and
(iii) the written consent of the Minister (the "Minister's
Consent") or any other person or entity for the time being
responsible for Petroleum and/or related substances in the Federal
Republic of Nigeria to the transactions which are contemplated
under the Bilton OML 18 Acquisition Agreement (the "Minister's
Consent Condition").
Eroton shall be responsible for paying all costs and other
expenses in respect of obtaining the Minister's Consent. If the
Minister's Consent Condition has not been satisfied on or before
5:00pm on the date falling nine months from the execution of the
Bilton OML 18 Acquisition Agreement (the "Bilton OML 18 Long Stop
Date"), Eroton may extent the Long Stop Date with up to 90 Business
Days (the "Bilton OML 18 Extended Long Stop Date ").
The Sellers have respectively agreed (in the period up to
completion) to procure that Bilton OML 18 does not undertake any
acts which is outside the ordinary course of business other than
where Eroton has consent to such acts in writing, and that certain
material actions in relation to the business of Eroton is not
undertaken without the consent of Eroton.
Under the terms of the Bilton OML 18 Acquisition Agreement, the
Sellers have provided certain warranties and indemnities to Eroton
and Eroton has given certain warranties to the Sellers. The
warranties have been given at signing of the Bilton OML 18
Acquisition Agreement and will be repeated on completion. The
warranties will be subject to matters disclosed in the disclosure
letter which is to be exchanged between the Sellers and Eroton or
otherwise disclosed during the conduct of the due diligence
exercise by Eroton.
The warranties and indemnities are subject to certain
limitations including the aggregate total liability of the Sellers
being limited to and shall not exceed an amount equal to 100% of
the consideration under the Bilton OML 18 Acquisition
Agreement.
The Sellers will not be liable for any claim under a warranty or
indemnity given by them under the Bilton OML 18 Acquisition
Agreement unless they receive from Eroton written notice in respect
of a claim for breach of either (i) the tax warranties or before
the date falling on the sixth anniversary of the completion date,
or in respect of either of; (ii) the fundamental warranties; or
(iii) the general warranties, on or before the date falling on the
sixth anniversary of the completion date.
The Bilton OML 18 Acquisition Agreement may be terminated with
immediate effect if (i) the Minister's Consent Condition has not
been satisfied by 5:00 pm on the Bilton OML 18 Long Stop Date (if
this has not been extended); or (ii) the Bilton OML 18 Conditions
remain unfulfilled by 5:00 pm on the Bilton OML 18 Extended Long
Stop Date, by notifying the other party of termination as a result
of the non-satisfaction of a Condition within the stipulated
timeline. Either party can terminate if the completion arrangements
have not been complied with in all material respects.
The Bilton OML 18 Acquisition Agreement will be governed by
Nigerian law.
The Bilton OML 18 Acquisition Agreement has been entered into,
subject to conditions, but dependent on the Sahara OML 18
Acquisition Agreement being entered into and the conditions under
the Sahara OML 18 Acquisition Agreement being satisfied. It is
therefore also conditional upon the New Eroton Debt Facilities
being executed and whilst there is a credit committee approved term
sheet for these facilities from the lead lender, Afreximbank, these
facilities are at an early stage and there can be no certainty that
they will be entered into or the terms on which they will be
entered into and the Company cannot control their execution.
Furthermore, once the New Eroton Debt Facilities are entered into
there will be additional conditions to drawdown which will have to
be satisfied prior to utilisation of the facilities and for
completion of the Sahara OML 18 Transaction (if entered into), and
the Bilton OML 18 Transaction. Only once the Eroton OML 18
transactions complete and the other conditions to the MLPL
Reorganisation have been satisfied will the Company be able to
proceed with the MLPL Reorganisation and Re-Admission. There can
therefore be no guarantee that the MLPL Reorganisation and
Re-Admission will occur. In the event that the Eroton OML 18
Transactions do not occur, Eroton may be in breach of the Existing
Eroton Debt Facility (details of which are set out in paragraph
10.23.14 of Part 12 of this Document) which was proposed to be
remedied through the refinancing of such facilities through the New
Eroton Debt Facilities.
In the event that repayment of the Existing Eroton Debt Facility
is accelerated then, in the absence of alternative facilities, GTB
would be entitled to effect any of its default remedies under the
Existing Eroton Debt Facility, including the enforcement of its
security.
In addition, in the event that the Eroton OML 18 Transactions do
not occur, the Eroton Litigation is likely to continue (details of
which is set out in paragraph 3.4 of this Part 2 and further
details of the risks around the Eroton Litigation are set out in
paragraphs 2.2 - 2.3 of Part 4 of this Document.
If the Proposals are not completed and the benefits to the
Company expected to result from the Proposals are not achieved this
could result in the enforcement of security by GTB and ultimately
Eroton being wound up either as part of the Eroton litigation or as
a result of such default. Any of these circumstance could result in
a material adverse effect on the Company's business, operations,
financial performance and cash flow and future prospects and the
market price of the Ordinary Shares may be affected.
3.3.3 Settlement Agreement
Whilst it has not been executed, the terms of a proposed
settlement agreement to be entered into between Sahara, Eroton,
Bilton, Notore Chemical and Bilton OML 18 Limited (together, the
"Settling Parties") pursuant to which the Settling Parties shall
settle, or shall procure the settlement of the Eroton Litigation
has been negotiated between the parties (the "Settlement
Agreement"). Under the negotiated terms, the Settling Parties will
agree to enter into the Settlement Agreement in connection with the
Eroton OML 18 Transactions, and the Sahara OML 18 Acquisition
Agreement in particular.
Under the negotiated terms, the Settling Parties will agree to
settle all of the Eroton Litigation in consideration for the
acquisition by Eroton of the shares held indirectly by SFP and SCF
(as the sellers under the Sahara OML 18 Acquisition Agreement) and
the payment of the consideration under the Sahara OML 18
Acquisition Agreement by Eroton shall constitute the entire
consideration for the full and final settlement of the mutual
claims and counterclaims of Sahara comprised in the Eroton
Litigation and any other claims of Sahara relating to OML 18. The
performance by Sahara of its obligations under the Sahara OML 18
Acquisition Agreement shall constitute the entire consideration for
the full and final settlement of the mutual claims and
counterclaims of Eroton, Bilton and Bilton OML 18 Limited comprised
in the Eroton Litigation and any other claims of Eroton, Bilton and
Bilton OML 18 Limited relating to OML 18.
The mutual release by the Settling Parties will require each of
them to relinquish, waive, release, and forever discharge each
other and any of their successors, assigns or any third parties
seeking to claim on their behalf, in respect of all claims and
actions under or in connection with the Eroton Litigation. The
settlement terms agreed when the Settlement Agreement it executed
by the Settling Parties shall be irrevocable, and they shall each
execute official terms of settlement in respect of the actions
forming part of each relevant lawsuit comprised in the Eroton
Litigation, for filing with the Nigerian courts. Execution of the
Settlement Agreement does not indicate an admission of liability by
any of the Settling Parties.
The Settlement Agreement will be governed by Nigerian law.
The Settlement Agreement has been negotiated but has not been
executed at this point and is only expected to be executed once
Eroton has funds available to it to satisfy the consideration and
the Sahara OML 18 Acquisition Agreement is entered into which will
require the definitive documents for the New Eroton Debt Facilities
to be entered into and there will be additional conditions to
drawdown to be satisfied prior to utilisation of the facilities.
Accordingly, whilst the terms have been negotiated, there can be no
certainty that the Settlement Agreement will be entered into or the
terms on which they will be entered into. In the event that the
Settlement Agreement is not entered into the Eroton Litigation is
likely to continue and details of the Eroton Litigation is set out
in paragraph 3.4 of this Part 2 and further details of the risks
around the Eroton Litigation are set out in paragraphs 2.2 - 2.3 of
Part 4 of this Document.
,
3.3.4 New Eroton Debt Facilities
A credit committee approved term sheet was approved by board of
Afreximbank in relation to a proposed facility from amongst others,
Eroton, Afreximbank, Midwestern, Nova Merchant Bank Limited and
Sahara in respect of a loan between, amongst others, Eroton, as
borrower, Afreximbank and others, including Midwestern as lenders
(together the "Lenders"), Afreximbank as mandated lead arranger,
book runner, facilities agent, security agent and hedge
coordinating agent, and OML 18 Energy Resource Limited and Bilton
OML 18 Limited (together with Eroton, the "Obligors") as
guarantors.
The Lenders will loan Eroton US$750 million (secured) in
tranches of (i) US$500 million ("Tranche A") and (ii) US$250
million ("Tranche B"), ranking pari passu and with an identical
security package. The draw down date for the loan was 30 June 2022
or by such date as Eroton and the Lenders agree. On 5 July 2022,
Afreximbank confirmed to Eroton their approval of their commitment.
The purpose of the loan is (i) to be used as consideration for the
acquisition of OML 18 Energy Resource Limited and Bilton OML 18
Limited (the "SPVs") (ii) to prepay Eroton's outstanding financial
indebtedness (including the Existing Eroton Debt Facilities); and
(iii) pay fees and costs related to the transaction noted at
(i).
Security will be placed over (i) Eroton's existing and future
participating interest in OML 18 and any proceeds deriving from
this; (ii) the shares in and the assets of both Eroton and the
SPVs; and (iii) as well as over the accounts which the Obligors are
required to open and maintain. Eroton has agreed not to place
security over any of its present or future assets without the prior
consent of the Lenders.
The interest rate payable will be LIBOR plus (i) 8.75% per year
for Tranche A and (ii) 8.25% for Tranche B, and will accrue every
third calendar month, except in the event of a default under the
loan, in which case the interest rate will increase by 2%. A
one-off participation fee of 0.75% and yearly management fee of
0.25% will be payable.
The indicative terms may be terminated by Afreximbank if the due
diligence process is unsatisfactory or if the information provided
in respect of Eroton is materially inaccurate or incomplete, or if
there is a failure to disclose any material facts or information.
Eroton may terminate the indicative terms at any time, subject to
reimbursing Afreximbank for any costs and expenses they have
incurred.
It is intended that the loan will be repaid from proceeds
received from Eroton's working interest in OML 18, and other
sources of cash available to the Obligors. It will be repayable in
quarterly instalments, with the first payment becoming due six
months after signing of the loan agreement. The final maturity date
will be the earlier of (i) the date falling 84 months from signing
of the loan agreement and (ii) the reserve tail date, as to be
agreed between the parties. Prepayment is permitted in minimum
amounts of US$10 million or multiples thereof, and a 1.5%
prepayment fee will apply on the outstanding loan if the entire
amount is prepaid.
The loan agreement is governed by English law and Nigerian law
will govern where relevant for the security documents.
It is emphasised that whilst a credit committee approved term
sheet has been approved by board of Afreximbank, the loan agreement
has not yet been entered into and, if entered into, there are
additional conditions to drawdown which will have to be satisfied
prior to utilisation of the facilities and for completion of the
Sahara OML 18 Transaction and the Bilton OML 18 Transaction to
proceed. A summary of the key risks relating to the Eroton OML 18
Transactions and associated financing are set out in paragraph 2 of
Part 4 of this Document.
3.4 Sahara and Bilton Litigation
Pursuant to the Settlement Agreement summarised in paragraph
3.3.3 above, the following disputes and claims will be settled:
3.4.1 Claims by Sahara
(a) Suit Number FHC/L/CS/976/2020 - OML 18 Energy Resource
Limited (formerly known as Sahara Field Production Limited) v.
Eroton Exploration & Production Company Limited.
Sahara is the Plaintiff and Eroton is the Defendant and the
claim is related to the recovery of a disputed debt of US$72
million arising from outstanding legacy issues regarding the
acquisition of OML 18.
Sahara alleges that by an agreement dated 14 October 2019,
Eroton had agreed to pay the sum of US$80 million in consideration
of Sahara's participating interest and contribution towards the
acquisition and operation of OML 18. Sahara alleges that Eroton has
only paid US$8 million in this regard. Sahara's total claim is for
the sum of US$72 million being the alleged total balance due to
Sahara from Eroton under the agreement.
By an ex-parte application Sahara sought and obtained an interim
injunction which has restrained Eroton from dealing with certain of
its bank accounts except for "Operating Costs". Eroton contends
that any dispute arising from the Settlement Agreement must be
referred to arbitration as stipulated in the Settlement Agreement.
As a result, Eroton still has restrictions on its use of the
accounts subject to the injunction, however, it can only access the
said accounts for operational costs, which are essentially the only
use of the restricted accounts. Therefore the injunction has little
or no effect on Eroton's operations.
Proceedings in the suit have been suspended temporarily in
deference to ongoing commercial settlement discussion between
Eroton and Sahara.
(b) Suit Number FHC/L/CS/977/2020 - OML 18 Energy Resource
Limited (formerly known as Sahara Field Production Limited) v.
Eroton Exploration & Production Company Limited.
This is a petition by Sahara against Eroton. Sahara is seeking
an order of the FHC to wind up Eroton on the basis of Eroton's
inability to liquidate the outstanding debt due to it.
Sahara's case is that it is entitled to the principal sum of
US$47,944,072 being its alleged share of the profit oil accruing
from OML 18 during the period from March 2015 and June, 2019, being
the period when Eroton held 16.2% participating interest in trust
for Sahara. Eroton made an application to stay proceedings in
favour of arbitration in the FHC. The FHC declined Eroton's
application on the ground that matters of winding up proceedings
are not arbitrable in its ruling of 9 September 2020.
Eroton has appealed the ruling of the FHC to the CA. However,
the appeal and the proceedings at the Federal High Court are
currently suspended in deference to the ongoing commercial
settlement discussions.
(c) Suit Number FHC/L/CS/1232/2020 - OML 18 Energy Resource
Limited (formerly known as Sahara Field Production Limited) v.
Bilton OML 18 Limited & 2 others.
Sahara is the Plaintiff, Bilton OML 18 Limited is the first
Defendant, Bilton is the second Defendant and Eroton is the third
Defendant. Sahara is seeking judicial interpretation of certain
provisions of a financial service agreement ("Financial Service
Agreement") between it and Bilton and payment of approximately
US$45 million being the sum Sahara claims was expended by Sahara on
the Bilton entities' acquisition of 1.8% interest in Eroton's OML
18.
Eroton raised a jurisdictional objection based on Sahara's claim
being based on the Financial Service Agreement challenging the
FHC's jurisdiction to hear the claim. This challenge was refused by
the FHC on 25 November 2020. Eroton has appealed this decision to
the CA via a Notice of Appeal dated 4 December 2020. The claim by
Sahara is now adjourned pending the determination of the appeal.
However, the appeal is not being actively pursued at the moment
because of the ongoing settlement negotiations between Eroton and
Sahara.
Sahara is seeking an order of the CA, upon the determination of
the questions in the affirmative, directing the Defendants jointly
and severally to pay:
(i) the sum of US$44,936,976 being the alleged sum expended by
Sahara on the first and second Defendants' acquisition cost of 1.8%
interest from Eroton in OML 18, Sahara's share of available profit
of 90% and accumulated interest of 11%; and
(ii) interest on the said sum at the rate of 25% per annum from
1July 2020 until delivery of judgment and thereafter 10% per annum
until judgment sum is liquidated cost of the action assessed at
N10,000,000 per annum.
(d) Suit Number FHC/L/CS/1231/2020 - OML 18 Energy Resource
Limited (formerly known as Sahara Field Production Limited) v.
Eroton Exploration & Production Company Limited and Notore
Chemical Industries plc.
Sahara is the Plaintiff, while Eroton and Notore Chemical are
both Defendants.
The Plaintiff alleges that by a farm out agreement dated 20
March 2020 ("Farm Out Agreement"), it is entitled to 36% of all
sums received by Eroton pursuant to the JOA, Shell Offtake
Agreement and Notore Offtake Agreement. It is the case of the
Plaintiff that Eroton sold gas to Notore Chemical and accordingly,
the Plaintiff is entitled to the agreed percentage of the proceeds
of the sale of gas.
The Plaintiff is seeking relief against the Defendants as
follows:
(i) the sum of N1,071,041,876.27 being the alleged outstanding
sum due to the Plaintiff for gas sold under the Farm Out
Agreement;
(ii) interest on the said sum at the rate of 25% per annum from
1 July 2020 until delivery of judgment and thereafter 10% per annum
until judgment sum is liquidated; and
(iii) cost of the action assessed at N10,000,000 per annum.
However, the parties have jointly informed the court that the
matter is being settled, and the matter has been adjourned for
settlement.
3.4.2 Claims by Eroton
(a) Suit Number FHC/L/CS/1107/2020 - Eroton Exploration &
Production Company Limited v. Guaranty Trust Bank plc and OML 18
Energy Resource Limited (formerly known as Sahara Field Production
Limited).
Eroton claims that it is the agreement of parties that where
there is dispute arising from the performance of terms of the JOA
acceded to by Sahara via a deed of accession, the parties should
refer such dispute to arbitration under the arbitration laws of
Nigeria. In this regard, Eroton commenced arbitration proceedings
against Sahara for failing to liquidate its share of cash calls and
costs/expenditure incurred on the joint operations of OML 18.
The instant suit is an application for preservative orders
pending the conclusion of the arbitration proceedings. Eroton
commenced this action through an originating summons seeking the
determination of several questions and declarations/order of the
FHC. Eroton is seeking preservative orders of the FHC, upon the
determination of the questions in the affirmative, restraining the
Defendants from dealing with the assets or monies of the Sahara
pending the conclusion of the arbitration proceedings commenced by
Eroton against Sahara. As such, Eroton successfully obtained a
Mareva injunction against Sahara for sums owed to Eroton for
Sahara's failure to make payments to the OML 18 joint venture.
(b) Suit Number FHC/L/CS/1080/2020 - Eroton Exploration &
Production Company Limited v. OML 18 Energy Resource Limited
(formerly known as Sahara Field Production Limited).
This is a petition filed by Eroton against Sahara seeking an
order of the FHC to wind up Sahara on the basis of Sahara's
inability to liquidate the outstanding debt due to Eroton.
It is the case of Eroton that it expended several sums for
itself and Sahara in respect of the costs/expenditure incurred in
the joint operations and cash calls for OML 18. Sahara is obligated
but has failed to reimburse Eroton for Sahara's share in the joint
operations and cash calls.
The total outstanding debt due to Eroton is US$72,111,096.72
being the sum paid by Eroton in respect of Sahara's participating
interest in OML 18. As part of this claim Eroton also sought and
obtained an Ex Parte injunction restraining Sahara from utilizing
its bank accounts.
However, the parties have jointly informed the court that the
matter is being settled, and the matter has been adjourned for
settlement.
(c) Suit Number FHC/L/CS/1377/2020 - Bilton Energy Limited v.
OML 18 Energy Resource Limited (formerly known as Sahara Field
Production Limited).
Bilton is the Plaintiff and Sahara is the Defendant. This claim
is not a monetary claim, but is proceedings instituted by Bilton
pursuant to Order 52 Rule 15(c) of the Federal High Court (Civil
Procedure) Rules 2019, to stay further proceedings in Suit No.
FHC/L/CS/1232/2020 - Sahara Field Production Limited v. Bilton OML
18 Limited, Bilton Energy Limited and Eroton Exploration &
Production Company Limited, on the basis that the suit was
instituted in breach of the arbitration agreement contained in
Clause 8.2 of the financial services agreement between Sahara and
Bilton. Sahara is resisting this as it claims that its claim is not
based on contract but on fraud and misrepresentation which cannot
be settled and resolved by arbitration.
The suit has been heard but the court reserved its judgment
until a later date, in order to await the outcome of Eroton's
appeal before the CA against the Ruling of the Federal High Court
delivered on 25 November 2020 in relation to Suit No.:
FHC/L/CS/1232/2020 as referred to above.
(d) Appeal Number CA/LAG/CV/104/2021 - Eroton Exploration &
Production Company Limited v. OML 18 Energy Resource Limited
(formerly known as Sahara Field Production Limited) & 2
others;
Eroton is the Appellant, Sahara is the first Respondent, Bilton
OML 18 Limited is the second Respondent and Bilton is the third
Respondent.
This is an appeal against the ruling of the Federal High Court
(the "Lower Court") in FHC/L/CS/1232/2020 - Sahara Field Production
Limited v. 1.) Bilton OML18 Limited 2.) Bilton Energy Limited 3.)
Eroton Exploration & Production Company Limited. The appeal is
to ascertain the jurisdiction of the lower court (being the FHC) to
hear the dispute.
Consequently, the Lower Court held that it has jurisdiction over
the subject matter of Sahara's claim as the claim before it was not
one for breach of a simple contract but pertained to oil mining
(OML 18) and therefore within the jurisdiction of the FHC. As such,
Eroton filed a Notice of Appeal against this ruling of the FHC.
However, the appeal is not being actively pursued at the moment
because of the ongoing settlement discussions between Eroton and
Sahara.
4. MLPL Reorganisation
4.1 Overview
By virtue of the MLPL Reorganisation, Midwestern will subscribe
for shares in San Leon and San Leon will acquire from Midwestern
the remaining 60% equity interest in MLPL it does not currently
own.
The MLPL Reorganisation will be conditional on, along with the
other conditions summarised in paragraph 4.3.5 below, the
completion of the Eroton OML 18 Transactions and will be
implemented immediately prior to Re-Admission by completion of the
following steps:
-- the issue of 344,334,257 New Ordinary Shares by San Leon to
Midwestern pursuant to the MLPL New Shares Subscription Agreement
with such subscription consideration being paid for by way of the
MLPL Reorganisation Loan Notes; and
-- the transfer by Midwestern of its equity interest in MLPL and
the benefit of the MLPL Receivable to a member of the San Leon
Group in return for the cancellation of the MLPL Loan Notes and the
release of Midwestern from its guarantee in relation the MLPL Loan
Notes.
Details of the MLPL New Shares Subscription Agreement and other
material documentation to be entered into in relation to the MLPL
Reorganisation are summarised in paragraphs 4.3 below.
4.2 Information about MLPL Loan Note payments and the Preference Shares
On completion of the OML 18 Production Arrangement in September
2016, the Company received US$173.05 million of MLPL Loan Notes
together with a 40% shareholding in MLPL. The MLPL Loan Notes are
also accompanied by interest payments accruing at a fixed rate of
17% per annum on the outstanding principal at the time. Midwestern
is the guarantor of the MLPL Loan Notes. Further details regarding
the MLPL Loan Notes are set out in paragraph 4.3.2 below.
Following payment of just over US$190 million from the MLPL Loan
Notes, on 7 April 2020, the Company announced, amongst other
matters, that it had entered into an agreement dated 6 April 2020
amending the MLPL Loan Note instrument. Under the terms of this
amendment, the remaining balance payable was approximately US$82
million. A further US$10 million was to be paid to the Company on
or before 6 October 2020, with the balance of the MLPL Loan Notes
receivable payable by December 2021. The balance was to continue to
accrue interest at a coupon of 17% per annum until repaid. All
other material terms of the MLPL Loan Note Instrument remained
unchanged.
Since July 2021, San Leon, MLPL, Midwestern and Martwestern have
agreed to a series of conditional payment waivers in respect of the
repayment of the MLPL Loan Notes and interest that was to fall due,
as the amounts owed to San Leon by MLPL pursuant to the MLPL Loan
Notes will be eliminated as part of the MLPL Reorganisation.
As at the Latest Practicable Date, the balance owed to San Leon
is approximately US$105.9 million, being a principal amount due of
approximately US$82.2 million and total accrued interest due of
approximately US$23.7 million.
Following the MLPL Reorganisation, MLPL will be a wholly owned
subsidiary of the Company and so any MLPL Loan Note balances will
be owed to San Leon by its wholly owned subsidiary and Midwestern
will be released from its guarantee. To in part compensate San Leon
shareholders, immediately prior to MLPL Reorganisation and the
issue of the New Shares, San Leon will sub-divide each of its
existing issued Ordinary Shares of EUR0.01 each into a New Ordinary
Share of EUR0.005 and a Preference Share of EUR0.005. The holders
of the Preference Shares will have a preferential right to receive
the first US$40 million of any distributions or dividends
(including payments to redeem such shares or loan notes) paid by
San Leon following completion of the MLPL Reorganisation. Further
information on the Preference Shares is set out at paragraph 21 of
Part 1 and paragraph 5.11 of Part 12 of this Document.
In the event that the Resolutions are not passed or the MLPL
Reorganisation Agreement is terminated, the balance owed to San
Leon will be payable 90 days after such termination, or sooner,
inter alia, if there is an event of default.
4.3 Material contracts in relation to the MLPL Reorganisation
In addition to the Relationship Agreement summarised at
paragraph 15 of Part 1 of this Document and paragraph 10.2 of Part
12 of this Document, the following contracts are material contracts
in relation to MLPL Reorganisation.
4.3.1 MLPL New Shares Subscription Agreement
An agreement for the subscription in New Ordinary Shares of San
Leon will be entered into between Midwestern and San Leon pursuant
to which Midwestern will apply for the allotment of the MLPL New
Shares for a price per share equal to the value set out in the MLPL
Valuation Report (the "Subscription Letter").
The subscription is subject to the satisfaction of the
conditions outlined in the MLPL Reorganisation Agreement, other
than the condition relating to Re-Admission.
The consideration for the allotment of the MLPL New Shares will
be the MLPL Reorganisation Loan Notes.
The Subscription Agreement will be governed by English law.
4.3.2 MLPL Reorganisation Loan Notes
A loan note will be issued by Midwestern to San Leon evidencing
a money debt owed by Midwestern to San Leon pursuant to the
Subscription Letter (the "MLPL Reorganisation Loan Notes"). Under
the terms of the MLPL Reorganisation Loan Notes, San Leon can
redeem the notes in whole or in part at any time after completion
of the MLPL Reorganisation Agreement and Midwestern can prepay the
debt due under the MLPL Reorganisation Loan Notes at any time after
completion of the MLPL Reorganisation Agreement.
The MLPL Reorganisation Loan Notes will be unsecured and will
not accrue interest. San Leon can transfer the MLPL Reorganisation
Loan Notes to any member of its group without the consent of
Midwestern.
The MLPL Reorganisation Loan Notes will be governed by English
law.
4.3.3. Notice of Assignment
A notice to transfer and assign the MLPL Reorganisation Loan
Notes addressed to Midwestern from San Leon, notifying Midwestern
of the transfer of San Leon's present and future rights, title,
interest and benefit in, under and to the MLPL Reorganisation Loan
Notes to San Leon Energy Nigeria, pursuant to the terms of the MLPL
Reorganisation Loan Notes ("MLPL Assignment").
The MLPL Assignment will be governed by English law.
4.3.4 Asset Management Agreement
San Leon Energy Nigeria and Eroton have agreed to enter into the
Asset Management Agreement with effect from signing but with the
fees payable under the agreement payable from the date of
Re-Admission. Under the agreement, Eroton (as owner of a 27 per
cent interest in OML 18) has agreed to appoint San Leon Energy
Nigeria as manager in relation to OML 18, for the purpose of
providing certain advisory services. San Leon Energy Nigeria will
have operational and technical oversight and will provide input in
connection with field development, drilling programs and
operational well activity, among other things. San Leon Energy
Nigeria will also advise on financial aspects, for example
assisting with the implementation of a corporate finance strategy
for the development of OML 18 and streamlining existing
organisational processes. In order to provide the financial
advisory services, Eroton has agreed to provide certain financial
information to San Leon Energy Nigeria , including periodic
financial statements and forecasts.
An annual fee of US$6,000,000 payable by Eroton will be paid in
advance, in monthly instalments, and San Leon Energy Nigeria will
be engaged to provide the services covered by the agreement for an
initial period of three years (the "Initial Period"). The agreement
shall subsequently renew automatically on an annual basis
thereafter, unless otherwise terminated by the parties.
San Leon Energy Nigeria's appointment as the manager of OML 18
shall not affect the role of Eroton as the operator of the same,
and San Leon Energy Nigeria's maximum liability under the agreement
shall be limited. Eroton has agreed to indemnify San Leon Energy
Nigeria against any liabilities and expenses incurred specifically
by reason of San Leon Energy Nigeria being manager of OML 18,
provided that San Leon Energy Nigeria shall not be so indemnified
with respect to any matter resulting from its negligence, wilful
misconduct or fraud and shall have no claim against, or recourse
to, Eroton in respect of any such matter. Each party has undertaken
that it maintains adequate policies and procedures required to
comply with applicable anti-corruption laws.
San Leon Energy Nigeria may terminate the agreement if Eroton
fails to provide the financial information required in order to
provide the services. Eroton may terminate the agreement if
completion of the MLPL Reorganisation does not occur by 31 December
2022. Either party can terminate the agreement without notice in
the event of (i) the other party committing an illegal, fraudulent
or dishonest act, (ii) the other party being in material (or
non-material recurring) breach, (iii) the other party breaching the
anti-corruption provisions or (iv) the other party suffering an
insolvency event. Either party can also terminate the agreement by
providing 6 months' prior written notice, which shall expire either
at the end of the Initial Period in respect of notice served prior
to the third anniversary of the agreement; or at the end of each
subsequent 12 month period during which the agreement is
automatically renewed after the Initial Period. The agreement is
governed by English law.
The services provided under the Asset Management Agreement are
in addition to those provided under the Master Services
Agreement.
4.3.5 MLPL Reorganisation Agreement
The MLPL Reorganisation Agreement was entered into on 8 July
2022 pursuant to which Midwestern will (i) transfer to San Leon
Energy Nigeria its entire shareholding in MLPL (being approximately
60% of the entire issued share capital of MLPL) and (ii) assign to
San Leon Energy Nigeria all of its interest under the MLPL
Receivable (the "MLPL Reorganisation Agreement"). The consideration
will be an amount equal to the subscription price for the MLPL New
Shares. San Leon Energy Nigeria's obligation to pay such
consideration will be set off against Midwestern's obligation to
pay the amount outstanding under the MLPL Reorganisation Loan
Notes.
Completion of the MLPL Reorganisation is subject to the
following conditions (the "MLPL Conditions "):
(i) the creation of such number of Preference Shares in San
Leon, by way of the Sub- Division, as is equal to US$40,000,000 (or
such amount calculated from time to time in accordance with the New
Memorandum and Articles of Association) on the terms of the
Preference Shares as set out in the proposed New Memorandum and
Articles of Association, such Preference Shares to be held by
shareholders of San Leon immediately prior to completion of the
MLPL Reorganisation (the "MLPL Preference Share Condition");
(ii) the publication of the admission document, in a form
approved (to the extent required) by the Irish Takeover Panel and
in a form approved by the Nomad, San Leon and, where relevant under
the terms of the MLPL Reorganisation Agreement, Midwestern (the
"MLPL Admission Document Condition");
(iii) the shareholders of San Leon resolving to (i) approve the MLPL Reorganisation,
(ii) adopt the New Memorandum and Articles of Association; (iii)
approve the Subdivision; (iv) affect the receipt of shares in MLPL
and ELI; (v) authorise the issue of the New Shares to Midwestern;
(vi) authorise the creation of preference shares (the "MLPL
Shareholder Approval Condition");
(iv) the re-admission to AIM of the shares in San Leon and
admission of the Existing Ordinary Shares and the MLPL New Shares,
in each case to trading on AIM becoming effective in accordance
with Rule 6 of the AIM Rules (the "MLPL Admission Condition");
(v) the MLPL Valuation Report being delivered to Midwestern in
accordance with section 1028(c) of the Irish Companies Act
2014;
(vi) the Irish Takeover Panel having waived any obligation which
might fall on Midwestern or any person acting in concert, or deemed
under the Irish Takeover Rules to be acting in concert, with it
under Rule 9 of the Irish Takeover Rules to make a general offer
for San Leon as a result of the issue of the MLPL New Shares and
where such waiver is expressed to be subject to any conditions,
such conditions having been satisfied in accordance with their
respective terms;
(vii) the (i) notification to Nigerian Upstream Petroleum
Regulatory Commission (the "NUPRC") of the intention to engage in
the transaction contemplated by the MLPL Reorganisation Agreement;
and (ii) notification to, and the approval of, the NUPRC of the
identity of San Leon Energy Nigeria, each to the extent not already
obtained prior to the execution of the MLPL Reorganisation
Agreement (the "MLPL Regulatory Condition");
(viii) the written consent of the Minister for the completion by
the Parties of the Subscription Letter, the MLPL Reorganisation
Agreement and the transaction contemplated by the MLPL
Reorganisation Agreement in accordance with Applicable Law;
(ix) NFCCPC Negative Clearance (the "MLPL Antitrust Condition ");
(x) the Sahara OML 18 Acquisition Agreement and the Settlement
Agreement each being entered in the agreed form (or in a form
incorporating amendments which have been approved with the prior
written consent of San Leon) by the parties thereto by 30 September
2022 (or such later date as may be agreed in writing between San
Leon and Midwestern) (the "MLPL Sahara Condition");
(xi) the Sahara OML 18 Acquisition Agreement, the Bilton OML 18
Acquisition Agreement and the Settlement Agreement each becoming
effective on an unconditional basis and completing in accordance
with their respective terms (the "MPLP Eroton Condition");
(i)
(xii) the letter to be signed by certain ELI Shareholders
consenting to the ELI Shareholders' Agreement agreeing to remove or
relax the provisions of Clause 15.1(d) thereof (the "ELI Consent
Condition");
(xiii) the agreements and ancillary documentation necessary to
give effect to the New Eroton Debt Facilities being duly executed
by all the parties thereto by 31 August 2022 (or such later date as
may be agreed in writing between San Leon and Midwestern) (the
"MLPL Eroton Financing Condition")
(xiv) there being no breach by Midwestern of the interim period
covenants given by Midwestern under the MLPL Reorganisation
Agreement (as described below) which individually or together with
any other such breach, results or is reasonably likely to result in
a diminishment of the net assets of the MLPL or its group by
US$10,000,000 or more in aggregate, and there being no material
breach of the warranties given by Midwestern at the time of signing
of the MLPL Reorganisation Agreement which, individually or
together with any other such breach, results or is reasonably
likely to result in a diminishment of the net assets of the MLPL or
its group by US$10,000,000 or more in aggregate) (each a "MLPL
Midwestern Breach"); and
(xv) there being no breach by San Leon of: (i) its obligation to
publish a supplementary admission document (if required), (ii) its
covenant not to pay or declare dividends in the period between
signing and completion of the MLPL Reorganisation Agreement,
(iii) its covenant not to, or agree to, redeem, repurchase,
reduce, waive or repay any of its share capital, (iv) its covenant
to procure that the number of San Leon Shares which may be issued
prior to Completion, or form the subject of any award, option or
other right to San Leon Shares granted before Completion, under the
San Leon Employee Incentive Plan, San Leon warrants or any other
incentive arrangement, does not exceed 44,991,302 San Leon Shares
without the prior written approval of Midwestern, (v) its covenant
to procure that the terms of the Admission Document will convene
the San Leon General Meeting for a date which is no later than the
date falling 30 clear days after the date on which the Admission
Document is despatched to the San Leon Shareholders or such other
date as San Leon and Midwestern may agree in writing; (vi) its
covenant not to postpone or adjourn the San Leon General Meeting
once convened or seek to amend the San Leon Resolutions after
despatch of the Admission Document without the prior written
consent of Midwestern (other than in accordance with the exceptions
to this covenant set out in the MLPL Reorganisation Agreement);
and
(xvi) there being no breach by San Leon of the warranties given
by San Leon under the MLPL Reorganisation Agreement which
individually or together with any other such breach, results or is
reasonably likely to result in a diminishment of the net assets of
the Group by US$10.000,000 or more in aggregate ("San Leon
Breach").
Any of the MLPL Sahara Condition, MLPL Eroton Condition, MLPL
Regulatory Condition, ELI Consents Condition, MLPL Antitrust
Condition, MLPL Eroton Financing Condition may be waived by written
agreement between San Leon and Midwestern at any time on or before
08:00 on 31 December 2022 (or such other date as San Leon or
Midwestern agrees in writing) (the "MLPL Re-organisation Agreement
Long Stop Date"). Any material breach by San Leon or Midwestern may
be waived by the other by notice in writing at any time before
08:00 on the MLPL Re-organisation Agreement Long Stop Date.
The MLPL Reorganisation Agreement may be terminated by San Leon
or Midwestern with immediate effect if a Condition has not been
satisfied or has become impossible to satisfy by 08:00 on the MLPL
Re-organisation Agreement Long Stop Date.
Midwestern may terminate the MLPL Reorganisation Agreement with
immediate effect if:
(i) the recommendation of the directors of San Leon is
withdrawn, modified or qualified, or no longer incorporated in the
admission document, or if San Leon publishes a statement that its
directors no longer intends to make the recommendation or intend to
withdraw or modify it; (ii) there occurs a San Leon Breach which
(A) is not capable of remedy, or (B) is
capable of remedy but is not remedied to the reasonable
satisfaction of Midwestern by the earlier of (a) the date falling
ten Business Days after receipt of notice from Midwestern requiring
that breach to be remedied, and (b) the date falling ten Business
Days prior to the completion of the MLPL Reorganisation
Agreement.
San Leon and/or San Leon Energy Nigeria may terminate the MLPL
Reorganisation Agreement with immediate effect if there occurs a
MLPL Midwestern Breach and such breach (A) is not capable of
remedy, or (B) is capable of remedy but is not remedied to the
reasonable satisfaction of San Leon by the earlier of (a) the date
falling ten Business Days after receipt of notice from San Leon
requiring that breach to be remedied, and (b) the date falling ten
Business Days prior to completion of the MLPL Reorganisation
Agreement.
Midwestern has agreed (in the period up to completion of the
MLPL Reorganisation Agreement) to use reasonable endeavours to
procure that MLPL, any subsidiary undertaking of MLPL from time to
time, and Eroton will not undertake a number of customary interim
covenants such as varying its share capital, making acquisitions or
disposals, entering into joint ventures or material agreements or
commencing or settling any litigation. San Leon has agreed to not
pay or recommend for declaration any dividend, redeem, repurchase,
reduce, waive or repay any of its share capital, and to procure
that the number of San Leon Shares which may be issued prior to
Completion, or form the subject of any award, option or other right
to San Leon Shares granted before Completion, under the San Leon
Employee Incentive Plan, San Leon warrants or any other incentive
arrangement, does not exceed 44,991,302 San Leon Shares without the
prior written approval of Midwestern.
Midwestern shall enter into a lock-in agreement in a form set
out in paragraph 16 of Part 1 of this Document prior to the date on
which San Leon announces the transaction under the MLPL
Reorganisation Agreement (the "MLPL Announcement Date").
Under the terms of the MLPL Reorganisation Agreement, Midwestern
has provided certain warranties to San Leon and San Leon Energy
Nigeria, and San Leon has given certain warranties to Midwestern.
These warranties are customary for a transaction of this type. The
warranties will be given at the MLPL Announcement Date and will be
repeated on the date of this Document, the date of any
Supplementary Admission Document completion of the MLPL
Reorganisation Agreement.
Under the terms of the MLPL Reorganisation Agreement and
pursuant to the terms of a Tenth Payment Waiver, San Leon has
agreed with MLPL, Midwestern and Martwestern to a further extension
of the Extended Conditional Payment Waivers until the sooner of
completion of the MLPL Reorganisation Agreement or termination of
the MLPL Reorganisation Agreement. Interest continues to accrue on
the principal amounts waived pending completion of the MLPL
Reorganisation.
The MLPL Reorganisation Agreement will be governed by English
law.
It is emphasised that whilst the MLPL Reorganisation Agreement
has been entered into, it is subject to a number of conditions
including in relation to the MLPL Eroton Condition. In relation to
the MLPL Eroton Condition, the Sahara OML 18 Acquisition Agreement
has not been executed at this point and is only expected to be
executed once Eroton has funds available to it to satisfy the
consideration which will require the definitive documents for the
New Eroton Debt Facilities to be entered into and there will be
additional conditions to drawdown to be satisfied prior to
utilisation of the facilities. Accordingly, whilst the terms have
been negotiated, there can be no certainty that they will be
entered into or the final terms on which they will be entered into.
Accordingly, there can be no certainty that the Sahara OML 18
Acquisition Agreement will be executed and become effective.
Whilst the Bilton OML 18 Acquisition Agreement has been
executed, the Bilton OML 18 Acquisition Agreement is also
conditional upon the Sahara OML 18 Acquisition Agreement being
entered into and completing. Accordingly as there can be no
certainty that the Sahara OML 18 Acquisition Agreement will be
entered into or the terms on which it will be entered into and
there is no certainty that this condition will be satisfied.
The Sahara OML 18 Acquisition Agreement, if executed, will be
and the Bilton OML 18 Acquisition Agreement is subject to certain
conditions before completion can occur, details of the key
conditions are summarised in paragraphs 3.3.1 and 3.3.2 below. In
particular, the Sahara OML 18 Acquisition Agreement, if executed
will be, and the Bilton OML 18 Acquisition Agreement is conditional
on the entry into the Settlement Agreements associated with certain
litigation between Eroton, Bilton and Sahara. Further details of
the Settlement Agreements and the associated litigation are
included in paragraphs 3.3.3 and 3.4 below.
It is emphasised that the MLPL Reorganisation is conditional,
amongst other things, on the entry into and the utilisation of the
New Eroton Debt Facilities and the Eroton OML 18 Transactions
completing. Whilst the terms of the New Eroton Debt Facilities have
been approved by the lead lender, Afreximbank and the terms of the
Sahara OML 18 Acquisition Agreement have been negotiated and the
Bilton OML 18 Acquisition Agreement has been executed, subject to
certain conditions, they are dependent on, inter alia, the New
Eroton Debt Facilities being entered into and becoming
unconditional and being drawn down. Furthermore, the New Eroton
Debt Facilities have not been entered into and once entered into
will be subject to additional conditions to drawdown which will
have to be satisfied prior to utilisation of the facilities and for
completion of the Sahara OML 18 Transaction and the Bilton OML 18
Transaction. These matters are not under the Company's control.
Accordingly, there is no certainty that the New Eroton Debt
Facilities will be entered into or that the Eroton OML 18
Transactions will proceed or that they will proceed on the
currently proposed terms. Only once the Eroton OML 18 Transactions
complete and the other conditions to the MLPL Reorganisation have
been satisfied will the Company be able to proceed with the MLPL
Reorganisation and Re-Admission. There can therefore be no
guarantee that the MLPL Reorganisation and Re-Admission will
occur.
The number of shares to be subscribed for by Midwestern as part
of the MLPL Reorganisation has been agreed and fixed between
Midwestern and the Company and is not subject to adjustment by
reference to the market price of the Ordinary Shares or New
Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed the
market price of the New Ordinary Shares on the date of allotment of
the MLPL New Shares must be not greater than the value per share to
be recorded in the MLPL Valuation Report.
A summary of the key risks relating to the Eroton OML 18
Transactions and associated financing are set out in paragraph 2 of
Part 4 of this Document.
Only once the New Eroton Debt Facilities have been entered into
and drawn down and the Eroton OML 18 transactions complete and the
other conditions to the MLPL Reorganisation have been satisfied
will the Company be able to proceed with the MLPL Reorganisation
and Re-Admission.
4.4 Further Information on MLPL
The Historical Financial Information for MLPL is set out in Part
8B of this Document.
Further details of the risks surrounding the MLPL Reorganisation
are set out in Part 4 of this Document.
5 ELI Reorganisation
5.1 Overview
San Leon and Midwestern propose to effect a further
reorganisation to consolidate Midwestern's holdings in the Company
and ELI into a single holding in the Company, with the Company
holding an additional c.14% interest in ELI.
The ELI Reorganisation, which is conditional (amongst other
things) upon the reorganisation of UPIL as well as ELI Shareholder
Consent and completion of the MLPL Reorganisation, is made up of
the following constituent parts:
-- the issue of 73,782,535 New Ordinary Shares pursuant to the
ELI New Shares Subscription Agreement with such amount being left
outstanding between San Leon and for the benefit of the
Company;
-- the transfer by Midwestern of its 13.77% equity interest in
ELI Malta to San Leon ELI; and
-- the transfer by Midwestern of its associated loan receivable
of US$15,300,000 from ELI Malta to San Leon ELI.
Details of the ELI New Shares Subscription Agreement and other
material documentation to be entered into in relation to the ELI
Reorganisation are summarised in paragraph 5.2 below.
The ELI Reorganisation is not conditional upon any of the
elements of the Further ELI Investments and may proceed whether or
not some or all of the Further ELI Investments have completed.
The ELI Reorganisation is conditional upon, amongst other
things: (i) completion of the MLPL Reorganisation and (ii)
Midwestern, which currently holds its interest in ELI indirectly
through UPIL holding all necessary rights to transfer its 13.77%
equity interest in ELI Malta and to assign the ELI Receivable
pursuant to the ELI Reorganisation which also requires UPIL
Shareholder Consent, UPIL board approval as well as ELI Shareholder
Consent. Whilst Midwestern has discussed the transfer of these
assets to Midwestern with some of the other shareholders of UPIL,
no consents have been granted, agreements executed or structure
agreed at this point and the implementation of any such structure
will require the support and actions by the other shareholders in
UPIL whose actions are outside the control of Midwestern.
Accordingly there can be no certainty that the transactions
necessary for Midwestern to own the assets to be transferred
pursuant to the ELI Reorganisation will be entered into or the
terms on which they will be entered into.
Whilst the MLPL Reorganisation is not conditional upon the ELI
Reorganisation, the ELI Reorganisation will only take place once
these and the other ELI Conditions set out in the ELI
Reorganisation Agreement have been satisfied. However, completion
of the ELI Reorganisation is not conditional upon completion of the
Further ELI Investments.
The number of shares to be subscribed for by Midwestern as part
of the ELI Reorganisation has been agreed and fixed between
Midwestern and the Company and is not subject to adjustment by
reference to the market price of the Ordinary Shares or New
Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed
which is a condition to the ELI Reorganisation the market price of
the New Ordinary Shares on the date of allotment of the MLPL New
Shares must be not greater than the value per share to be recorded
in the MLPL Valuation Report. Similarly, in order for the ELI
Reorganisation to proceed, the MLPL Reorganisation must complete
and the market price of the New Ordinary Shares on the date of
allotment of the ELI New Shares must be not greater than the value
per share to be recorded in the ELI Valuation Report.
5.2 Material contracts in relation to the ELI Reorganisation
5.2.1 ELI New Shares Subscription Agreement
The ELI New Share Subscription Agreement for the subscription of
the ELI New Shares to be entered into between Midwestern and San
Leon whereby Midwestern will apply for the allotment of the New ELI
Shares at the value of the ELI New Shares to be recorded in the ELI
Valuation Report.
The subscription is subject to the satisfaction of the
conditions outlined in the ELI Reorganisation Agreement, other than
the condition relating to the ELI Reorganisation Shares
Admission.
The consideration for the allotment of shares will be left
outstanding as a debt from Midwestern to San Leon, pursuant to the
terms of the ELI Reorganisation Loan Notes.
The ELI New Shares Subscription Agreement will be governed by
English law.
The number of shares to be subscribed for by Midwestern as part
of the ELI Reorganisation has been agreed and fixed between
Midwestern and the Company and is not subject to adjustment by
reference to the market price of the Ordinary Shares or New
Ordinary Shares.
Accordingly, in order for the ELI Reorganisation to proceed, the
MLPL Reorganisation must complete and the market price of the New
Ordinary Shares on the date of allotment of the ELI New Shares must
be not greater than the value per share to be recorded in the ELI
Valuation Report.
5.2.2 ELI Reorganisation Loan Notes
The ELI Reorganisation Loan Notes to be issued by Midwestern to
San Leon evidencing a money debt owed by Midwestern to San Leon
pursuant to the ELI New Shares Subscription Agreement. Under the
terms of the ELI Reorganisation Loan Notes, San Leon can redeem the
note in whole or in part at any time after completion of the ELI
Reorganisation Agreement and Midwestern can prepay the debt due
under the ELI Reorganisation Loan Notes at any time after
completion of the ELI Reorganisation Agreement.
The ELI Reorganisation Loan Notes will be unsecured and will not
accrue interest. San Leon can transfer the ELI Reorganisation Loan
Notes to any member of its group without the consent of
Midwestern.
The ELI Reorganisation Loan Notes will be governed by English
law.
5.2.3 ELI Reorganisation Agreement
The ELI Reorganisation Agreement to be entered into in respect
of the reorganisation of ELI between Midwestern, San Leon and San
Leon ELI pursuant to which Midwestern will direct and procure the
transfer of 53,700 ELI Shares and its associated loan receivable in
the principal amount of approximately US$15,300,000 (the "ELI
Receivable") from ELI Malta to San Leon ELI. The consideration will
be an amount equal to the subscription price for the ELI New
Shares. San Leon ELI's obligation to pay the consideration will be
set off against Midwestern's obligation to pay the amount
outstanding under the ELI Reorganisation Loan Notes.
Completion of the ELI Reorganisation Agreement is subject to the
following conditions (the "ELI Conditions"):
(i) the unconditional completion of each of the following: (A)
Midwestern undertaking the necessary actions and documentation to
direct or procure transfer of the full legal and beneficial title
to the ELI Shares to San Leon ELI free from any encumbrances,
subject to the ELI-GTB Share Charge, and (ii) Midwestern holding
all necessary rights in the ELI Receivable to direct or procure the
assignment of all rights and interest in the ELI Receivable to San
Leon ELI free from any encumbrances (the "UPIL Condition") (it
should be emphasised that the UPIL Condition is dependent on,
amongst other things, the approval of the other shareholders of
UPIL, which is not under the Company's control);
(ii) the release of the security granted by ELI under the
ELI-GTB Share Charge in respect of the ELI Shares has received
consent (the "ELI Shares Condition");
(iii) the completion of the MLPL Reorganisation Agreement (the "MLPL Condition ");
(iv) the admission of all of the ELI New Shares to trading on
AIM becoming effective in accordance with Rule 6 of the AIM Rules
(the "ELI Admission Condition");
(v) the release of the ELI Valuation Report to Midwestern;
(vi) the notification to, and the no-objection and approval of,
the NMDPRA, and the notification to, and the no-objection by the
Maltese National Foreign Direct Investment Screening Office of the
Transaction to the transactions which are contemplated under the
ELI Reorganisation Agreement (the "ELI Regulatory Conditions
");
(vii) the letter to be signed by the ELI Shareholders, addressed
to ELI from the ELI Shareholders, consenting to the ELI
Shareholders' Agreement being amended, changed, altered or waived
being executed by the ELI Shareholders;
(viii) San Leon ELI having signed and released the Deed of
Accession to ELI (the "Deed of Accession Condition") there being no
breach by Midwestern of the interim period covenants given by
Midwestern under the ELI Reorganisation Agreement (as described
below) which individually or together with any other such breach,
results or is reasonably likely to result in a diminishment of the
net assets of the ELI or its group by US$10,000,000 or more, and
there being no material breach (which is unremedied) of the
warranties given by Midwestern at the time of signing of the ELI
Reorganisation Agreement (each a "ELI Midwestern Breach"); and
(ix) there being no breach by San Leon of: (i) its covenant not
to pay or declare dividends in the period between signing and
completion of the ELI Reorganisation Agreement (ii) its covenant
not to, or agree to, redeem, repurchase, reduce, waive or repay any
of its share capital, (iii) its covenant to procure that the number
of San Leon Shares which may be issued prior to Completion, or form
the subject of any award, option or other right to San Leon Shares
granted before Completion, under the San Leon Employee Incentive
Plan, San Leon warrants or any other incentive arrangement, does
not exceed 44,991,302 San Leon Shares without the prior written
approval of Midwestern, or (iv) the warranties given by San Leon
under the ELI Reorganisation Agreement which, individually or
together with any other such breach, results or is reasonably
likely to result in a diminishment of the net assets of the San
Leon Group by US$10,000,000 or more in aggregate (which is
unremedied) ("San Leon Breach").
San Leon shall use all reasonable endeavours to satisfy the MLPL
Condition to the extent such obligation is dependent on San
Leon.
Midwestern has undertaken to use all reasonable endeavours to
procure that (A) UPIL exercises all of its rights as a shareholder
of ELI to procure and that (B) each director of ELI or its
subsidiaries (together the "ELI Group Companies" and each an "ELI
Group Company") appointed by it or UPIL exercises their powers and
rights to procure (so far as it is able through the exercise of
such rights/powers) that no ELI Group Company undertakes a number
of customary interim covenants such as varying its share capital,
making acquisitions or disposals, entering into joint ventures or
material agreements or commencing or settling any litigation. San
Leon has agreed to not pay or recommend for declaration any
dividend, redeem, repurchase, reduce, waive or repay any of its
share capital, and to procure that the number of San Leon Shares
which may be issued prior to Completion, or form the subject of any
award, option or other right to San Leon Shares granted before
Completion, under the San Leon Employee Incentive Plan, San Leon
warrants or any other incentive arrangement, does not exceed
44,991,302 San Leon Shares without the prior written approval of
Midwestern.
The ELI Regulatory Conditions may be waived by written agreement
between San Leon and Midwestern at any time on or before 08:00 on
31 December 2022 (or such other date as San Leon or Midwestern
agrees in writing) (the "ELI Long Stop Date"). San Leon may waive a
material breach by Midwestern and Midwestern may waive a material
breach by San Leon by written notice at any time before 08:00 on
the ELI Long Stop Date.
The ELI Reorganisation Agreement may be terminated by San Leon
or Midwestern with immediate effect if an ELI Condition has not
been satisfied or has become impossible to satisfy by 08:00 on the
ELI Long Stop Date.
Midwestern may terminate the ELI Reorganisation Agreement if
there occurs a San Leon Breach which (A) is not capable of remedy,
or (B) is capable of remedy but is not remedied to the reasonable
satisfaction of Midwestern by the earlier of (a) the date falling
ten Business Days after receipt of notice from Midwestern requiring
that breach to be remedied, and (b) the date falling ten Business
Days prior to the completion of the ELI Reorganisation
Agreement.
San Leon may terminate the ELI Reorganisation Agreement if there
occurs a ELI Midwestern Breach and such breach (A) is not capable
of remedy, or (B) is capable of remedy but is not remedied to the
reasonable satisfaction of San Leon by the earlier of (a) the date
falling ten Business Days after receipt of notice from San Leon
requiring that breach to be remedied, and (b) the date falling ten
Business Days prior to completion of the ELI Reorganisation
Agreement. Midwestern may terminate the ELI Reorganisation
Agreement if at any time, a third party announces a firm intention
to make an offer for the Company pursuant to Rule 2.5 of the Irish
Takeover Rules.
Under the terms of the ELI Reorganisation Agreement, Midwestern
has provided certain warranties to San Leon and San Leon Financing
and San Leon have given certain warranties to Midwestern. These
warranties are customary for a transaction of this type. The
warranties will be given at the date on which San Leon announces
the transaction under the ELI Reorganisation Agreement (the "ELI
Announcement Date") and will be repeated on completion of the ELI
Reorganisation Agreement.
The ELI Reorganisation Agreement will be governed by English
law.
The number of shares to be subscribed for by Midwestern as part
of the ELI Reorganisation has been agreed and fixed between
Midwestern and the Company and is not subject to adjustment by
reference to the market price of the Ordinary Shares or New
Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed,
which is a condition to the ELI Reorganisation, the market price of
the New Ordinary Shares on the date of allotment of the MLPL New
Shares must be not greater than the value per share to be recorded
in the MLPL Valuation Report. Similarly, in order for the ELI
Reorganisation to proceed, the MLPL Reorganisation must complete
and the market price of the New Ordinary Shares on the date of
allotment of the ELI New Shares must be not greater than the value
per share to be recorded in the ELI Valuation Report.
5.2.4 ELI/Africa Finance Corporation Facility Agreement
On 7 December 2021, ELI Nigeria (as guarantor), ELI Malta (as
borrower) and Africa Finance Corporation (as mandated lead
arranger) (amongst others) entered into a US$130,000,000 senior
secured term loan facility agreement (the "AFC Facility
Agreement"). The original lenders under the AFC Facility Agreement
are Africa Finance Corporation, with a commitment of US$110,000,000
and Zenith Bank PLC, with a commitment of US$20,000,000. The
purpose of the AFC Facility Agreement, among other things, is to
refinance an existing loan agreement between (amongst others) ELI
Nigeria as borrower and GTB as agent for the financing of the costs
in connection with the construction and development of the OML 18
alternative crude oil evacuation system (ACOES). The facility will
mature at the earlier of either the date falling sixty months after
the first utilisation date under the facility or 30 September
2026.
Utilisation by ELI Malta of the AFC Facility Agreement is
conditional on the satisfaction of various conditions precedent,
some of which remain outstanding, including Africa Finance
Corporation receiving evidence that the reserve-based financing
currently provided to Eroton (being the Existing Eroton Debt
Facility) has been refinanced on terms satisfactory to the lenders
under the AFC Facility Agreement and that all conditions precedent
to the effectiveness of that refinancing have been satisfied.
Under the AFC Facility Agreement, ELI Malta may, with ten
business days prior notice, cancel the whole or any part (being a
minimum amount of US$5,000,000 and integral multiples of
US$1,000,000) of the facility amount available to it. ELI Nigeria
may also, with ten business days' prior notice, prepay the whole or
any part of a drawdown under the facility (but, if in part, being a
minimum amount of US$5,000,000 and integral multiples of
US$1,000,000). ELI Nigeria acts as guarantor under the AFC Facility
Agreement, and guarantees ELI Malta's obligations under the
facility.
ELI Malta is obliged to provide the agent under the AFC Facility
Agreement with its quarterly and yearly financial statements. The
statements must include a balance sheet, profit and loss account
and cashflow statement and must be accompanied with a compliance
certificate setting out the computations as to its compliance with
the financial covenants under the facility. Under the terms of the
AFC Facility Agreement ELI Malta is not allowed to change its
accounting reference date.
Under the terms of the AFC Facility Agreement, without the
agent's consent ELI Malta cannot be a creditor or provide any form
of credit to any person, it also cannot dispose of any asset except
certain assets such as obsolete or redundant vehicles, plant and
equipment. ELI Malta also cannot merge with another company or
acquire shares in another company or business other than assets in
connection with the design, construction, procurement,
commissioning, installation and operation of the ACOES.
The AFC Facility Agreement is governed by English law.
5.2.5 Licenses and permits
ELI has obtained various licences in order to establish and
operate a pipeline and Floating Storage and Offloading terminal.
These include, but are not limited to, a license giving it the
right to commence construction of an ACOES to support the OML 18
operations and the establishment of the proposed floating storage
offloading terminal project; a license for a pipeline to a floating
storage and offloading terminal located offshore on the Niger
Delta; a license giving ELI the right to take possession of and use
land for constructing, maintaining and operating an oil pipeline
for a period of 20 years; a licence affirming the establishment of
ELI Akaso floating storage and offloading (FSO) oil terminal as a
crude oil terminal within a safety exclusion zone; and a license
for the calibration of 17 cargo tanks on board the floating storage
and offloading vessel carried out in 2019, with the license running
to August 2024.
5.3 ELI Material Contracts
Further details of the other material contracts to which ELI is
a party are set out in paragraph
10.24 of Part 12 of this Document.
5.4 Further Information on ELI
The Historical Financial Information for ELI is set out in Part
8C of this Document.
Further details of the risks surrounding the ELI Reorganisation
are set out in Part 4 of this Document.
PART 3
FURTHER ELI INVESTMENTS
1. Introduction
San Leon currently holds 38,998 ELI Shares representing a 10%
equity interest in ELI. As part of the ELI Reorganisation, San Leon
will acquire an additional 53,700 ELI Shares, being Midwestern's
indirect 13.77% equity interest in ELI. The Company also currently
has a conditional interest in 12,959 ELI Shares representing a
3.323% equity interest in ELI as a result of a series of
transactions announced on 24 June 2021 and 12 February 2022,
details of which are contained in paragraphs 2 and 3 below.
Upon completion of both the ELI Reorganisation and all of the
Further ELI Investments, San Leon will become the largest
shareholder in ELI, with its stake rising to 228,458 ELI Shares
representing 50.64% and will be a significant lender to ELI,
holding a total of US$48.3 million of loans (plus accrued interest)
to ELI. The Further ELI Investments are not conditional upon the
ELI Reorganisation or the MLPL Reorganisation but are all
conditional upon shareholder approval as well as the conditions
referred to below.
2. Walstrand Acquisition and Option
On 24 June 2021, the Company announced the further conditional
purchase of an interest in ELI, namely, that the Company will pay
US$2,000,000 for 5,159 ELI Shares being 1.323% of ELI and received
an option to purchase an additional stake of 16,777 shares in ELI
being 4.302% for US$6,500,000.
2.1 Walstrand Acquisition and Option Agreement
On 23 June 2021 an agreement was entered into between Walstrand
and San Leon ELI pursuant to which Walstrand agreed, subject to
obtaining the consent of GTB, to (i) make an initial transfer of
5,159 shares in ELI to San Leon ELI for a total consideration of
US$2,000,000 and (ii) grant an call option to San Leon ELI to
acquire from Walstrand an additional 16,777 shares in ELI for a
total consideration of US$6,500,000. The call option granted in the
agreement carried an expiration date of 31 December 2021, which is
in the process of being extended in light of the transactions
contemplated under this Document.
The effective date of the initial transfer is stated as 23 June
2021, irrespective of the date on which the GTB consent was
obtained, and the effective date of the transfer the subject of the
call option granted by Walstrand shall be the date on which payment
of the option consideration of US$6,500,000 is paid by San Leon on
behalf of San Leon ELI. Whilst the Walstrand Acquisition and Option
Agreement was entered into on 23 June 2021, the agreement remains
conditional, including as to the consent of the other shareholders
in ELI and has not been completed. Consent of the other
shareholders is expected to be forthcoming once the Ocean Pearl ELI
Acquisition referred to below has been completed.
The agreement is governed by English law.
3. February 2022 Loan and February 2022 Purchase
In February 2022, San Leon Financing advanced US$2,000,000 to
ELI by way of a loan and Walstrand agreed to transfer 7,800 ELI
Shares representing 2% of ELI to San Leon.
3.1 February 2022 Supplemental Investment Agreement and Drawdown Request
On 14 February 2022, San Leon Financing (as lender) and ELI (as
borrower) entered into a supplemental investment agreement pursuant
to which San Leon Financing grants to ELI an additional unsecured
term loan facility of a total principal amount not exceeding
US$2,000,000 for an availability period of 30 days from 14 February
2022 to 16 March 2022 for the purpose of financing the design,
construction, commissioning and operation of the ACOES and FSO by
ELI.
The agreement is supplemental to the initial investment
agreement entered into by and between San Leon Financing (as
lender) and ELI Malta (as borrower) on 31 July 2020. Further
details of this investment agreement are set out in paragraph
10.24.7 of Part 12 of this Document.
ELI Malta issued a drawdown request in respect of the facility
on 14 February 2022. ELI Malta shall commence repayment of the
facility no later than the day falling on the first anniversary of
drawdown. ELI Malta shall repay 1/13th of the principal of the
facility together with accrued interest for the 12 month period
since drawdown. The supplemental investment agreement is governed
by English law.
3.2 February 2022 Walstrand Acquisition Agreement
On 14 February 2022 an agreement was entered into between
Walstrand and San Leon ELI pursuant to which Walstrand agreed,
subject inter alia to obtaining the consent of GTB and the consent
of the other shareholders in ELI, to transfer 7,800 shares in ELI
Malta to San Leon ELI at nominal value for a total consideration of
US$91.46. The shares to be transferred by Walstrand amounted to 2%
of the entire issued share capital of ELI Malta as at the effective
date.
The effective date of the transfer is stated as 14 February
2022, irrespective of the date on which the GTB and shareholder
consent is obtained.
By way of a letter of undertaking entered into on 14 February
2022 by and between, inter alia, San Leon Financing and Walstrand,
Walstrand also undertook by way of an adjustment mechanism that, in
the event of a subsequent dilutive issue of shares by ELI Malta, it
will transfer to San Leon ELI (subject to obtaining consent from
GTB and other shareholders in ELI) such number of shares as is
required to ensure that San Leon ELI maintains a proportion of no
less than 2% of the share capital in ELI Malta (being the
proportion of the issued share capital of ELI Malta transferred to
San Leon ELI by virtue of the February 2022 Walstrand Acquisition
Agreement). The transfer of any additional shares in connection
with this undertaking will also be at nominal value.
Whilst the February 2022 Walstrand Acquisition Agreement was
entered into on 14 February 2022, the agreement remains conditional
and has not been completed.
The acquisition agreement and letter of undertaking are governed
by English law
4. New ELI Loan and New ELI Subscription
A new loan from San Leon to ELI of US$16,000,000 at a coupon of
14% per annum over four years, and repayable quarterly following a
one-year moratorium is in agreed form and with the parties for
signing, drawdown being conditional on passing of Resolution 1. In
addition, San Leon has agreed to a conditional subscription at
nominal value for 48,748 ELI Shares representing a 10% new equity
holding in ELI and anti-dilution shares issued to maintain its
existing 13.323% interest in ELI which are also with the parties
for signing.
4.1 New ELI Loan Agreement
The terms of a new loan agreement have been agreed between ELI
Malta and San Leon Energy Financing pursuant to which San Leon
Energy Financing has agreed to loan ELI Malta an unsecured sum of
up to US$16,000,000. The loan is expected to be drawn down within
30 days of the passing of Resolution 1. It is intended that the
loan will be used to finance the design, construction,
commissioning and operation of the ACOES and FSO by ELI. The loan
agreement is with the parties for signing.
The first repayment date will be a date specified by ELI Malta
in their drawdown request, falling between 6 and 18 months from the
drawdown date and the term of the loan, being a date during the 36
months following the first repayment date. The interest is 14% per
year, and interest accrues every three months from the drawdown
date.
Repayment by ELI will be on the first repayment date, in a
proportion calculated by deducting the time between the drawdown
date ("B") and the first repayment date from the term of the loan
in the drawdown request ("A"), divided by the interest period
("C"). ELI will then at the end of each
interest period repay a proportion calculated on the same basis
as for the first repayment date ((A-B)/C), plus any interest which
has accrued for that period.
ELI is required to obtain the consent of GTB, or any new senior
lender should GTB's loan be refinanced, in respect of the loan
agreement within six months of the drawdown date. Failure to obtain
the consent will amount to an event of default.
The loan will be governed by English law.
4.2 New ELI Subscription Agreement
ELI Malta and San Leon ELI have agreed to enter the terms of a
share purchase and allotment agreement pursuant to which, and
conditional, amongst other things, on passing of Resolution 1, ELI
Malta shall issue and San Leon ELI shall acquire 48,748 ELI Shares
(the "Allotment Shares"), with each share being fully paid up and
to be allotted to San Leon ELI following the approval of the
shareholders of ELI Malta to increase the authorised and issued
share capital in ELI Malta. The purchase price for the Allotment
Shares shall be a consideration of US$121.95, payable in cash by
the Company. The agreement will be governed by English law. The
share purchase and allotment agreement is with the parties for
signing.
5. Ocean Pearl ELI Acquisition
On 8 July 2022, the Company announced the further conditional
purchase of an interest in ELI, namely, that the Company will pay
US$15,000,000 for 52,647 ELI Shares representing 11.669% of ELI
(current percentage holding is 13.500% which will be reduced upon
the issue of new equity as detailed above).
5.1 Ocean Pearl ELI Acquisition Agreement
Share transfer agreement - a share transfer agreement entered
into between Ocean Pearl Maritime SA ("OPM") and San Leon ELI
Limited ("San Leon ELI") on 8 July 2021 pursuant to which OPM will
transfer a 52,647 ELI Shares to San Leon ELI, for a total
consideration of US$15,000,000 (paid by the parent company of San
Leon ELI, San Leon). The transfer will be e ective on the date the
share transfer agreement is signed.
The transfer of the shares is conditional on passing of
Resolution 1 and OPM obtaining the consent of GTB to such transfer,
and San Leon ELI will agree to pledge the shares to GTB on the same
terms as the pledge by OPM. The transfer of the ELI Shares will be
deemed null and void if consent has not been obtained within 180
days of the e ective date. Failure to obtain consent will trigger
an event of default in respect of a loan from San Leon ELI to OPM
made on the e ective date.
Whilst the Ocean Pearl ELI Acquisition Agreement was entered
into on 8 July 2022, the agreement remains conditional and has not
been completed.
The transfer agreement is governed by English law.
6. Further Information on ELI
The Historical Financial Information for ELI is set out in Part
8C of this Document.
Further details of the risks surrounding the Further ELI
Investments are set out in Part 4 of this Document.
DEFINITIONS
The following definitions apply throughout this Document, unless
the context otherwise requires:
"EUR" or "EUR"or "euro" Euro, the lawful currency of Ireland
"GBP" or "British pound sterling"or "p" pound sterling, the lawful currency of the UK
"ACOES" the Alternative Crude Oil Evacuation System project,
which is being constructed by ELI and comprises a pipeline and an
offshore floating storage and offloading vessel that will provide
an oil export route from OML 18
"Afreximbank" the African Export-Import Bank
"AIM" the market of that name operated by the London Stock
Exchange
"AIM Mining, Oil & Gas Companies Note" the 'AIM Note for Mining, Oil & Gas Companies'
published by the London Stock Exchange setting out specific
requirements, rule interpretation and guidance relating to resource
companies, as amended from time to time
"AIM Rules for Companies" the rules (including the guidance
notes thereto)
published by the London Stock Exchange governing, inter alia,
admission to trading on AIM and the continuing obligations of
companies admitted to trading on AIM, as amended from time to
time
"AIM Rules for Nominated Advisers" the rules for nominated advisers setting out the
eligibility, ongoing obligations and certain disciplinary
matters in relation to nominated advisers, published by the London
Stock Exchange
"Allenby Capital" or "Nomad" Allenby Capital Limited, a company
registered in
England and Wales with company number 06706681 and having its
registered office at 5 St. Helen's Place, London EC3A 6AB, which is
authorised and regulated in the United Kingdom by the FCA, is
acting as nominated adviser, joint financial adviser and joint
broker to the Company
"Amstel Oil Field" an oil field within Block Q13A which is
located offshore the Netherlands
"Amstel Royalty Agreements" two royalty agreements, entered into
by wholly owned
subsidiaries of the Company, San Leon (Netherlands) Limited and
San Leon Energy B.V., whereby the Company is the beneficiary of two
royalties on the Amstel Oil Field from TAQA Offshore BV
"Asset Management Agreement" the agreement dated 8 July 2022 between: (i) San
Leon Energy Nigeria; and (ii) Eroton, relating to the operation
of OML 18, details of which are set out in paragraph 4.3.4 of Part
2 of this Document
"Audit and Risk Committee" the audit and risk committee of the Company as
constituted from time to time
"Barryroe" the SEL 1/11 which is located in the North Celtic Sea
Basin, approximately 50 km off the south coast of Ireland
"Barryroe NPI" the Net Profit Interest granted by Providence
pursuant to the agreement dated 22 December 2011 entered into
between Providence and Island Expro Limited as amended by: (i) the
NPI Novation Agreement; and (ii) the deed of transfer dated 4
December 2015 between Island Expro Unlimited Company and San
Leon
"Belgian Companies and Associations Code"
the Belgian Code on companies and associations dated 23 March
2019 as amended or supplemented from time to time
"Belgian Law Rights" the fungible co-ownership rights governed
by Belgian law over a pool of book-entry interests in securities of
the same issue (i.e. ISIN) which the EB Participants will receive
on or after Re-Admission, if they elect to do so, further summary
details of which are set out in section 2 of Part 11 of this
Document
"Belgium" the Kingdom of Belgium and the word "Belgian" shall be
construed accordingly
"Bilton" Bilton Energy Limited, a company incorporated in
Nigeria with registration number 1135274 and having its registered
office at 6th Floor, Keystone Building, 1 Keystone Way, Victoria
Island, Lagos, Nigeria
"Bilton OML 18 Acquisition Agreement" the conditional agreement dated 8 July 2022 made
between (i) Eroton and (ii) Bilton, to effect the Bilton OML 18
Transaction, details of which are set out in paragraph 3.3.2 of
Part 2 of this Document
"Bilton OML 18 Transaction" the conditional acquisition by
Eroton of an additional
1.8% interest in OML 18 pursuant to the Bilton OML 18
Acquisition Agreement, details of which are set out in paragraph
3.3.2 of Part 2 of this Document
"Board" the board of directors of the Company as at the date of
this Document
"Bonny Terminal" the oil and gas export terminal located on
Bonny Island to the Southeast of OML 18, which is owned and
operated by Shell
"Broadridge" Broadridge Proxy Voting Service, a third-party
service provider engaged by EUI in connection with the voting
service provided in respect of CDIs
"Business Day" a day (other than a Saturday or Sunday) on which
banks are open for general business in Dublin, London and Lagos
"CA" the Court of Appeal of Nigeria
"Canada" Canada, its territories and possessions, any province
of Canada and all other areas subject to the jurisdiction of
Canada
"CBN" the Central Bank of Nigeria
"certificated form" or "in certificated form" a share the
subject of a certificate as referred to in
section 99(1) of the Companies Act 2014 of Ireland
"CIT" the Companies Income Tax of Nigeria
"CITA" the Companies Income Tax Act (Cap. C21, LFN 2004) of
Nigeria
"Companies Acts" the Companies Acts 1963 to 2013 of Ireland
"Company" , "San Leon"or "SLE" San Leon Energy plc, a company incorporated in
Ireland with limited liability under the Companies Acts, with
registration number 237825 and having its registered office at 2
Shelbourne Buildings, Crampton Avenue, Dublin 4, D04W3V6,
Ireland
"Consent Guidelines" The Guidelines and Procedures for Obtaining
Minister's Consent to the Assignment of Interest in Oil and Gas
Assets, 2021
"CPR" or "Competent Person's Report" the competent person's report as prepared by
PetroVision and which appears in Part 7 of this Document
"CREST" or "CREST System" the system for the paperless
settlement of trades in
securities and the holding of uncertificated securities operated
by EUI in accordance with the CREST Regulations
"CREST Deed Poll" the global deed poll made on 25 June 2001 by
CREST Depository, a copy of which is set out in the CREST
International Manual
"CREST Depository" CREST Depository Limited, a subsidiary of
EUI
"CREST Depository Interest" or "CDI" an English law security issued by the CREST
Depository that represents a CREST member's interest in the
underlying share
"CREST International Manual" the CREST manual for the Investor CSD service
offered by EUI entitled 'CREST International Manual' dated March
2021, as may be amended, varied, replaced or superseded from time
to time
"CREST Nominee" CIN (Belgium) Limited, a subsidiary of CREST
Depository, or any other body appointed to act as a nominee on
behalf of the CREST Depository, including the CREST Depository
itself
"CREST Regulations" the Uncertificated Securities Regulations
2001 (SI 2001/3755), as amended
"CREST Requirements" has the meaning given to it in CREST
Glossary of Terms December 2020
"CSD" a central securities depository (within the meaning of the
CSD Regulation), including Euroclear Bank
"CSD Regulation" or "CSDR" Regulation (EU) 909/2014 of the
European Parliament
and of the Council of 23 July 2014 on improving securities
settlement in the European Union and on central securities
depositories and amending Directives 98/26/EC and 2014/65/EU and
Regulation (EU) 236/2012 (as amended)
"Decklar" Decklar Petroleum Limited, a company incorporated in
Nigeria with registration number 1287622 and having its registered
office at 1st Floor Oladipo House Hospital Road Lagos Island
"Deferred Shares" the deferred shares of EUR0.005 each in the
share capital of the Company following the Subdivision
"Document" this document which constitutes an AIM Admission
Document, drawn up in accordance with the AIM Rules for
Companies
"DPR" the Department of Petroleum Resources of Nigeria (now
known as the NUPRC and NMDPRA)
"DSO" domestic supply obligations of gas under Nigerian law
"EB Migration Guide" the document issued by Euroclear Bank
entitled 'Euroclear Bank as Issuer CSD for Irish corporate
securities; Migration Guide' dated October 2020 as may be amended,
varied, replaced or superseded from time to time
"EB Operating Procedures" the document issued by Euroclear Bank
entitled 'The
Operating Procedures of the Euroclear System' dated March 2022,
as may be amended, varied, replaced or superseded from time to
time
"EB Participants" participants in Euroclear Bank, each of which
has entered into an agreement to participate in the Euroclear
System subject to the Euroclear Terms and Conditions
"EB Rights of Participants Document" the document issued by Euroclear Bank entitled
'Rights of Participants to Securities deposited in the Euroclear
System' dated July 2017 as may be varied, amended, replaced or
superseded from time to time
"EB Services Description" the document issued by Euroclear Bank
entitled
'Euroclear Bank as Issuer CSD for Irish corporate securities'
Services Description dated November 2021, as may be amended,
varied, replaced or superseded from time to time
"EEA" the European Economic Area
"EGM" or "Extraordinary General Meeting" the extraordinary general meeting of the Company to be
held at the Herbert Park Hotel, Ballsbridge, Dublin 4,
D04 R2T2, Ireland at 11:30 am on 5 August 2022
"ELI" ELI Nigeria and ELI Malta
"ELI-GTB Share Charge" means the charge over 100% of the ELI
Shares pursuant to the deed of share charge between GTB, ELI and
Energy Link Infrastructure Limited dated 28 February 2019
"ELI Group" ELI Malta and ELI Nigeria
"ELI Malta" Energy Link Infrastructure (Malta) Limited, a
company incorporated in Malta with registration number C82452 and
having its registered office at 260, Triq San Albert,
Gzira, GZR1150, Malta
"ELI New Shares" the 73,782,535 New Ordinary Shares to be
allotted and issued to Midwestern in connection with the ELI
Reorganisation pursuant to the ELI New Shares Subscription
Agreement
"ELI New Shares Subscription Agreement" the agreement for the
subscription by Midwestern for
the ELI New Shares
"ELI Nigeria" Energy Link Infrastructure Nigeria Limited, a
company incorporated in Nigeria with registration number 1316587
and having its registered office at
11 Abimbola Awoniyi Street, Off Kasumu Ekemode Street, Victoria
Island, Lagos, Nigeria
"ELI Reorganisation" the issue of the ELI New Shares pursuant to
the ELI New Shares Subscription Agreement and the proposed transfer
to San Leon ELI of 53,700 shares in ELI Malta representing 13.77%
of the existing equity in ELI Malta and a receivable owing from ELI
Malta to Midwestern in the principal sum of US$15,300,000 plus
accrued interest to be received pursuant to the ELI Reorganisation
Agreement
"ELI Reorganisation Agreement" the conditional agreement dated 8 July 2022 made
between: (i) the Company; (ii) Midwestern and (iii) San Leon
ELI, relating to certain parts of the ELI Reorganisation, details
of which are set out in section
5 of Part 2 and paragraph 5.2.3 of Part 2 of this Document
"ELI Reorganisation Loan Notes" the loan note to be issued in
consideration of the
subscription by Midwestern for the ELI New Shares pursuant to
the ELI New Shares Subscription Agreement
"ELI Reorganisation Shares Admission" the admission of the ELI New Shares to trading on AIM
becoming effective in accordance with the AIM Rules for
Companies
"ELI Shares" the ordinary shares in the capital of ELI Malta
"ELI Shareholders" the shareholders of ELI from time to time
"ELI Shareholder Consents" the consent of the other shareholders
of ELI from time to time
"Enlarged Group" the Company and its subsidiaries under its
control, following completion of the MLPL Reorganisation and any
parts of the ELI Reorganisation and the Further ELI Investments
which have completed prior to that date
"Enlarged Ordinary Share Capital" the New Ordinary Shares in
issue immediately
following completion of the MLPL Reorganisation and the ELI
Reorganisation
"Eroton" Eroton Exploration and Production Company Limited, a
company incorporated in Nigeria with registration number RC 1137060
and having its registered office at 43 Sinari Daranijo Street, Off
Ligali Ayorinde Street,
Victoria Island, Nigeria
"Eroton Litigation" the claims and counterclaims brought by or
against Eroton as set out in paragraph 3.4 of Part 2 of this
Document
"Eroton OML 18 Transactions" the conditional acquisition by
Eroton of an additional
18% interest in OML 18 pursuant to the Bilton OML 18 Transaction
and the Sahara OML 18 Transaction details of which are set out in
section 3 of Part 2 of this Document
"EU" the European Union
"EUI" or "Euroclear" Euroclear UK & Ireland Limited, a
company incorporated in England and Wales with company number
02878738 and having its registered office at 33 Cannon Street,
London, EC4M 5SB, the operator of the CREST System
"Euroclear Bank" Euroclear Bank SA/NV, an international CSD
incorporated in Belgium with company number 0429875591 and having
its registered office at 1 Boulevard du Roi Albert II1210
Brussels
"Euroclear Nominees" Euroclear Nominees Limited, a company
incorporated in England and Wales with company number 02369969 and
having its registered office at 33 Cannon Street, London, EC4M
5SB
"Euroclear System" the securities settlement system operated by
Euroclear Bank and governed by Belgian law
"Euroclear Terms and Conditions" the document issued by Euroclear Bank entitled
'Terms and Conditions governing use of Euroclear dated June
2021, as may be amended, varied, replaced or superseded from time
to time'
"Euronext Dublin" means The Irish Stock Exchange plc, trading as
Euronext Dublin
"Existing Eroton Debt Facility" the US$250,000,000 secured term
loan facility
agreement dated 18 December 2018 between Eroton (as the
borrower) and GTB (as the lender, agent, arranger and security
trustee), details of which are set out in paragraph 10.24.13 of
Part 12 of this Document
"Existing Memorandum and Articles of Association"
the memorandum and articles of association of the Company that
are currently in force as at the date of this Document
"Existing Ordinary Shares" the ordinary shares of EUR0.01 each
in the Company in
issue as at the date of this Document and any such ordinary
shares issued prior to the Subdivision
"Existing Share Capital" the issued ordinary share capital of
the Company as at the date of this Document
"FCA" the Financial Conduct Authority of the UK, including,
acting in its capacity as competent listing authority for listing
in the UK pursuant to Part VI of FSMA
"February 2022 Loan and Subscription" the US$2,000,000 loan advanced by San Leon Energy
Financing Limited to ELI Malta and the conditional transfer from
Walstrand to San Leon ELI Limited of 7,800 ELI Shares entered into
in February 2022, as described in more detail in paragraph 4.2 of
Part 3 of this Document
"FHC" the Federal High Court of Nigeria
"Form of Proxy" the form of proxy for use at the EGM that is
enclosed with this Document
"FSMA" the Financial Services and Markets Act 2000 of the UK, as
amended from time to time
"Fully Enlarged Ordinary Share Capital" the New Ordinary Shares in issue immediately prior to
Re-Admission, together with both the MLPL New Shares and the ELI
New Shares
"Further ELI Investments" means each of the Walstrand
Acquisition and Option,
February 2022 Loan and Subscription, New ELI Investment and
Ocean Pearl ELI Acquisition
"FY19" , "FY20"or "FY21" means the financial year ended 31
December 2019,
31 December 2020 or 31 December 2021 as the case may be
"Group" the Company and its current direct and indirect
subsidiaries as at the date of this Document
"GTB" Guaranty Trust Bank Plc
"H1" or "H2" the first or second half of a stated calendar
year
"Hannam & Partners" H&P Advisory Ltd, a company
registered in England and Wales with company number 11120795, which
is authorised and regulated in the United Kingdom by the FCA, is
acting as joint financial adviser to the Company
"IFRS" International Financial Reporting Standards
"initial indirect economic interest" in the context of OML 18, San Leon's indirect
economic interest in OML 18 prior to this economic interest
reducing following certain repayment based and cumulative
production hurdles being met, as described in more detail in
paragraph 4 of Part 1 of this Document
"Initially Enlarged Ordinary Share Capital" the New Ordinary
Shares in issue immediately prior to
Re-Admission, together with the MLPL New Shares
"Ireland" the Republic of Ireland
"Irish Companies Act 2014" the Companies Act 2014 of Ireland, as
amended from
time to time
"Irish Takeover Panel" the Irish Takeover Panel, established
pursuant to the Irish Takeover Panel Act, 1997
"Irish Takeover Rules" Irish Takeover Panel Act, 1997, Takeover
Rules 2013
"JOA" the joint operating agreement dated 1 March 2015, as
described in more detail in paragraph 10.23.2 of Part 12 of this
Document
"Latest Practicable Date" 6 July 2022, being the latest
practicable date prior to the publication of this Document
"Live Date" the date appointed by Euronext Dublin pursuant to
the Migration Act to be the effective date in respect of
Migration
"Local Content Act" Nigerian Oil and Gas Industry Content
Development Act, 2010 of Nigeria
"Locked-in Persons" Midwestern and each of the Directors, who
are subject to the lock in arrangements described in paragraph 18
of Part 1 of this Document
"London Stock Exchange" London Stock Exchange plc
"Martwestern" Martwestern Energy Limited, a company incorporated
in Nigeria with registration number RC 1135364
"Master Services Agreement" the agreement dated 22 March 2016
between Eroton,
Midwestern and San Leon Energy Nigeria and giving San Leon
Energy Nigeria the right to provide certain drilling and workover
rig services to Eroton as the Operator, subject to certain
conditions
"Memorandum of Association" the memorandum of association of the Company
"Midwestern" Midwestern Oil & Gas Company Limited, a company
incorporated in Nigeria with registration number RC 370639 and
having its registered office at
11 Abimbola Awoniyi Close, Off Kasumu Ekemode Street, Victoria
Island, Lagos, Nigeria
"Midwestern Group" the group of companies and/or other entities
under common control with Midwestern
"Migrating Shares" the Participating Securities in the Company
on the Migration Record Date
"Migration" the transfer of title to uncertificated securities
of the Company, which were at the Live Date Participating
Securities, to Euroclear Nominees holding on trust for Euroclear
Bank with effect from the Live Date as described in the Migration
Circular and including, where the context requires, migration as
described in and as envisaged by the EB Migration Guide
"Migration Act" the Migration of Participating Securities Act
2019
"Migration Circular" the circular dated 6 January 2021 issued by
the Company
"Migration Record Date" means 7.00 p.m. on Friday 12 March 2021,
which determined who were the holders of Participating Securities
which were subject to the Migration
"Minister" the Nigerian Minister of Petroleum Resources
"Ministerial Consent" the consent of the Minister for the MLPL Reorganisation in accordance with the Petroleum Act and the Consent Guidelines, further details of which are set out in paragraph 3.3 of Part 2 of this Document
"MLPL" Midwestern Leon Petroleum Limited, a company incorporated
in Mauritius with registration number C103713 and having its
registered office at 5th Floor, Barky Wharf, Le Caudan Waterfront,
Port Louis, Mauritius
"MLPL Loan Notes" the loan notes issued by MLPL under the MLPL
Loan Note Instrument, pursuant to which as at 30 June 2022 a total
of approximately US$103.8 million (comprising a principal amount
due of US$82.2 million and total accrued interest due of US$21.6
million) is owed to San Leon as at the date of this Document,
details of which are set out in paragraph 4.2 of Part 2 of this
Document
"MLPL Loan Note Instrument" the secured loan note instrument dated 22 March
2016, as amended in 6 April 2020 constituting up to
US$170,000,000 17% Fixed Rate Secured Loan Notes 2020, details of
which are set out in paragraph 4.2 of Part 2 of this Document
"MLPL New Shares" the 344,334,257 New Ordinary Shares to be
allotted and issued to Midwestern as part of the MLPL
Reorganisation, pursuant to the MLPL New Shares Subscription
Agreement
"MLPL New Shares Subscription Agreement"
the agreement for the subscription by Midwestern for the MLPL
New Shares
"MLPL Receivable" all of Midwestern's rights and interests in
the MLPL Promissory Notes and the MLPL Shareholders'
Agreement
"MLPL Promissory Notes" the subordinated unsecured promissory
notes granted
by MLPL to Midwestern on 30 June 2018, 31 December 2017, 31
March 2018, 30 March 2021, 22 June 2018,
5 April 2019, 30 March 2021 and 13 June 2022 in the amounts of
$7,697,985.85, $7,750,000, $8,000,000,
$19,514,802, $31,879,968, $36,564,000, $15,952,014
and $7,150,000 respectively, and the subordinated unsecured
promissory notes granted by MLPL to Midwestern maturing on 30 June
2023 and which matured on 30 June 2022 in the amounts of
$12,000,000 and $40,000,000 respectively
"MLPL Reorganisation" the issue of the MLPL New Shares pursuant
to the MLPL New Shares Subscription Agreement and the proposed
transfer to the Company of the outstanding shares of MLPL not
already owned by San Leon (being 60% of the shares in MLPL) from
Midwestern pursuant to the terms of the MLPL Reorganisation
Agreement, details of which are set out in paragraph 4 of Part 2 of
this Document
"MLPL Reorganisation Agreement" the conditional agreement dated 8 July 2022 made
between: (i) the Company; (ii) Midwestern; and (iii) MLPL,
relating to certain aspects of the MLPL Reorganisation details of
which are set out in paragraph 4.3.5 of Part 2 of this Document
"MLPL Reorganisation Loan Notes" the loan note to be issued in consideration of the
subscription by Midwestern for the MLPL New Shares pursuant to
the MLPL New Shares Subscription Agreement
"MLPL Shareholders' Agreement" the shareholders' agreement entered into among
Midwestern, San Leon Energy Nigeria B.V., and Midwestern Leon
Petroleum Limited dated 22 March 2016 relating to MLPL, governing
the relationship between all parties, and regulating their rights
and obligations with respect to the MLPL
"MM Capital Holding" MM Capital Holding Limited, a company
incorporated at Ras, al Khaimah International Corporate Centre,
United Arab Emirates with registration number ICC20220090 whose
registered office is at 415-416 Burlington Tower, Business Bay
"MPR" the Ministry of Petroleum Resources of Nigeria
"NGN" or "N" the Nigerian Naira, the lawful currency of
Nigeria
"NAOC" Nigerian Agip Oil Company Limited
"NAPIMS" National Petroleum Investment Management Services of
Nigeria, which is the upstream arm of NNPC
"NCTL" the Nembe Creek Trunk Line, a multiphase flowline
pipeline, which connects the Cawthorne Channel, Akaso, Krakama and
Awoba fields at OML 18 to the Bonny Terminal and is currently used
as one of the methods for the export of oil from OML 18
"Net Profit Interest" the 4.5% net profit interest granted by
Providence to Island Expro Limited pursuant to the agreement dated
22 December 2011 and defined as Gross Sales minus Operating Costs
by Area Factor multiplied by 0.045 where:
(i) Gross Sales to be calculated by adding Providence's gross
proceeds from sales of petroleum produced from the area in the
relevant month;
(ii) Operating Costs being the normal and directly attributable
operating costs incurred by Providence as part of operations under
the joint operating agreement in respect of the area; and
(iii) Area Factor being the factor by which the economic
interest of Providence in the Area needs to be multiplied by in
order to replicate the position as if Providence held 100% of the
economic interest in the area.
"Newcross" Newcross Exploration and Production Limited, the
operator of the OML 24 licence that is near OML 18
"New ELI Investment" the New ELI Loan together with the New ELI
Subscription
"New ELI Loan" the proposed new loan from San Leon to ELI of
US$16,000,000 at a coupon of 14% per annum over four years, and
repayable quarterly following a one-year moratorium, details of
which are set out in section 2 of Part 1 and paragraph 4 of Part 2
of this Document
"New ELI Subscription" the proposed subscription at nominal
value by San Leon for 48,748 ELI Shares which shall accompany the
New ELI Loan, details of which are set out in section 2 of Part 1
and paragraph 4 of Part 2 of this Document
"New Eroton Debt Facilities" the senior secured reserve-based
lending facilities
totalling US$750,000,000 proposed to be provided to Eroton by a
lending consortium led by African Export- Import Bank for the
purposes of, inter alia: (i) facilitating the Eroton OML 18
Transactions; and (ii) the repayment of all of Eroton's outstanding
indebtedness with its existing lenders, details of which are set
out in paragraph 3.2.5 of Part 2 of this Document
"New Facility" the US$50 million facility proposed to be made to
the Company by MM Capital Holding pursuant to the terms of a
facility agreement entered into between the Company and MM Capital
Holding dated 8 July 2022, further details of which are set out in
paragraph 10.23 of Part 12 of this Document
"New Facility Security Agreement" the charge over the Company's shares in San Leon
Financing entered into between the Company and MM Capital
Holding entered into on 8 July 2022
"New Memorandum and Articles of Association"
the memorandum and articles of association of the Company to be
adopted at the EGM
"New Ordinary Shares" the ordinary shares of EUR0.005 each in
the share capital of the Company following the Subdivision as
described in paragraph 4.3.5 of Part 1 of this Document and
Resolution 2 set out in the Notice of EGM
"New Shares" the total of 418,116,792 New Ordinary Shares to be
allotted and issued to Midwestern in two tranches, being the MLPL
New Shares and the ELI New Shares, pursuant to the MLPL
Reorganisation Agreement and ELI Reorganisation Agreement
"NFCCPC" the Nigerian Federal Competition and Consumer
Protection Commission
"NFCCPC Negative Clearance" NFCCPC's no-objection or negative
clearance to the
MLPL Reorganisation and or written approval from them for the
MLPL Reorganisation
"NGC" the Nigerian Gas Company Limited
"Nigeria" the Federal Republic of Nigeria
"NMDPRA" the Nigerian Midstream and Downstream Petroleum
Regulatory Authority
"NNPC" the Nigerian National Petroleum Corporation of
Nigeria
"Nomination Committee" the nomination committee of the Company
as constituted from time to time
"Notice of EGM" or "Notice of Extraordinary General Meeting"
the notice convening the EGM as set out in Part 13 of this
Document
"Notore Chemical" Notore Chemical Industries Plc, which owns a
fertiliser plant located at the Onne sea port in the Niger
Delta,
Nigeria
"Notore Offtake Agreement" the amended and restated gas sale and
purchase
agreement entered into on 31 March 2016 for a period of 20 years
between (i) Eroton and (ii) Notore Chemical in respect the sale and
purchase of gas derived from OML 18
"NPI Novation Agreement" the novation agreement relating to the
Barryroe NPI,
dated 18 November 2014 entered into between Providence Resources
plc, Island Expro Limited (since re-named Island Expro Unlimited
Company) and Exola Limited
"NUPRC" the Nigerian Upstream Petroleum Regulatory
Commission
"NUPRC's Approval" the (i) notification to the NUPRC of the
intention to undertake the MLPL Reorganisation; and (ii)
notification to the NUPRC and its approval of the identity of the
Company, in accordance with the Petroleum Act and the Consent
Guidelines
"Ocean Pearl ELI Acquisition" the proposed acquisition by the
Company of 52,647 in
ELI Shares representing 13.5% of the existing equity of ELI from
Ocean Pearl Maritime SA
"Official List" the official list maintained by the FCA
"OML" an oil mining licence
"OML 18" the oil mining licence in the Southern Niger Delta
region of Nigeria known as OML 18 as more fully described in Part 1
of this Document
"OML 18 Production Arrangement" the series of transactions
relating to the Company's
acquisition of a 9.72 per cent initial indirect economic
interest in OML 18 including the Financial Service Agreement
"Operator" Eroton, the operator of OML 18
"OPL" an oil prospecting licence
"Ordinary Shares" the ordinary shares in the share capital of
the Company from time to time
"Oza Field" an onshore conventional oil field, on dry terrain,
in the northwestern part of OML 11, approximately 30 kilometres
southwest of Port Harcourt in the Abia State in Nigeria
"Oza- 1" a well located within the Oza Field
"Participating Securities" has the meaning given to the term
"relevant participating securities" in the Migration Act which have
been issued by the Company (where applicable) and includes Ordinary
Shares.
"Petroleum Act" Petroleum Act, CAP P10 Laws of Federation of
Nigeria, 2004
"PIA" the Petroleum Industry Act 2021
"PetroVision" PetroVision Energy Services Ltd, a company
incorporated in England and Wales with registration number 06256836
and having its registered office at 35 Maxwell Road, London, SW6
2HT, the author of the Competent Person's Report that forms Part 7
of this Document
"Preference Amount" US$40,000,000, subject to increase for the
Shortfall Amount, as set out in paragraph 4.9 of Part 12 of this
Document
"Preference Shares" the preference shares of EUR0.005 each in
the share capital of the Company in issue following the
Subdivision, which shall carry the right, inter alia, to
participate in the Company's profits, as described in paragraph 13
of Part 1 of this Document and paragraph 4.9 of Part 12 of this
Document
"Proposals" the MLPL Reorganisation, the adoption of the New
Memorandum and Articles of Association, the issue of the MLPL New
Shares, the Subdivision, the creation of the Preference Shares, the
ELI Reorganisation, the issue of the ELI New Shares and the Further
ELI Investments
"Proposed Midwestern Reorganisation" together the MLPL Reorganisation and the ELI
Reorganisation
"Proposed Transaction" the Proposed Midwestern Reorganisation
and the Further ELI Investments
"Prospectus Regulations" the European Union (Prospectus)
Regulations 2019
(S.I. No. 380/2019) of Ireland
"Providence" Providence Resources Plc
"PPTA" Petroleum Profits Tax Act Chapter 354. LFN 1990 of
Nigeria
"Q1" , "Q2", "Q3" or "Q4" the first, second, third or fourth
calendar quarters of a stated year
"QCA Code" the Quoted Companies Alliance's Corporate Governance
Code published from time to time
"Re-Admission" the admission of the New Ordinary Shares
following the Subdivision and the MLPL New Shares to trading on AIM
becoming effective in accordance with Rule 6 of the AIM Rules for
Companies, which will effect the completion of the MLPL
Reorganisation and constitute the admission of the enlarged entity
pursuant to Rule 6 and Rule 14 of the AIM Rules for Companies
"Regulatory Information Service" or "RIS" a regulatory information services authorised by the
FCA to receive, process and disseminate regulatory information
in respect of listed companies
"Relationship Agreement" the agreement dated 8 July 2022 between the
Company, Midwestern and Allenby Capital, as summarised in
paragraph 17 of Part 1 and paragraph
10.2 of Part 10 of this Document
"Remuneration Committee" the remuneration committee of the Company as
constituted from time to time
"Resolutions" the ordinary resolutions and special resolutions
to be proposed at the EGM
"Sahara" OML 18 Energy Resource Limited, a company incorporated
in Nigeria with registration number RC 1134458 (formerly known as
Sahara Field Production Limited)
"Sahara OML 18 Acquisition Agreement"
the conditional agreement to be entered into between (i) Eroton
and (ii) Sahara Field Production 18 Limited and the Sahara
Charitable Foundation, to effect the Sahara OML 18 Transaction,
which has been negotiated but is not expected to be entered into
until after the New Eroton Debt Facilities have been entered into
and the funds are available, details of which are set out in
paragraph 3.2.2 of Part 2 of this Document
"Sahara OML 18 Transaction" the conditional acquisition by
Eroton of an additional
16.2% interest in OML 18 pursuant to the Sahara OML 18
Acquisition Agreement, details of which are set out in paragraph
3.2.2 of Part 2 of this Document
"San Leon ELI" San Leon ELI Limited, a private company limited
by shares incorporated in England with company number 12730851, and
with its registered office at 27/28 Eastcastle Street, London W1W
8DH
"San Leon Energy Nigeria" San Leon Energy Nigeria B.V., a
private company with
limited liability, incorporated under the laws of the
Netherlands with company number 65426173, and with its registered
office at De Ronge 16, 1852 XB Heiloo, The Netherlands
"San Leon Financing" San Leon Energy Financing Limited, a
private company limited by shares, incorporated under the laws of
Ireland with company number 671568 and a registered office at 2
Shelbourne Buildings, Crampton Road, Dublin 4, D04 W3V6,
Ireland
"Securities Clearance Account" an account in the name of an EB
Participant opened in
the books of Euroclear Bank
"SEC" the US Securities and Exchange Commission
"SEL 1/11" the Standard Exploration Licence 1/11 (Barryroe)
"Settlement Agreement" the agreement to be entered into among
Sahara, Sahara Field Production 18 Limited and Eroton, to settle,
or shall procure the settlement of the Eroton Litigation, details
of which are set out in paragraph
3.3.3 of Part 2 of this Document
"Share Schemes" the 'formal option plan' and the 'share based
payment scheme' of the Company, details of which are set out in
paragraph 16 of Part 1 and paragraph 6 of Part 10 of this Document,
the LTIP and the Consultant Plan (each as defined in paragraph 13
of Part 1, details of which are set out in paragraph 13 of Part 1
and paragraph 6.2 of Part 11 of this Document)
"Shareholders" the holders of shares in the capital of the
Company from time to time
"Shell" Royal Dutch Shell plc
"Shell Offtake Agreement" the sale and purchase agreement
(expressed to be
governed by English Law) between Shell Trading (as buyer) and
Eroton (as seller) for the sale of crude oil from OML 18 which is
constituted by the offtake agreement dated 10 July 2014 (as most
recently amended by the tenth addendum dated 9 June 2021, details
of which are set out in paragraph 10.23.6 of Part 12 of this
Document
"Shell Trading" Shell Western Trading & Supply Ltd or any
other part of Royal Dutch Shell Plc or its subsidiaries, as the
context requires
"Shortfall Amount" on the date falling forty-two months after
the date of issue of the Preference Shares and on each six-month
interval thereafter 5% of the amount by which the aggregate of all
dividends paid to the holders of the Preference Shares is less than
the Preference Amount until the date on which the Preference Amount
has been paid in full, the initial Preference Amount being
US$40,000,000
"Significant Shareholder" any person who holds any legal or
beneficial interest
directly or indirectly in 3% or more of the or voting rights of
the Company from time to time, as defined in the AIM Rules for
Companies
"SPDC" Shell Petroleum Development Company of Nigeria
"SRD II" Directive (EU) 2017/828 of the European Parliament and
of the Council of 17 May 2017 amending Directive 2007/36/EC as
regards the encouragement of long- term shareholder engagement
"Subdivision" the proposed subdivision of the Ordinary Shares
into the New Ordinary Shares and Preference Shares pursuant to
Resolution 2 set out in the Notice of EGM which will become
effective immediately prior to Re-
Admission
"Suspension Date" 24 June 2021
"Suspension Price" 40.75 pence
"substantial shareholder" any person who holds any legal or
beneficial interest
directly or indirectly in 10% or more of the voting rights of
the Company from time to time, as defined in the AIM Rules for
Companies
"Supplementary Admission Document" a supplementary AIM admission document that will be
published to provide an update to the information presented in
this Document, drawn up in accordance with the AIM Rules for
Companies
"Toscafund" Toscafund Asset Management LLP, a limited liability
partnership incorporated in England and Wales with registered
number OC320318
"Toscafund Managed Funds" Tosca Mid Cap, Tosca Opportunity and The Pegasus
Fund Limited, being funds managed by Toscafund and any other
fund managed or advised by Toscafund from time to time
"Total" Total E&P Nigeria Limited
"UK Companies Act 2006" the Companies Act 2006, as amended, of
the UK "UK" or "United Kingdom" United Kingdom of Great Britain and
Northern Ireland
"UK Bribery Act" the UK Bribery Act 2010
"UK City Code" the UK City Code on Takeovers and Mergers
"UK Takeover Panel" the UK Panel on Takeovers and Mergers, which
administers the UK City Code
"UPIL" Umugini Pipeline Infrastructure Limited, a company
incorporated in Nigeria with registration number 954506 and having
its registered office at Plot 10, Block 12 Otunba Adedoyin Ogungbe
Crescent, Lekki Phase 1, Lagos, Nigeria
"UPIL Security Releases" the releases of security necessary to
enable the indirect interest of Midwestern in 13.77% of the
existing equity in ELI and US$19,065,700 of existing indebtedness
from ELI (principal US$15,300,000 and accrued interest of
US$3,765,700) to be transferred to San Leon ELI pursuant to the ELI
Reorganisation under the Reorganisation Agreement
"UPIL Shareholder Consent" the consent of the other shareholders
of UPIL from
time to time
"US" or "United States" the United States of America, its
territories and possessions, any state of the United States of
America and the District of Columbia and all other areas subject to
the jurisdiction of the United States of America
"US$" , "$"or "USD" United States Dollars, the lawful currency
of the US
"VAT" Value-added tax
"Voting Rights" all the voting rights attributable to the
capital of a company from time to time which are exercisable at a
general meeting
"Walstrand" Walstrand (Malta) Limited, a company incorporated
and registered under the laws of Malta with registration number C
81937 and registered office at Triq San Albert, Gzira, GZR 1150,
Malta
"Walstrand Acquisition and Option" the acquisition by the Company of 5,159 ELI Shares
representing 1.323% of the share capital of ELI then in issue
from Walstrand, and the grant of a call option to the Company to
purchase an additional 16,777 ELI Shares from Walstrand, dated 23
June 2021
Throughout this Document, other than Part 8 and Part 9, the
following exchange rates have been used: US$ to GBP of 1.22:1
Notes:
(i) Unless otherwise stated in this Document, all references to
statutes or other forms of legislation shall refer to statutes or
legislation of Ireland. Any reference to any provision of any
legislation shall include any amendment, modification, re-
enactment or extension thereof.
(ii) Words importing the singular shall include the plural and
vice versa and words importing the masculine gender shall include
the feminine or neuter gender.
(i)
GLOSSARY OF ABBREVIATIONS
Set below is a glossary of selected technical terms:
"ABEX" Abandonment Expenditure
"ACOES" Alternative Crude Oil Evacuation and Storage
"AG" Associated gas
"AVO" Amplitude Variation with Offset
"bbl" barrel (of oil or condensate)
"blpd" barrel of liquid per day
"boe" barrel of oil equivalent
"bopd" barrel of oil per day
"bpd" barrel per day
"bscf" billion standard cubic feet
"Bscfpd" billion standard cubic feet per day
"Bstb" Billion stock tank barrels
"BSW" Basin sediments and water
"bwpd" barrel of water per day
"CAPEX" Capital Expenditure
"Contingent Resources" Those quantities of petroleum estimated, as of a given date, to be potentially
recoverable
from known accumulations, but where the applied project(s) are not yet considered
mature enough
for commercial development due to one or more contingencies. Contingent resources are
further
significant in accordance with the level of certainty associated with the estimates and
may
be sub-classified based on project maturity and/or significant by their economic
status. In
the CPR, primarily refer to resources with uncertain fluid properties and sometimes
volumes
likely to be sub-economical.
"CHA" Crude Handing Agreement
"CITA" Companies Income Tax Act
"CP" Condition Precedent
"CPR" Competent Person Report
"CUMM" Cumulative production
"DLD" Delayed Liquidated Damages
"DRILLEX" Drilling Expenditure
"DSCR" Debt Service Coverage Ratio
"ELI" Energy Link Infrastructure
"EUR" Expected Ultimate Recovery
"FDP" Field Development Plan
"FLCR" Field Life Cover Ratio
"FSO" Floating Storage and Offloading
"FTO" Freedom to Operate
"FTSS" Feet subsea (unit of depth measurement)
"G&A" General and Administrative
"GDT" Gas down-to
"GIIP" Gas initially in place.
"GMOU" General Memorandum of Understanding
"GOR" Gas-Oil Ratio
"GR" Gamma Ray
"GRV" Gross rock volume
"Gross Reserves" Reserves before deduction of royalty
"GWC" Gas water contact
"HDT" Hydrocarbon down to
"HWC" Hydrocarbon water contact
"HWU" Hydraulic Workover Unit
"IFD" In-Field Dehydration
"ISPO" Irrevocable Standing Payment Order
"JOA" Joint Operating Agreement
"JV" Joint Venture
"kbopd" Thousand bbl per day
"km" kilometres
"LLCR" Loan Life Coverage Ratio
"LLI" Long Lead Items
"LNG" Liquefied Natural Gas
"LPG" Liquid Petroleum Gas
"m" Meters
"Mbbl" Thousand barrels
" Mboepd" Thousand boe per day
" Mbopd" Thousand barrel of oil per day
"MMbbl" Million barrels
"MMboe" Million barrel of oil equivalent
"MMscf/d" Million standard cubic feet per day
"MMstb" Million stock tank barrels
"NAG" Non-associated gas
"NCTL" Nembe Creek Trunk Line
"NGC" National Gas Company
"Net reserves" Portion of the gross reserves attributable to San Leon's working interests after
deducting
royalties and interests owned by others
"NFA" No Further Activities
"NTG" Net to gross
"NPV" Net present value
"OML" Oil Mining Lease
"OPEX" Operating Expenditure
"PDP" Proved Developed Producing
"PDNP" Proved Developed Non-Producing
"Pr o ved reserves" Reserves that have a 'reasonable certainty' of being recovered
"Probable reserves" Reserves that are defined as 'less likely' to be recovered than proved, but more
certain to
be recovered than possible reserves
"Possible reserves " Reserves that analysis of geological and engineering data suggests are less likely to
be recoverable
than probable reserves
"Prospecti ve Resources" Resources that are those quantities of petroleum estimated, as of a given date, to be
potentially
recoverable from undiscovered accumulations by application of future development
projects.
Prospective Resources have both an associated chance of discovery and a chance of
development.
Prospective Resources are further subdivided in accordance with the level of certainty
associated
with recoverable estimates assuming their discovery and development and may be
sub-classified
based on project maturity
"PPT" Petroleum Production Tax
"PUD" Proved Undeveloped
"P(sat) " Saturation pressure
"ODT" Oil down-to
"OWC" Oil water contact
"rb" Reservoir barrels
"RBL" Reserve Based Lending
" R eserves " Those quantities of petroleum anticipated to be commercially recoverable by application
of
development projects to known accumulations from a given date forward under defined
conditions.
Reserves must further satisfy four criteria: they must be discovered, recoverable,
commercial,
and remaining (as of the evaluation date) based on the development project(s) applied.
Reserves
are further categorised in accordance with the level of certainty associated with the
estimates
and may be sub-classified based on project maturity and/or characterised by development
and
production status.
" R esou r ces " All quantities of petroleum naturally occurring on or within the earth's crust,
discovered
and undiscovered (recoverable and unrecoverable), plus those quantities already
produced.
Further, it includes all types of petroleum whether currently considered "conventional"
or
"unconventional"
"Undeveloped R esou r ces " Reserves that are quantities expected to be recovered through future investments
"STOIIP" Stock tank original oil in place
"stb" Stock tank barrels
"Tcf" Trillion cubic feet
"TR" Technical Recovery
"VSP" Vertical Seismic Profile
"WUT" Water Up-to (Shallowest water depth observed in a particular reservoir or compartment
based
on well log interpretation)
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