TIDMSLE
RNS Number : 7694R
San Leon Energy PLC
08 July 2022
8 July 2022
San Leon Energy plc
("San Leon" or the "Company")
Final results
San Leon, the independent oil and gas production, development
and exploration company focused on Nigeria, is pleased to announce
its audited final results for the year ended 31 December 2021. The
full annual report for the year to 31 December 2021 is available on
the Company's website ( www.sanleonenergy.com ) and will be posted
to shareholders in the coming days.
Corporate and financial highlights
Corporate
-- Negotiated and announced on 24 June 2021 the proposed
Midwestern Reorganisation, which is described in full in the
Company's Admission Document, which is being published later
today.
-- On 24 June 2021 announced the conditional purchase from
Walstrand (Malta) Ltd of 1.323% of ELI shares for US$2 million,
together with an option to purchase a further 4.302% in ELI for an
additional US$6.5 million.
-- On 7 July 2021 announced conditional payment waivers
(subsequently extended) regarding the approximately US$99.3 million
(par value) of payments due from Midwestern Leon Petroleum Limited
("MLPL") to San Leon during the second half of 2021, since the
repayable amounts form part of the proposed Midwestern
Reorganisation. Payment waivers remain in place at the date of this
announcement pending completion of the transactions.
-- In January 2022, the Company announced that some of its
subsidiaries had successfully concluded their ongoing legal
proceedings with TAQA Offshore BV ("TAQA") in relation to San
Leon's legacy interests in two royalties on Block Q13A, which is
located offshore the Netherlands (the "Amstel Oil Field"). Payments
totaling more than EUR5.9 million for royalties receivable up to
November 2021 including a payment in respect of its legal costs,
have been received in 2022. From December 2021, the royalties will
continue to be payable in accordance with the terms and conditions
of the Royalty Agreements, and payments and are not expected to be
material.
-- On 15 February 2022, the Company announced a further loan of
US$2 million to ELI, also enabling the Company to conditionally
purchase a further 2% shareholding of ELI for a nominal sum.
-- In February 2022, the Company completed its US$5.5 million
investment in Decklar Petroleum Limited ("Decklar"), related to the
Oza field onshore Nigeria, repayable to the Company as a loan
through a cash sweep. The Company also holds 11% equity stake in
Decklar.
-- Board appointment process previously announced completed with
appointment of John Brown as Independent Non-Executive Director and
Chair of the Audit and Risk Committee. Alan Campbell resigned from
the Board in 2021 as part of a board restructure. Lisa Mitchell
left the Company as CFO and Executive Director in October 2021 and
Julian Tedder was appointed as CFO and Executive Director in
December 2021.
Financial
-- Included within the basis of preparation note of the
financial statements and Independent Auditor's report are details
regarding material uncertainty related to going concern. This is
uncertainty is mitigated by the transactions announced today. Cash
and cash equivalents as at 31 December 2021 were US$7.6 million
(includes US$6.8 million restricted and held in escrow for the Oza
transaction) (31 December 2020: US$18.5 million including US$6.8
million restricted and held in escrow for the Oza transaction).
-- In 2021, US$2.2 million (31 December 2020: US$46.5 million)
in principal and interest payments has been received under the MLPL
Loan Notes.
-- Outstanding amounts due under the MLPL Loan Notes are now
approximately US$105.6 million (par value), which are subject to
current repayment waivers pending the completion of the proposed
Midwestern Reorganisation, and would be extinguished as part of the
consideration if the transaction were to complete.
Operational
An update on OML 18 activity during 2021 is provided below:
-- Oil delivered to the Bonny terminal for sales was
approximately 4,400 barrels of oil per day ("bopd") in 2021 (21,100
bopd in 2020) and has been affected by combined losses and downtime
of approximately 79%. The 2021 figure has also been affected by
OPEC oil production quota restrictions, and some Covid-related
delays. Field operations to boost production were largely put on
hold, pending the start-up of the ACOES barging system. Together,
the losses, downtime, OPEC restrictions and Covid-related delays
have caused the majority of the difference between gross production
when there is minimal disruption to production, and oil is received
at Bonny terminal for sales.
-- Gas sales averaged 29.6 million standard cubic feet per day
("mmscf/d") in 2021 after downtime (32.7 mmscf/d in 2020).
-- Production downtime of 9% in 2021 was caused by third party
terminal and gathering system issues. This relates to days when oil
production was entirely shut down at OML 18. Historical issues in
the third-party export system are expected to be substantially
resolved by the implementation of the new ACOES for the purpose of
transporting, storing and evacuating crude oil from OML 18 export
Pipeline. The pipeline will run from within the OML 18 acreage to a
dedicated FSO vessel in the open sea, approximately 50 kilometres
offshore. Barging of oil from OML 18 to the FSO is expected to
commence in July 2022, with trials already having been completed.
Expected timing for the completion of the pipeline component of
ACOES is late 2022.
-- Pipeline losses by the Bonny Terminal operator have increased
markedly over the past year (31 December 2021: 70%; 31 December
2020: 28%), largely due to lower pipeline throughput as a result of
OPEC quota restrictions and Covid-related issues. In the medium
term, the ACOES is expected to reduce losses significantly.
-- Eroton has taken all appropriate precautions for its
operations and people, with regards to Covid-19.
-- An update on ELI is as follows:
o Whilst there have been some delays to ACOES principally due to
Covid, barging operations from OML 18 to the ELI Akaso FSO are now
expected by ELI to commence during July 2022.
o ELI is in advanced negotiations with other third-party
injectors for use of its pipeline and terminalling facilities.
o Construction of the pipeline continues to progress and hook up
with ELI Akaso is expected to take place in late 2022.
Outlook for 2022
-- Fuller barging operations from OML 18 to the FSO to commence in July2022.
-- Completion of the proposed transactions with Midwestern and ELI expected later in 2022.
-- The commissioning of the ACOES pipeline.
-- Restarting of field operations on OML 18.
-- Export of oil from Oza.
-- Continuing to position the Company for further transactions.
On 8 July 2022, the Company entered into the new facility for
the purposes of funding its working capital requirements and for
financing the Further ELI Investments, details of which can be
found in the Admission Document. The new facility is for US$50
million.
Oisin Fanning, CEO of San Leon, Commented:
"The last year has been the most significant year in the
Company's development. We embarked upon and announced today a
transaction which we believe will create a significant West African
oil and gas entity which is ideally placed to take advantage of the
opportunities available to it and to deliver considerable future
value to all our shareholders."
San Leon Energy plc +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
Chairman's Statement
Whilst the Covid-19 pandemic continued to provide industry
challenges during 2021, the recovery in oil price during the year
and since, has enabled the Company to approach its portfolio with
increased confidence. As a result, San Leon has proposed a major
scaling up of its interests in OML 18 and ELI.
The Company was proud to announce in June 2021 the proposed
transaction to increase its position in OML 18 and ELI
significantly, and today we will publish an Admission Document in
this respect. I view the proposal as a milestone in San Leon's
growth aspirations, and an integral part of our strategy.
The Proposed Transaction
San Leon is committed to the long-term development of its
Nigerian assets, with a focus of delivering value to Shareholders.
This is driven by its technical expertise and operational
capabilities, secured by the close links it forges with
governments, joint venture partners and the local communities in
which it operates.
The MLPL Reorganisation and the ELI Reorganisation together with
the Further ELI Investments would result in San Leon's initial
indirect interest in OML 18 increasing from 10.58% to 44.1%, while
the MLPL Loan Notes would fall away. In additional transactions,
the Company's interest in ELI would increase to approximately 50%,
as well as having approximately US$50 million of loan notes
receivable from ELI. The transaction is also expected to have the
following benefits:
-- increasing the Company's economic interest in ELI will
complement the Company's proposed 100% interest in MLPL, as the
ACOES project is being constructed to provide a dedicated oil
export route from OML 18 and therefore for the benefit of MLPL,
including the expected reduction of pipeline losses and increasing
the uptime of export;
-- San Leon's larger presence by virtue of its activities,
resources and commitments, will pave the way for the Company to
become a significant market participant in Nigeria, thereby better
positioning the Company to deliver value for shareholders; and
-- increasing the Company's technical and management involvement
in the OML 18 asset, serving to help optimise the development of
the asset. This will be formalised through an Asset Management
Agreement.
Each of these benefits will contribute to the Company's main
objectives which are to:
-- use the Company's interest in OML 18 as a platform to become
a leading independent production and exploration company focused on
Nigeria and West Africa - by securing and developing further high
potential asset opportunities that yield value for
shareholders;
-- use the Company's technical and operational expertise in
securing production and near-term operating cash flow which will
yield value to shareholders whilst continuing to forge close links
with governments, partners and the local communities that it
operates in; and
-- continue to position the Company for further transactions.
The Company's financial position also enabled it to increase its
stake in ELI during 2021 and early 2022 to 13.323% with a loan note
receivable of US$17 million (par value), and during 2021 and early
2022 to complete an investment of US$5.5 million in Decklar
(related to the Oza field). The Company has an option to invest a
further US$2.5 million in Decklar by the end of June 2022. Decklar
performed a workover and well testing on the Oza-1 well during
2021, and results are discussed in more detail in the CEO's
report.
Last year I anticipated that the new oil export system, ACOES,
was expected to be operational during H2 2021. While the timing on
this has slipped, I am pleased to report that barging operations to
the FSO are expected by ELI to commence during the second half of
2022, and that ELI expects to have the pipeline completed to the
FSO at the end of 2022.
As discussed in my statement last year, the issues with NCTL
export system, Covid-19 delays, infield operational deferrals, and
increased production downtime have continued to affect production
during 2021 and have some natural delay in achieving future
production increases from new well drilling. Alongside the revival
in oil prices, and with ACOES becoming operational, I expect Eroton
to start to examine restarting well operations with an aim to
boosting production on what we consider to be a world-class
asset.
West Africa, focusing on Nigeria, is where San Leon's activities
and resources will continue to be concentrated, and we expect this
focus to continue to deliver value for shareholders.
Our increased investment in ELI, and the further proposed
increases, are expected to yield attractive returns to the Company
from its loan plus equity components.
The Company still retains two non-Nigerian, non-core interests.
These are the Durresi block offshore Albania, for which the Company
is seeking to enter the Appraisal phase of the licence and a farm
out is being sought, and the Company's Net Profit Interest ("NPI")
in the Barryroe field, offshore Ireland, where the operator,
Providence Resources plc, continues to work on a funding solution
to progress development of the field.
The Company has nearly completed its exit from Poland, with the
small amount of remaining activity being administrative. The
Company continues to hold certain NPIs in relation to Polish
licences.
Staff welfare is of utmost importance to us and as such at San
Leon Energy plc we have also been working remotely whenever
possible since March 2020 as previously mandated by the different
governments in the countries in which we have a presence. All
employees and consultants have continued to be actively engaged
regardless of the home working conditions. The Company has now
started to reduce the proportion of home working, in line with
general industry practice.
As at 8 July 2022 San Leon had cash on hand of US$0.2 million.
The Midwestern transactions will be transformational for the
Company and are expected to be cash flow positive in the near
term.
As part of the proposed transactions, the Loan Notes would no
longer be in place, and the Company will instead utilise its
significantly increased portfolio of other expected cash flow
sources.
During 2021, the Company made two Board appointments.
During May, John Brown joined the Board on as an independent
Non-Executive Director. Mr Brown has more than 20 years of
international experience in oil and gas and related industries,
including over nine years of experience with operations in West
Africa. He is a Chartered Accountant (ICAS) and was Chief Financial
Officer or Group Finance Director for numerous UK listed companies
within the oil and gas sector including Gulf Marine Services plc,
Bowleven plc and Pittencrieff Resources plc. Mr Brown chairs the
audit and risk committee and is a member of the nomination and
remuneration committees.
During December 2021 Julian Tedder was appointed as Chief
Financial Officer and Executive Director of the Company. Julian is
a Chartered Accountant and previously served as Chief Financial
Officer of IGas Energy plc and General Manager, Finance of Tullow
Oil plc, ad brings with him a wealth of finance and industry
experience.
I am delighted to welcome both to the Company. I would also like
to thank Lisa Mitchell, who left the Company as previous CFO, in
November 2021, for all of her contributions. I am also grateful to
Alan Campbell for all of his invaluable work as a Director of the
Company since 2016, and who stepped down from the Board in May
2021. Alan has continued as Company Secretary and has remained a
key part of the Company's commercial successes and business
development.
In 2021, San Leon's Board continued to seek ways to improve its
Environment, Social and Governance ("ESG") impact. Covid-19
increased the challenges in meeting objectives but the Company was
still very proud to deliver on several initiatives during the
course of 2021 in Nigeria including the provision of educational
support for disadvantaged children, the building of two new schools
in Kogi State, and the provision of water infrastructure to
villages in Benue and Kogi States. This was in addition to our
ongoing support of women-led small enterprises and the supply of
much needed basic supplies such as food, clothing and medical care
to some highly disadvantaged people.
As part of our ESG strategy, we will continue ongoing engagement
with all stakeholders and governments to ensure that we operate our
business in a way that is sustainable and benefits the local
communities in which we have a presence.
With the improved oil price, the proposed substantial increase
in its indirect equity stake in OML 18, the proposed further
investments in ELI, and its position in Oza, we believe that San
Leon is well placed to continue to realise value for shareholders
from Nigeria. Our technical and management expertise in the
industry, will be put to work more than ever in these assets. As a
result of the near-term expected startup of barging as part of
ACOES, and anticipated pipeline completion to ACOES at the end of
this year, we anticipate short-term improvements in OML 18
sales.
Our strategy continues to include the delivery of sustainable
long-term returns to shareholders. We aim to achieve this through a
combination of returns to shareholders and also growth in our asset
base.
I look forward with confidence to updating shareholders on the
achievement of these aims.
Mutiu Sunmonu
Chairman
8 July 2022
Chief Executive's Statement
2021 heralded the announcement of the intended scaling up of the
Company's operations in Nigeria. Macroeconomic factors eased during
the year, paving the way for growth on OML 18.
San Leon has long believed in the ability for OML 18 to generate
value for its shareholders, and 2021 saw the opportunity for the
Company to position itself for a significant scaling up of its
interests there. Indeed, the company is today publishing its
Admission Document, relating to that proposed transaction. The
Chairman's Statement outlines the benefits of the transaction as
anticipated by the Company, and the impact this is expected by the
Directors to have upon cash flow and growth.
Eroton had a necessarily quiet year, given the continued effects
of the Covid-19 pandemic, and operationally the large losses of any
oil export using the NCTL. Eroton has been awaiting the
availability of the ACOES system, which it expects to significantly
reduce the downtime and allocated production losses currently
associated with the NCTL. In addition, it is anticipated that the
ACOES project will greatly improve overall well uptime. ELI
anticipates that the FSO will be officially commissioned and
barging operations will begin from OML 18 to the FSO during July
2022, finally providing the new export route for much of OML 18's
oil production. It is anticipated that the pipeline component of
ACOES will be completed at the end of 2022.
Both gross production at the wellhead and sales oil volumes were
lower than expected. This was due to downtime; allocated pipeline
losses associated with the use of the NCTL; Covid-related
operational delays; prudent reduced operational expenditure and
capital expenditure spending as a result of lower oil price; and
also, OPEC production quota restrictions. Gross oil production,
taking out the e ect of NCTL downtime, (but after reductions for
OPEC quota production restrictions), was around 21,100 bopd. Sales
oil, including the e ects of downtime and allocated losses, and of
OPEC quota production restrictions, was around 4,400 bopd.
The proposed transaction is expected by San Leon to enable it
further to increase its involvement with the subsurface technical
input into OML 18, and the Company would have a paid contract to do
so. We continue to believe that OML 18 is a world class asset and
one that we look forward to developing further with our
partners.
Additions to our asset base
I am pleased that our Company was in a position to enhance its
portfolio of assets within Nigeria during 2021, in addition to the
proposed OML 18 transaction. We had already started to invest in
ELI during 2020, and that was augmented with a further US$4 million
of investment during 2021 and early 2022. As part of the proposed
transaction, we also intend to invest another US$37.5 million to
bring our equity holding to approximately 50%, and loan note
receipts of US$50 million. I expect ELI to be a value-adding and
cash-generative asset, both in the near term and for many years to
come.
In February 2022, San Leon completed US$5.5 million of its
proposed US$7.5 million investment into Decklar during 2021 and in
the first months of 2022, given the 11% equity in Decklar, together
with US$5.5 million of loan notes receivables. This transaction
involves Decklar, as Risk Service Provider to the operator of the
Oza field, performing workover and new well drilling to develop the
reserves and contingent resources on what is a proven producing
field with existing infrastructure. Under the terms of the
financing, SLE have rights to a cash sweep until the loan coupon is
repaid. During 2021, Decklar performed the anticipated workover on
the Oza-1 well, and successfully flow tested all three target
zones. The well has been configured to flow from the uppermost
zone, and export of oil produced during the well testing recently
began. The Company now has the option to invest a further US$2.5
million to increase its equity holding in Decklar to 15%, and to
receive an additional US$2.5 million in loan note receivables with
a cash sweep. The option to purchase an additional 15% equity has
been relinquished.
Cashflow
The Company has a number of anticipated sources of cash ow, as
it builds its portfolio in line with its stated strategy. As of 31
December 2021, cash receipts totaling US$198 million have come from
the repayment of MLPL Loan Notes, including interest. The
outstanding balance payable as of 24 June 2022 is US$105.6 million
at par value (US$102.2 million under IFRS), which continues to
accrue interest.
Final payment of the MLPL Loan Notes was anticipated by the end
of 2021, however due to issues around Covid-19, volatility in the
oil price and demand as well as short-term production issues on OML
18, the Company believes this date is unlikely to be met. The
Company is still confident in receiving all repayments and late
payment interest, however in line with our accounting policy we
have recognised a credit impairment to reflect the uncertainty
around timing of repayments. The anticipated transaction described
in the Admission Document, would result in the ending of the
existing MLPL Loan Notes. Future anticipated cash flow is from loan
notes receipts from ELI, dividends from equity holdings in ELI,
dividends from Eroton via MLPL (once OML 18 is generating su cient
free cash ow), loan repayments from Decklar (in relation to the Oza
field), and equity income from Oza.
ESG
As discussed in the Chairman's statement ESG is an area of
increasing importance. This is an area in which San Leon is
committed to meeting high standards of ESG practices across all
aspects of the business. The Company is committed to the countries
in which it operates and is dedicated to promoting sustainable
growth as well as providing support to local communities in
Nigeria. The Company firmly believes that by providing the younger
generation with the valuable skills and education needed to
succeed, the whole country will benefit from growth and prosperity.
In 2021 we continued to support health and education in the
communities in which we operate and delivered many sustainable
projects that have a direct and positive impact on the
environment.
Dematerialisation of company shares by 1 January 2023
The company would like to remind shareholders that the impending
EU wide dematerialisation of shares is an upcoming event, which
will effectively mean, based on current expectations, that share
certificates will no longer be accepted as prima facie evidence of
ownership from 1 January 2023.
As noted in our circular dated 6 January 2021, pursuant to EU
regulations requiring dematerialisation (which means that shares
will be registered in book entry form, without share certificates),
Irish registered listed public companies are required to convert
all holdings to uncertificated form by January 2023 (new issues)
and January 2025 (all other securities). However, it is currently
expected that a legislative change will be implemented to allow for
dematerialisation both in respect of existing shares and new issues
from 1 January 2023.
As a consequence, the market is planning to replace its existing
infrastructure (where certificated shares are used) by Registrars
and other market stakeholders with a dematerialised model, where
only book entry will be used. While there will be a cost to the
Company, shareholders are not anticipated to be required to have to
take any action, unless further legislation is enacted that
requires such. The Company will inform shareholders when any
legislation is enacted, which is expected in Q4 2022, and will
inform shareholders if expectations change and they need to take
any action.
Outlook
Recovery of the oil price during 2021 and into 2022 clearly
assists the business case for the Company's assets and their
continued development. The expected near-term startup of the
barging component of the ACOES system is an important step in
unlocking the value in OML 18, and we look forward to the pipeline
portion of ACOES coming online following anticipated completion at
the end of 2022. The proposed transaction is expected by the
Company to yield material stakes in both OML 18 and ELI, enabling
us to help carve out strategy for these important assets, which of
course benefit from each other.
The Company has cash in hand as at 8 July 2022 of US$0.2
million, and anticipates near-term cash flow from ELI loan notes
repayments and from its technical management contract with Eroton,
while awaiting equity income from its asset portfolio. The Company
continues to monitor the performance of OML 18 and its other
assets, and is ready to pursue any appropriate opportunities that
may arise in the current market.
I look forward to updating shareholders with news of the impact
of the ACOES on OML 18, plans for operations on OML 18 and Oza, and
how our various expected cash ow streams are performing. The
Company is in a good position, with a variety of future cash
streams, and together with its professional relationships and
people, I believe is well-positioned to grow and add further value
to shareholders. I expect to look back on the proposed transaction
as being transformational for the Company.
Oisín Fanning
CEO
8 July 2022
Consolidated Income Statement
for the year ended 31 December 2021
Notes 2021 2020
US$'000 US$'000
--------------------------------------------- ----- -------- --------
Continuing operations
--------------------------------------------- ----- -------- --------
Revenue from contracts with customers 2 5,747 -
--------------------------------------------- ----- -------- --------
Gross profit 5,747 -
--------------------------------------------- ----- -------- --------
Share of profit / (loss) of equity accounted
investments 13 14,532 (1,139)
--------------------------------------------- ----- -------- --------
Administrative expenses (12,867) (14,918)
--------------------------------------------- ----- -------- --------
Profit / (loss) on disposal of subsidiaries 4 16,615 (1,044)
--------------------------------------------- ----- -------- --------
Impairment / write off of exploration
and evaluation assets 12 (206) (196)
--------------------------------------------- ----- -------- --------
Other income 3 4,560 -
--------------------------------------------- ----- -------- --------
Profit / (loss) from operating activities 28,381 (17,297)
--------------------------------------------- ----- -------- --------
Finance expense 6 (129) (131)
--------------------------------------------- ----- -------- --------
Finance income 7 14,599 17,442
--------------------------------------------- ----- -------- --------
Expected credit losses 8 1,192 (13,692)
--------------------------------------------- ----- -------- --------
Fair value movements in financial assets 15 (2,551) 4,073
--------------------------------------------- ----- -------- --------
Profit / (loss) before income tax 41,492 (9,605)
--------------------------------------------- ----- -------- --------
Income tax expense 10 (775) (2,248)
--------------------------------------------- ----- -------- --------
Profit / (loss) for the financial year 40,717 (11,853)
--------------------------------------------- ----- -------- --------
Profit/ (loss) per share (cent) - total
--------------------------------------------- ----- -------- --------
Basic profit / (loss) per share 11 9.05 (2.63)
--------------------------------------------- ----- -------- --------
Diluted profit/ (loss) per share 11 8.94 (2.63)
--------------------------------------------- ----- -------- --------
The accompanying notes form an integral part of these financial
statements.
Consolidated Statement of
Other Comprehensive Income
for the year ended 31 December 2021
2021 2020
Notes US$'000 US$'000
------------------------------------------------ ----- -------- --------
Profit / (loss) for the year 40,717 (11,853)
------------------------------------------------ ----- -------- --------
Items that may be reclassified subsequently
to profit or loss
------------------------------------------------ ----- -------- --------
Currency translation differences - subsidiaries 24 56 83
------------------------------------------------ ----- -------- --------
Recycling of currency translation reserve
on disposal of subsidiaries 24 (16,615) 1,044
------------------------------------------------ ----- -------- --------
Fair value movements in financial assets 15 - (194)
------------------------------------------------ ----- -------- --------
Total other comprehensive income (16,559) 933
------------------------------------------------ ----- -------- --------
Total comprehensive profit / (loss) for
the year 24,158 (10,920)
------------------------------------------------ ----- -------- --------
The accompanying notes form an integral part of these financial
statements.
Consolidated Statement
of Changes in Equity
for the year ended 31 December 2021
Attributable
Share to
Share Share Other Currency based Fair equity
capital premium un-denominated Special translation payment value Retained holders
reserve reserve reserve reserve reserve reserve reserve earnings in Group
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
2020
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Balance
as at
1 January
2020 5,172 21,077 623 5,024 24,621 14,292 (2,505) 127,544 195,848
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Total
comprehensive
income for
year
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Loss for
the year - - - - - - - (11,853) (11,853)
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Other
comprehensive
income
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Foreign
currency
translation
differences
-
subsidiaries - - - - 83 - - - 83
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Recycling
of currency
translation
reserve
on disposal
of
subsidiaries - - - - 1,044 - - - 1,044
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Fair value
movements
in financial
assets - - - - - - (194) - (194)
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Total
comprehensive
income for
year - - - - 1,127 - (194) (11,853) (10,920)
------------- -------- -------- -------------- -------- ----------- -------- --------- --------- ------------
Transactions
with owners
recognised
directly
in equity
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
Contributions
by and distributions
to owners
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
Dividend
payment
(Note 23) - - - - - - - (33,251) (33,251)
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
Share buybacks
(Note 22) (15) - 15 - - - - (507) (507)
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
Share-based
payment - - - - - 417 - - 417
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
Effect of
share options
modified - - - - - 473 - - 473
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
Effect of
options
expired - - - - - (43) - 43 -
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
Total transactions
with owners (15) - 15 - - 847 - (33,715) (32,868)
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
Balance
at
31 December
2020 5,157 21,077 638 5,024 25,748 15,139 (2,699) 81,976 152,060
---------------------- ----- ------ --- ----- ------ ------ ------- -------- --------
The accompanying notes form an integral part of these financial
statements.
Attributable
Other Special Share to
Share Share un-denominated reserve Currency based Fair equity
capital premium reserve US$'000 translation payment value Retained holders
reserve reserve US$'000 reserve reserve reserve earnings in Group
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------- --------- -------- --------------- -------- ----------- -------- -------- -------- ------------
2021
--------------- ------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Balance as
at
1 January
2021 5,157 21,077 638 5,024 25,748 15,139 (2,699) 81,976 152,060
--------------- ------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Total
comprehensive
income for
year
--------------- ------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Profit for
the year - - - - - - - 40,717 40,717
------------- --------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Other
comprehensive
income
------------- --------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Foreign
currency
translation
differences
-
subsidiaries - - - - 56 - - - 56
------------- --------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Recycling
of currency
translation
reserve
on disposal
of
subsidiaries - - - - (16,615) - - - (16,615)
------------- --------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Fair value - - - - - - - - -
movements
in financial
assets
------------- --------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Total
comprehensive
income for
year - - - - (16,559) - - 40,717 24,158
------------- --------- -------- --------------- -------- ----------- -------- -------- -------- ------------
Transactions
with owners
recognised
directly
in equity
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
Contributions
by and distributions
to owners
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
Dividend - - - - - - - - -
payment
(Note 23)
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
Share buybacks - - - - - - - - -
(Note 22)
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
Share-based - - - - - - - - -
payment
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
Effect of - - - - - - - - -
share options
modified
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
Effect of
options
expired - - - - - (2,230) - 2,230 -
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
Total transactions
with owners - - - - - (2,230) - 2,230 -
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
Balance
at
31 December
2021 5,157 21,077 638 5,024 9,189 12,909 (2,699) 124,923 176,218
---------------------- ----- ------ --- ----- ----- ------- ------- ------- -------
The accompanying notes form an integral part of these financial
statements.
Consolidated Statement
of Financial Position
as at 31 December 2021
2021 2020
Notes US$'000 US$'000
------------------------------------------------- ----- --------- ---------
Assets
------------------------------------------------- ----- --------- ---------
Non-current assets
------------------------------------------------- ----- --------- ---------
Intangible assets 12 - -
------------------------------------------------- ----- --------- ---------
Equity accounted investments 13 58,634 44,102
------------------------------------------------- ----- --------- ---------
Property, plant and equipment 14 2,510 3,294
------------------------------------------------- ----- --------- ---------
Financial assets 15 10,657 17,846
------------------------------------------------- ----- --------- ---------
71,801 65,242
------------------------------------------------- ----- --------- ---------
Current assets
------------------------------------------------- ----- --------- ---------
Inventory 16 168 183
------------------------------------------------- ----- --------- ---------
Trade and other receivables 17 13,642 1,878
------------------------------------------------- ----- --------- ---------
Financial assets 15 91,159 72,889
------------------------------------------------- ----- --------- ---------
Cash and cash equivalents 18 7,592 18,510
------------------------------------------------- ----- --------- ---------
112,561 93,460
------------------------------------------------- ----- --------- ---------
Total assets 184,362 158,702
------------------------------------------------- ----- --------- ---------
Equity and liabilities
------------------------------------------------- ----- --------- ---------
Equity
------------------------------------------------- ----- --------- ---------
Called up share capital 22 5,157 5,157
------------------------------------------------- ----- --------- ---------
Share premium account 22 21,077 21,077
------------------------------------------------- ----- --------- ---------
Other undenominated reserve 638 638
------------------------------------------------- ----- --------- ---------
Special reserve 24 5,024 5,024
------------------------------------------------- ----- --------- ---------
24 /
Share-based payments reserve 25 12,909 15,139
------------------------------------------------- ----- --------- ---------
Currency translation reserve 24 9,189 25,748
------------------------------------------------- ----- --------- ---------
Fair value reserve 24 (2,699) (2,699)
------------------------------------------------- ----- --------- ---------
Retained earnings 124,923 81,976
------------------------------------------------- ----- --------- ---------
Total equity attributable to equity shareholders 176,218 152,060
------------------------------------------------- ----- --------- ---------
Non-current liabilities
------------------------------------------------- ----- --------- ---------
Lease liability 28 2,054 2,428
------------------------------------------------- ----- --------- ---------
Derivative 20 - 9
------------------------------------------------- ----- --------- ---------
Deferred tax liabilities 27 1,282 518
------------------------------------------------- ----- --------- ---------
3,336 2,955
------------------------------------------------- ----- --------- ---------
2020
2021 US$'000
Notes US$'000
----------------------------- ----- --------- --------
Current liabilities
----------------------------- ----- --------- --------
Trade and other payables 19 4,752 3,631
----------------------------- ----- --------- --------
Provisions 21 56 56
----------------------------- ----- --------- --------
4,808 3,687
----------------------------- ----- --------- --------
Total liabilities 8,144 6,642
----------------------------- ----- --------- --------
Total equity and liabilities 184,362 158,702
----------------------------- ----- --------- --------
The accompanying notes form an integral part of these financial
statements.
Oisín Fanning Julian Tedder
Director Director
8 July 2022
Consolidated Statement
of Cash Flows
for the year ended 31 December 2021
2021 2020
Notes US$'000 US$'000
---------------------------------------------- ----- --------- ---------
Cash flows from operating activities
---------------------------------------------- ----- --------- ---------
Profit / (loss) for the year - continuing
operations 40,717 (11,853)
---------------------------------------------- ----- --------- ---------
Adjustments for:
---------------------------------------------- ----- --------- ---------
Depreciation 14 1,028 1,028
---------------------------------------------- ----- --------- ---------
Finance expense 6 129 131
---------------------------------------------- ----- --------- ---------
Finance income 7 (14,599) (17,442)
---------------------------------------------- ----- --------- ---------
Share-based payments charge - 890
---------------------------------------------- ----- --------- ---------
Foreign exchange (9) 113
---------------------------------------------- ----- --------- ---------
Income tax expense 10 775 2,248
---------------------------------------------- ----- --------- ---------
Impairment of exploration and evaluation
assets - continuing operations 12 206 196
---------------------------------------------- ----- --------- ---------
Expected credit losses 8 (1,192) 13,692
---------------------------------------------- ----- --------- ---------
(Profit) / loss on disposal of subsidiaries 4 (16,615) 1,044
---------------------------------------------- ----- --------- ---------
Fair value movements in financial assets 15 2,551 (4,073)
---------------------------------------------- ----- --------- ---------
Decrease / (increase) in inventory 16 15 (3)
---------------------------------------------- ----- --------- ---------
Increase in trade and other receivables (11,765) (897)
---------------------------------------------- ----- --------- ---------
Increase / (decrease) in trade and other
payables 1,068 (1,778)
---------------------------------------------- ----- --------- ---------
Share of (profit) / loss of equity-accounted
investments 13 (14,532) 1,139
---------------------------------------------- ----- --------- ---------
Tax paid 35 -
---------------------------------------------- ----- --------- ---------
Net cash outflow from operating activities (12,188) (15,565)
---------------------------------------------- ----- --------- ---------
Cash flows from investing activities
---------------------------------------------- ----- --------- ---------
Expenditure on exploration and evaluation
assets 12 (206) (196)
---------------------------------------------- ----- --------- ---------
Lease - prepaid rental 28 (244) -
---------------------------------------------- ----- --------- ---------
Interest and investment income received 7 - 47
---------------------------------------------- ----- --------- ---------
13 /
Acquisition of ELI Equity Interest 15 - (443)
---------------------------------------------- ----- --------- ---------
ELI Loan Notes issued 15 - (14,557)
---------------------------------------------- ----- --------- ---------
OML 18 Loan Notes principal payments received 15 - 35,285
---------------------------------------------- ----- --------- ---------
OML 18 Loan Notes interest payments received 15 2,150 11,215
---------------------------------------------- ----- --------- ---------
Net cash inflow from investing activities 1,700 31,351
---------------------------------------------- ----- --------- ---------
2021 2020
Notes US$'000 US$'000
------------------------------------------- ----- --------- ---------
Cash flows from financing activities
------------------------------------------- ----- --------- ---------
Dividends paid 23 - (33,251)
------------------------------------------- ----- --------- ---------
Share buybacks - (507)
------------------------------------------- ----- --------- ---------
Repayment of lease liability - principal 28 (227) (211)
------------------------------------------- ----- --------- ---------
Interest paid 6 (129) (131)
------------------------------------------- ----- --------- ---------
Net cash outflow from financing activities (356) (34,100)
------------------------------------------- ----- --------- ---------
Net decrease in cash and cash equivalents (10,844) (18,314)
------------------------------------------- ----- --------- ---------
Effect of foreign exchange fluctuation
on cash and cash equivalents (74) 127
------------------------------------------- ----- --------- ---------
Cash and cash equivalents at start of
year 18 18,510 36,697
------------------------------------------- ----- --------- ---------
Cash and cash equivalents at end of year 18 7,592 18,510
------------------------------------------- ----- --------- ---------
The accompanying notes form an integral part of these financial
statements.
Notes to the GROUP Financial Statements
for the year ended 31 December 2021
1. Accounting Policies
San Leon Energy plc ("the Company") is a company incorporated
and domiciled in the Republic of Ireland. The Company's ordinary
shares are admitted to trading on the AIM Market of the London
Stock Exchange. The Group financial statements consolidate those of
the Company and its subsidiaries (together referred to as the
"Group"). The registered office address is 2 Shelbourne Buildings,
Crampton Avenue, Shelbourne Road, Ballsbridge, Dublin 4.
Statement of compliance
As required by AIM rules and permitted by Company Law, the Group
financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the EU. The IFRS adopted by the EU as applied by the Group in the
preparation of these financial statements are those that were
effective for accounting periods commencing on or before 1 January
2021 or were early adopted as indicated below.
New standards required by EU companies for the year ended 31
December 2021
The following new standards and amendments were adopted by the
Group for the first time in the current financial reporting
period.
New standards and interpretations effective that were
adopted
IASB effective EU effective
Standard date date
--------------------------------- --------------- --------------
COVID-19 Related Rent Concessions
(Amendment to IFRS 16) 1 June 2020 1 June 2020
--------------------------------- --------------- --------------
Interest Rate Benchmark Reform
- Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16) 1 January 2021 1 January 2021
--------------------------------- --------------- --------------
The standards listed above, are effective from 1 January 2021
but they do not have a material effect on the Group's financial
statements.
New standards and amendments issued by the IASB but not yet
effective
There are a number of new standards, amendments to standards and
interpretations that are not yet effective and have not been
applied in preparing these consolidated financial statements. These
new standards, amendments to standards and interpretations are
either not expected to have a material impact on the Group
financial statements or are still under assessment by the
Group.
The principal new standards, amendments to standards and
interpretations are as follows:
IASB effective
Standard date EU effective date
---------------------------------- ----------------------- -----------------------
COVID-19-Related Rent Concessions
beyond 30 June
2021 (Amendment to IFRS
16) 01 April 2021 01 April 2021
---------------------------------- ----------------------- -----------------------
Onerous Contracts - Cost
of Fulfilling a Contract
(Amendments to IAS 37) 1 January 2022 1 January 2022
---------------------------------- ----------------------- -----------------------
Annual Improvements to IFRS
Standards 2018 - 2020 1 January 2022 1 January 2022
---------------------------------- ----------------------- -----------------------
Property, Plant and Equipment:
Proceeds before Intended
Use (Amendments to IAS 16) 1 January 2022 1 January 2022
---------------------------------- ----------------------- -----------------------
Reference to the Conceptual
Framework (Amendments to
IFRS 3) 1 January 2022 1 January 2022
---------------------------------- ----------------------- -----------------------
Classification of Liabilities
as Current or Non-current
(Amendments to IAS 1) 1 January 2023 1 January 2023
---------------------------------- ----------------------- -----------------------
IFRS 17 Insurance Contracts
and amendments to IFRS 17
Insurance Contracts 1 January 2023 1 January 2023
---------------------------------- ----------------------- -----------------------
Disclosure of Accounting
Policies (Amendments to
IAS 1
and IFRS Practice Statement
2) 1 January 2023 1 January 2023
---------------------------------- ----------------------- -----------------------
Definition of Accounting
Estimate (Amendments to
IAS 8) 1 January 2023 1 January 2023
---------------------------------- ----------------------- -----------------------
Deferred Tax Related to
Assets and Liabilities Arising
from
a Single Transaction _ Amendments
to IAS 12 Income
Taxes 1 January 2023 1 January 2023
---------------------------------- ----------------------- -----------------------
Sale or Contribution of
Assets between an Investor
and its Associate or Joint
Venture (Amendments to IFRS Effective date Effective date deferred
10 and IAS 28) deferred indefinitely indefinitely
---------------------------------- ----------------------- -----------------------
New standards that came into effect on 1 January 2022 will be
applied in the year ending 31 December 2021 first reporting to
include these will be for the period ending 30 June 2022. The
Directors do not believe that any of these standards will have a
significant impact on Group reporting.
Basis of preparation
The Group financial statements are prepared on the historical
cost basis, except for financial assets (net profit interests,
quoted shares and unquoted shares), which are carried at fair
value, and equity settled share option awards and warrants which
are measured at grant date fair value.
Going concern
The Directors have prepared a detailed cash flow forecast for
the Group for the period from 1 June 2022 to 31 December 2023.
The principal assumptions underlying the cash flow forecast and
the availability of finance to the Group are as follows:
-- The proposed reorganisation to consolidate Midwestern Oil and
Gas Company Limited's ("Midwestern") shareholdings in: i) the
Company; and ii) Midwestern Leon Petroleum Limited ("MLPL") into a
single shareholding in the Company (the "Potential Transaction")
completes in the second half of 2022. The Potential Transaction
also comprises, inter alia, a proposed consolidation of
Midwestern's indirect debt and equity interests in Energy Link
Infrastructure (Malta) Limited ("ELI") with those of the Company,
as well as further new debt and new and existing equity investments
to be made by San Leon in ELI ("Further ELI Investments");
-- Eroton Exploration and Production Company Limited ("Eroton")
acquires an additional 18% interest in OML 18 from two of the other
partners in OML 18, thereby taking Eroton's interest in OML 18 to
45%. This is subject, inter alia, to: i) agreeing documentation;
ii) finalising bank financing; and iii) receiving the relevant
regulatory consents in Nigeria;
-- A loan of US$50.0 million is secured to finance the Potential Transaction;
-- Elimination of the MLPL loan notes on completion of the
Potential Transaction;
-- Under an Asset Management Agreement with Eroton, San Leon
receives US$0.5 per month for technical and financial advisory
services following completion of the Potential Transaction;
-- Repayments from ELI of loan notes of US$37.6 million during 2022 and 2023;
-- Repayment from Eroton of a debt from the provision of
services under a technical services contract of US$3.0 million
during 2022; and
-- A further loan of US$2.5 million is given to Decklar
Petroleum Limited in relation to its Oza investment as per the
option agreement.
Due to the Potential Transaction not having completed at the
date of the Annual Report there is an inherent material uncertainty
that completion will not occur as anticipated.
The Group has modelled various other scenarios assuming the
Potential Transaction does not complete and given the Group's well
understood cost base, the principal uncertainty if the Potential
Transaction does not complete relates to the quantum and timing of
receipt of interest and capital repayments on the Loan Notes with
MLPL, which would remain in place, and the loan Notes with ELI.
It was originally envisaged that the MLPL Loan Note payments due
to the Group would be sourced by MLPL from the receipt of dividends
through its indirect interest in Eroton via Martwestern. These
dividends have not been received to date and consequently MLPL has
entered into loan arrangements in order to be able to make Loan
Note payments to the Company. In the absence of the dividend
payments, MLPL will be reliant on further advances under the loan
arrangement and in turn being able to make Loan Note payments to
the Company. The Company has no obligation arising from the loan
arrangements entered into by MLPL.
The loan repayments due from ELI were due to start in 2021 but
have been delayed due to operational readiness of the FSO and ACOES
project being delayed. The Directors have a reasonable expectation
that ELI will be revenue generating imminently with the
commencement of barging operations, and while loan repayments have
been delayed, they should commence in the second half of 2022.
Due to the uncertainty on timing of future cashflows the MLPL
and ELI loan notes have both been credit impaired.
In the ultimate downside scenario where no repayments are
received from MLPL and ELI, the US$50.0 million loan secured by the
Company to fund the Potential Transaction can be drawn to
facilitate completion of the further ELI Investments, with the
remaining balance being used for general corporate purposes. In
this scenario the working capital requirements of the Group can be
met for the 12-month period from the date of approval of the
financial statements, although a reduction to administrative costs
is required in 2023, which the Directors believe is achievable and
within their control.
However, while the working capital requirements of the Group can
be met for the 12-month period, the Directors believe that the
continued viability of the Group and Company into the future is
dependent on the completion of the Proposed Transaction. As such,
the completion of the Proposed Transaction creates significant
uncertainty upon the Group and Company's ability to continue as a
going concern beyond the 12-month period. The Directors' have
concluded that this represents a material uncertainty which may
cast significant doubt upon the Group and Company's ability to
continue as a going concern and that, therefore, the Group and
Company may be unable to continue realising its assets and
discharging its liabilities in the normal course of business.
Having taken all the above factors into account, the directors
continue to believe it is appropriate to prepare
these financial statements on a going concern basis, noting the
material uncertainty that exists on the completion of the Potential
Transaction and its impact on the Company and Group's ability to
continue as a going concern. The financial statements do not
include any adjustments that would be necessary if the group were
unable to continue as a going concern.
Functional and presentation currency
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates (the "functional
currency"). These consolidated financial statements are presented
in US Dollars (US$), which is the Group's presentational currency,
rounded to the nearest thousand.
Use of estimates and judgements
The preparation of financial statements, in conformity with EU
IFRS, requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. Actual
results may differ from these estimates. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Estimates and underlying
assumptions are reviewed on an on-going basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected. In
particular, significant areas of estimation uncertainty and
critical judgements used in applying accounting policies that have
the most significant effect on the amounts recognised in the
financial statements include:
Judgements
Going concern (Note 1)
Classification of finance income (Note 7)
Impairment of investment in subsidiary (Note B)
Recoverability of equity accounted investments (Note 13)
Recoverability of financial assets (Note 15)
Estimates
Measurement of equity accounted investments (Note 13)
Measurement of financial assets (Note 15)
Measurement of share-based payments (Note 25)
Recognition of deferred tax asset for tax losses (Note 27)
Basis of consolidation
The financial information incorporates the financial information
of the Group. Control is defined as when the Group is exposed to or
has the rights to variable returns from its investment with the
entity and has the ability to affect these returns through its
power over the entity. The financial statements of subsidiaries are
included in the consolidated financial statements from the date
control commences until the date that control ceases. Where
necessary, adjustments are made to the financial information of
subsidiaries to bring their accounting policies into line with
those used by other members of the Group. Intra-group balances and
any unrealised gains and losses or income or expenses arising from
intragroup transactions are eliminated in preparing the Group
financial statements.
Business combinations and goodwill
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group. Control is defined as when the
Group have the rights to variable returns from its investment with
the entity and have the ability to affect these returns through its
power over the entity. In assessing control, the Group takes into
consideration potential voting rights that currently are
substantive.
Acquisitions
The Group measures goodwill at the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the recognised amount of any non-controlling interests in the
acquiree; plus, if the business combination is achieved in stages,
the fair value of the existing equity interest in the acquiree;
less
-- the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is
recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, that the Group incurs
in connection with a business combination are expensed as
incurred.
Any contingent consideration payable is recognised at fair value
at the acquisition date. If the contingent consideration is
classified as equity, it is not re-measured and settlement is
accounted for within equity. Otherwise, subsequent changes to the
fair value of the contingent consideration are recognised in profit
or loss.
Intangible assets - exploration and evaluation assets
Expenditure incurred prior to obtaining the legal rights to
explore an area is recognised in profit or loss as incurred. All
other expenditure relating to licence acquisition, exploration,
evaluation and appraisal of oil and gas interests, including an
appropriate share of directly attributable overheads, is
capitalised on a licence by licence basis.
Exploration and evaluation assets are carried at cost until the
exploration phase is complete or commercial reserves have been
discovered. The Group regularly review the carrying amount of
exploration and evaluation assets for indicators of impairment and
capitalised costs are written off where the carrying amount of
assets may not be recoverable. Where commercial reserves have been
established and development is approved by the Board, the relevant
expenditure is transferred to oil and gas properties following
assessment of impairment.
Impairment of non-financial assets
The carrying amounts of the Group's assets are reviewed at each
reporting date and, if there is any indication that an asset may be
impaired, its recoverable amount is estimated. The recoverable
amount is the higher of its fair value less costs to sell and its
value in use.
Estimates of impairment are limited to an assessment by the
Directors of any events or changes in circumstance that would
indicate that the carrying amount of the asset may not be
recoverable.
Any impairment loss arising from the review is recognised in
profit or loss to the extent the carrying amount of the asset
exceeds its recoverable amount. An impairment loss is reversed only
to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation. Depreciation is provided at rates
calculated to write off the cost less residual value of each asset
over its expected useful life. The residual value is the estimated
amount that would currently be obtained from disposal of the asset
if the asset were already of the age and in the condition expected
at the end of its useful life. The annual rate of depreciation for
each class of depreciable asset is:
Office equipment 25% Straight line
Motor vehicles 20% Reducing balance
Plant and equipment 20% - 33% Straight line
Leased assets Shorter of the term of lease or useful life of the
asset as defined under IFRS 16
Inventories
Inventories are valued at the lower of cost and net realisable
value.
Joint ventures
The Group has also entered into a joint venture arrangement
which is operated through a joint venture. The Group accounts for
its interest in this entity on an equity basis, with Group share of
profit or loss after tax recognised in the Income Statement and its
share of Other Comprehensive Income ("OCI") of the joint venture
recognised in OCI.
Financial assets and financial liabilities
i. Recognition and initial measurement
Financial assets are classified at initial recognition and
subsequently measured at amortised cost, Fair Value through Other
Comprehensive Income ("FVOCI") or Fair Value Through Profit or Loss
("FVTPL"). The classification of financial assets is determined by
the contractual cash flows and where applicable the business model
for managing the financial assets.
A financial asset or financial liability is initially measured
at fair value plus, for an item not at FVTPL, transaction costs
that are directly attributable to its acquisition or issue.
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as
measured at: amortised cost; FVOCI - debt investment; FVOCI -
equity investment; or FVTPL. Financial assets are not reclassified
subsequent to their initial recognition unless the Group changes
its business model for managing financial assets.
A financial asset is measured at amortised cost if the objective
of the business model is to hold the financial asset in order to
collect contractual cash flows and the contractual terms give rise
to cash flows that are solely payments of principal and interest.
Subsequently the financial asset is measured using the effective
interest method less any impairment. The amortised cost is reduced
by impairment losses in accordance with Group policy set out below.
Interest income, foreign exchange gains and losses and impairment
are recognised in profit or loss. Any gain or loss on derecognition
is recognised in profit or loss.
The business model in which a financial asset is held is
assessed at an individual asset level for assets that are
individually material, and otherwise at a portfolio level.
Financial assets that are held as part of a long-term strategic
investment are considered within a business model to collect
contractual cash flows.
In assessing whether the contractual cash flows are solely
payments of principal and interest, the Group considers the
contractual terms of the instrument. This includes assessing
whether the financial asset contains a contractual term that could
change the timing or amount of contractual cash flows such that it
would not meet this condition.
On initial recognition of an equity investment that is not held
for trading, the Group may irrevocably elect to present subsequent
changes in the investment's fair value in OCI (FVOCI - equity
investment). This election is made on an investment -- by --
investment basis. These assets are subsequently measured at fair
value. Dividends are recognised as income in profit or loss unless
the dividend clearly represents a recovery of part of the cost of
the investment. Other net gains and losses are recognised in OCI
and are never reclassified to profit or loss.
All financial assets not classified as measured at amortised
cost or FVOCI as described above are measured at FVTPL. This
includes all derivative financial assets. These assets are
subsequently measured at fair value. Net gains and losses,
including any interest or dividend income, are recognised in profit
or loss.
On initial recognition, the Group may irrevocably designate a
financial asset that otherwise meets the requirements to be
measured at amortised cost or at FVOCI as at FVTPL if doing so
eliminates or significantly reduces an accounting mismatch that
would otherwise arise.
Financial liabilities
Financial liabilities are classified as measured at amortised
cost or FVTPL. A financial liability is classified as at FVTPL if
it is classified as held -- for -- trading, it is a derivative or
it is designated as such on initial recognition. Financial
liabilities at FVTPL are measured at fair value and net gains and
losses, including any interest expense, are recognised in profit or
loss. Other financial liabilities are subsequently measured at
amortised cost using the effective interest method. Interest
expense and foreign exchange gains and losses are recognised in
profit or loss. Any gain or loss on derecognition is also
recognised in profit or loss.
iii. Impairment (including receivables)
The Group recognises loss allowances for expected credit losses
("ECL's") on financial assets measured at amortised cost.
A provision for 12-month ECL is recognised in respect of low
risk assets. A provision for the lifetime ECL is recognised in
respect of higher risk assets that are not credit impaired. If an
asset is credit impaired, the carrying amount of the asset is
reduced by its lifetime ECL.
The 12-month ECL represents the weighted average of credit
losses that result from default events on a financial instrument
that are possible within the 12 months after the reporting date.
This requires a number of outcomes to be considered, a probability
assigned to each, and a resulting credit loss applied to each. ECLs
are discounted at the effective interest rate of the financial
asset.
12-month ECL is determined based on forward looking analysis
where a range of outcomes have been considered taking into account
the size and timing of the contractual cashflows, the risk of late
payment and the risk of default leading to less than full recovery
of the amounts due. Lifetime ECL is calculated the same way, but
over the relevant period.
At each reporting date, the Group assesses whether financial
assets carried at amortised cost are credit -- impaired. A
financial asset is 'credit -- impaired' when one or more events
that have a detrimental impact on the estimated future cash flows
of the financial asset have occurred. The Group considers a
financial asset to be in default and presumed credit impaired when
contractual payments are outstanding 90 days after their due date,
unless there is reasonable information that amounts will be
recovered; or when the borrower is unlikely to pay its credit
obligations to the Group in full, without recourse by the Group to
actions such as realising security including guarantees (if any is
held).
The Group has determined that MLPL is likely to meet its credit
obligations as evidenced by the preparation of a Competent Persons
Report in relation to San Leon's interest in OML 18, however are
uncertain of the timing of when these obligations will be met. The
Group has therefore credit impaired the asset.
The Group has determined that ELI is likely to meet its credit
obligations as evidenced by recent management information in
relation to San Leon's interest in ELI.
Write-off
The gross carrying amount of a financial asset is written off
when the Group has no reasonable expectations of recovering a
financial asset in its entirety or a portion thereof. The Group
expects no significant recovery from the amount written off.
However, financial assets that are written off could still be
subject to enforcement activities in order to comply with the
Group's procedures for recovery of amounts due.
iv. Derecognition
The Group derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire.
The Group derecognises a financial liability when its
contractual obligations are discharged or cancelled or expire.
On derecognition of a financial asset or financial liability,
the difference between the carrying amount removed or extinguished
and the consideration received or paid is recognised in profit or
loss.
Decommissioning provision
A provision is made for decommissioning of oil and gas wells.
The cost of decommissioning is determined through discounting the
amounts expected to be payable to their present value at the date
the provision is recognised and reassessed at each reporting date.
This amount is regarded as part of the total investment to gain
access to economic benefits and consequently capitalised as part of
the cost of the asset and the liability is recognised in
provisions. Such cost is depleted over the life of the asset on the
basis of proven and probable reserves and charged to the Income
Statement. The unwinding of the discount is reflected as a finance
cost in the Income Statement over the life of the field or
well.
Taxation
Income tax expense comprises current and deferred tax. Income
tax expense is recognised in the Consolidated Income Statement
except to the extent that it relates to items recognised directly
in Other Comprehensive Income or equity, in which case it is
recognised in Other Comprehensive Income or equity.
i. Current tax
Current tax comprises the expected tax payable or receivable on
the taxable income or loss for the year and any adjustment to the
tax payable or receivable in respect of previous years. The amount
of current tax payable or receivable is the best estimate of the
tax amount expected to be paid or received that reflects
uncertainty relates to income taxes, if any. It is measured using
tax rates enacted or substantively enacted at the reporting date.
Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain
criteria are met.
ii. Deferred tax
Deferred tax is recognised using the liability method, providing
for temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Deferred tax is not recognised for the
following temporary differences: the initial recognition of
goodwill, the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects
neither accounting nor taxable profit, and differences relating to
investments in subsidiaries to the extent that they are controlled
and probably will not reverse in the foreseeable future. Deferred
tax is measured at the tax rates that are expected to be applied to
the temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting
date.
A deferred tax asset is recognised to the extent that it is
probable that future taxable profits will be available against
which the temporary differences can be utilised. Deferred tax
assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit
will be realised.
Unrecognised deferred tax assets are reassessed as each
reporting date and recognised to the extent that it has become
probable that future taxable profits will be available against
which they can be used.
Deferred tax assets and liabilities are offset only if certain
criteria are met.
Foreign currencies
Transactions in foreign currencies are initially translated to
the respective functional currencies of Group entities at the
exchange rates at the dates of the transactions. Monetary assets
and liabilities denominated in foreign currencies are retranslated
to the functional currency at the exchange rates ruling at the
reporting date with gains or losses recognised in profit or loss.
Non-monetary items are translated using the exchange rates ruling
as at the date of the initial transaction.
Foreign currency differences are generally recognised in profit
or loss and presented within finance costs. However, foreign
currency differences arising from the translation of the following
items are recognised in OCI:
-- an investment in equity securities designated as at FVOCI
(except on impairment, in which case foreign currency differences
that have been recognised in OCI are reclassified to profit or
loss);
-- a financial liability designated as a hedge of the net
investment in a foreign operation to the extent that the hedge is
effective; and
-- qualifying cash flow hedges to the extent that the hedges are effective.
Foreign operations
The assets and liabilities of foreign operations are translated
into US Dollars at the exchange rate at the reporting date and the
income and expenses of foreign operations are translated at the
actual exchange rates at the date of the transaction or at average
exchange rates for the year where this approximates to the actual
rate. Exchange differences arising on translation are recognised in
Other Comprehensive Income and presented in the foreign currency
translation reserve in equity. Details of exchange rates used are
set out in Note 30.
Revenue recognition
For the year ended 31 December 2021 the Group used the five-step
model as prescribed under IFRS 15 on the Group's revenue
transactions. This included the identification of the contract,
identification of the performance obligations under same,
determination of the transaction price, allocation of the
transaction price to performance obligations and recognition of
revenue. The point of recognition arises when the Group satisfies a
performance obligation by transferring control of promised drilling
services and royalty income to the customer, which could occur over
time.
Finance income and expenses
Interest income is accrued on a time basis by reference to the
principal on deposit and the effective interest rate
applicable.
The 'effective interest rate' is the rate that at initial
recognition exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument
to:
the gross carrying amount of the financial asset; or
the amortised cost of the financial liability.
In calculating interest income and expense, the effective
interest rate is applied to the gross carrying amount of the asset
(when the asset is not credit -- impaired) or to the amortised cost
of the liability. However, for financial assets that have become
credit -- impaired subsequent to initial recognition, interest
income is calculated by applying the effective interest rate to the
amortised cost of the financial asset net of impairment provision.
If the asset is no longer credit -- impaired, then the calculation
of interest income reverts to the gross basis.
Finance expenses comprise interest or finance costs on
borrowings and unwinding of any discount on provisions using the
effective interest rate.
Share capital
Incremental costs directly attributable to the issue of ordinary
shares are recognised as a deduction from equity.
Share based payments
The Group has applied the requirements of IFRS 2 'share based
payments'. The Group issues share options as an incentive to
certain key management and staff (including Directors), which are
classified as equity settled share based payment awards. The grant
date fair value of share options granted to Directors and employees
under the Group's share option scheme is recognised as an expense
over the vesting period with a corresponding credit to the
share-based payments reserve. The fair value is measured at grant
date and spread over the period during which the awards vest.
The options issued by the Group are subject to both market-based
and non-market based vesting conditions. Market conditions are
included in the calculation of fair value at the date of the grant.
Non-market vesting conditions are not taken into account when
estimating the fair value of awards as at grant date; such
conditions are taken into account through adjusting the number of
the equity instruments that are expected to vest.
The proceeds received will be credited to share capital (nominal
value) and share premium when options are converted into ordinary
shares.
Where the terms of an equity-settled transaction are modified,
an additional expense is recognised for any modification that
increases the total fair value of the share-based payment
transaction, or is otherwise beneficial to the employee as measured
at the date of modification.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a
new award is substituted for the cancelled award, and designated as
a replacement award on the date that it is granted, the cancelled
and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.
Dividends
The Group has elected to classify cashflows from dividends paid
as financing activities.
Earnings per share
The Group present basic and diluted earnings per share ("EPS")
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to equity shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period. Diluted EPS is determined by
adjusting the profit or loss attributable to ordinary shareholders
and the weighted average number of ordinary shares outstanding for
the effects of all dilutive potential ordinary shares, which
comprise convertible notes, share options granted to employees and
warrants.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand on
demand.
Leases:
As a lessee
The Group recognises right-of-use assets representing its right
to use the underlying assets and lease liabilities representing its
obligation to make lease payments at the lease commencement date.
The right-of-use assets are initially measured at cost, which
comprises the initial amount of the lease liability adjusted for
any lease payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the
underlying asset or to restore the site on which it is located,
less any lease incentives received.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the end of the
lease term, unless the lease transfers ownership of the underlying
asset to the Group by the end of the lease term or the cost of the
right-of-use asset reflects that the Group will exercise a purchase
option. In that case the right-of-use asset will be depreciated
over the useful life of the underlying asset, which is determined
on the same basis as those of property and equipment. In addition,
the right-of-use asset is periodically reduced by impairment
losses, if any, and adjusted for certain remeasurements of the
lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining
interest rates from various external financing sources and makes
certain adjustments to reflect the terms of the lease and type of
the asset leased.
- Lease payments included in the measurement of the lease liability comprise the following:
- fixed payments, including in-substance fixed payments;
- variable lease payments that depend on an index or rate,
initially measured using the index or rate as at the commencement
date;
- amounts expected to be payable under a residual value guarantee; and
- the exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments in an optional
renewal period if the Group is reasonably certain to exercise an
extension option, and penalties for early termination of a lease
unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a change
in the Group's estimate of the amount expected to be payable under
a residual value guarantee, if the Group changes its assessment of
whether it will exercise a purchase, extension or termination
option or if there is a revised in-substance fixed lease
payment.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount of the
right-of-use asset, or is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced to
zero.
The Group presents right-of-use assets that do not meet the
definition of investment property in 'property, plant and
equipment' and lease liabilities in 'loans and borrowings' in the
Statement of Financial Position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and
lease liabilities for leases of low-value assets and short-term
leases, including IT equipment. The Group recognises the lease
payments associated with these leases as an expense on a
straight-line basis over the lease term.
Segmental reporting
A segment is a distinguishable component of the Group that is
engaged in business activities from which it may earn revenues and
incur expenses which is subject to risks and rewards that are
different from those of other segments and for which discrete
financial information is available.
All operating segments and results are regularly reviewed by the
Board of Directors to make decisions about resources to be
allocated to each segment and to assess its performance.
Full details of the Group's operating segments all of which are
involved in oil and gas exploration and production are set out in
Note 2 to the financial statements.
Fair value movement
The Group has an established process with respect to the
measurement of fair values. The finance team regularly reviews
significant unobservable inputs and valuation adjustments. If third
party information, such as broker quotes or pricing services, is
used to measure fair values, then the valuation team assesses the
evidence obtained from the third parties to support the conclusion
that such valuations meet the requirements of IFRS, including the
level in the fair value hierarchy in which such valuations should
be classified.
Significant valuation issues are reported to the Board.
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
For further detail on assumptions made in measuring Level 3 fair
values see the following notes:
-- Note 15 Financial Assets
-- Note 20 Derivative
Assets and liabilities measured at fair value
In accordance with IFRS 13, the Group discloses its assets and
liabilities held at fair value after initial recognition in the
following categories: FVOCI - equity instrument and FVTPL.
With the exception of shares held in quoted entities, which are
classified as Level 1 items under the fair value hierarchy, all
assets and liabilities held at fair value are measured on the basis
of inputs classified as Level 3 under the fair value hierarchy on
the basis that the inputs underpinning the valuations are not based
on observable market data as defined in IFRS 13.
Where derivatives are traded either on exchanges or liquid
over-the-counter markets, the Group uses the closing price at the
reporting date. Normally, the derivatives entered into by the Group
are not traded in active markets. The fair values of these
contracts are estimated using a valuation technique that maximises
the use of observable market inputs, e.g. market exchange and
interest rates. All derivatives entered into by the Group are
included in Level 3 and consist of share warrants issued.
2. Revenue and Segmental Information
Operating segment information is presented on the basis of the
geographical areas as detailed below, which represent the financial
basis by which the Group manages its operations. The Board of
Directors, which has been recognised as the Chief Operating
Decision Maker ("CODM"), regularly receive verbal or written
reports at board meetings for each of the segments based on the
below criteria which management consider to be appropriate in
evaluating segment performance relative to other entities that
operate in the industry.
Revenue and Segmental Information
Poland Morocco Albania Nigeria Ireland Netherlands Spain Unallocated# Total
2021 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
Total revenue - - - 3,000 - 2,747 - - 5,747
----------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
Impairment of
exploration
and evaluation
assets - - (206) - - - - - (206)
----------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
Segment profit
/ (loss) before
income tax 16,439 - (206) 33,314 (2,552) 6,775 - (12,278) 41,492
----------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
Property, plant
and equipment 4 - - - 2,506 - - - 2,510
----------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
Equity accounted
investments - - - 58,634 - - - - 58,634
----------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
Segment
non-current
assets 4 - - 65,000 6,797 - - - 71,801
----------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
Segment
liabilities (65) (18) (804) (4) (3,680) - (745) (2,828) (8,144)
----------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
# Unallocated expenditure and liabilities include amounts
of a corporate nature and not specifically attributable
to a reportable segment.
Revenue relates to the provision of drilling services in
Nigeria. It also relates to the settlement of the TAQA claim,
please see Other income (Note 3).
Poland Morocco Albania Nigeria Ireland Netherlands Spain Unallocated# Total
2020 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------- --------- -------- -------- -------- -------- ----------- -------- ------------ ---------
Total revenue - - - - - - - - -
--------------- --------- -------- -------- -------- -------- ----------- -------- ------------ ---------
Impairment of
exploration
and evaluation
assets - - (196) - - - - - (196)
--------------- --------- -------- -------- -------- -------- ----------- -------- ------------ ---------
Segment (loss)
/ profit
before
income tax (2,093) - (196) 3,259 4,073 - (59) (14,589) (9,605)
--------------- --------- -------- -------- -------- -------- ----------- -------- ------------ ---------
Property, plant
and equipment 11 - - 575 2,708 - - - 3,294
--------------- --------- -------- -------- -------- -------- ----------- -------- ------------ ---------
Equity
accounted
investments - - - 44,102 - - - - 44,102
--------------- --------- -------- -------- -------- -------- ----------- -------- ------------ ---------
Segment
non-current
assets 11 - - 55,729 9,502 - - - 65,242
--------------- --------- -------- -------- -------- -------- ----------- -------- ------------ ---------
Segment
liabilities (83) (18) (804) (4) (3,279) - (748) (1,706) (6,642)
--------------- --------- -------- -------- -------- -------- ----------- -------- ------------ ---------
# Unallocated expenditure and liabilities include amounts
of a corporate nature and not specifically attributable
to a reportable segment.
3. Other income
2021 2020
US$'000 US$'000
-------------------- -------- --------
TAQA settlement (i) 4,027 -
-------------------- -------- --------
Other (ii) 533 -
--------------------- -------- --------
4,560 -
-------------------- -------- --------
(i) TAQA settlement
In December 2021, the Group successfully concluded their ongoing
legal proceedings with TAQA Offshore B.V. ("TAQA") in relation to
its legacy interests in two royalties on Block Q13A , which is
located offshore the Netherlands (the "Amstel Oil Field"),
including an Overriding Royalty Agreement entered into with Encore
Oil as part of a sale and purchase agreement entered into in 2007
(the "Royalty Agreements").
TAQA had subsequently purchased the interest from Encore Oil.
Production from the Amstel Field started in 2014 but no royalties
had been received. The Royalty Agreements became the subject of
separate legal proceedings in the Netherlands and the UK.
The royalties will continue to be payable in accordance with the
terms and conditions of the Royalty Agreements. The Royalty
Agreements represent legacy interests and any potential net future
benefit to the Group going forward from the Amstel Oil Field on a
monthly basis is not expected to be particularly material to San
Leon .
The total TAQA settlement amounted to approximately US$6.8
million of which approximately US$2.7 million has been recognised
as revenue in 2021 as this amount had not been previously provided
for by the Company.
(ii) Other
Relates to the disposal of property, plant and equipment that
had been fully impaired or depreciated to US$Nil in prior
periods.
4. PROFIT / (LOSS) on disposal of subsidiaries
2021 2020
US$'000 US$'000
------------------------------------------------- -------- --------
Other, recycling from equity to income statement
(i) 16,615 (1,044)
------------------------------------------------- -------- --------
16,615 (1,044)
------------------------------------------------- -------- --------
(i) Other
In 2021 the Group liquidated certain foreign operations that
held non-core assets. The Group's investment in the assets held by
the subsidiaries has been fully impaired in prior periods. The
liquidation of the foreign operations has resulted in the
realisation of cumulative foreign currency gains of US$16.6 million
(2020: losses of US$1.0 million), that had previously been
recognised in equity. The realisation of the cumulative foreign
currency gains and losses do not impact the consolidated assets or
liabilities.
5. Statutory information
2021 2020
US$'000 US$'000
------------------------------------------------ -------- --------
The profit / (loss) for the financial year
is stated after charging:
------------------------------------------------ -------- --------
Depreciation of property, plant, machinery
and equipment 1,028 1,028
------------------------------------------------ -------- --------
Gain / (loss) on foreign currencies 9 (113)
------------------------------------------------ -------- --------
Impairment of exploration and evaluation assets 206 196
------------------------------------------------ -------- --------
Share based payment charge - 890
------------------------------------------------ -------- --------
During the year, the Group (including its overseas subsidiaries)
obtained the following services from KPMG, the Group Auditor:
Auditor's remuneration
2021 2020
US$'000 US$'000
--------------------------------------------- -------- --------
Fees paid to lead audit firm:
--------------------------------------------- -------- --------
Audit of the Group financial statements 260 238
--------------------------------------------- -------- --------
Audit of the subsidiary financial statements 69 69
--------------------------------------------- -------- --------
Total 329 307
--------------------------------------------- -------- --------
During the year, the Group (including its equity accounted
investment) obtained the following audit services, excluding the
Group Auditor, KPMG:
2021 2020
US$'000 US$'000
-------------------------------------- -------- --------
Fees paid to other firms:
-------------------------------------- -------- --------
Audit of equity accounted investments 48 48
-------------------------------------- -------- --------
Total 48 48
-------------------------------------- -------- --------
6. Finance expense
2021 2020
US$'000 US$'000
----------------------------------- -------- --------
Interest on obligations for leases 129 131
----------------------------------- -------- --------
7. Finance income
2021 2020
US$'000 US$'000
--------------------------------------------- -------- --------
Total finance income on Loan Notes (Note 15) 14,590 17,276
--------------------------------------------- -------- --------
Movement in fair value of derivatives (Note
20) 9 119
--------------------------------------------- -------- --------
Deposit interest received - 47
--------------------------------------------- -------- --------
14,599 17,442
--------------------------------------------- -------- --------
All interest income is in respect of assets measured at
amortised cost.
8. Expected credit losses
2021 2020
US$'000 US$'000
---------------------------------------------- -------- ---------
OML 18 Loan Notes - impact of modification
(Note 15) - (5,857)
---------------------------------------------- -------- ---------
OML 18 Loan Notes - net remeasurement of loss
allowance (Note 15) 1,447 (7,450)
---------------------------------------------- -------- ---------
ELI Loan Notes - initial recognition (Note
15) - (385)
---------------------------------------------- -------- ---------
ELI Loan Notes - net remeasurement of loss
allowance (Note 15) (255) -
---------------------------------------------- -------- ---------
1,192 (13,692)
---------------------------------------------- -------- ---------
9. Personnel expenses
Number of employees
The average monthly number of employees (including the
Directors) during the year was:
2021 2020
Number Number
--------------- ------- -------
Directors 6 8
--------------- ------- -------
Administration 8 10
--------------- ------- -------
Technical 1 1
--------------- ------- -------
Seismic crew 1 1
--------------- ------- -------
16 20
--------------- ------- -------
Employment costs (including Directors)
2021 2020
US$'000 US$'000
---------------------------------------------- -------- --------
Wages and salaries (excluding Directors) 1,659 1,437
---------------------------------------------- -------- --------
Directors' salaries 2,413 2,678
---------------------------------------------- -------- --------
Directors' bonuses 490 1,172
---------------------------------------------- -------- --------
Social welfare costs 381 428
---------------------------------------------- -------- --------
Directors' fees and consultancy costs 500 607
---------------------------------------------- -------- --------
Share based payment charge for options issued
to Directors - 418
---------------------------------------------- -------- --------
Employees' pension 197 71
---------------------------------------------- -------- --------
Benefits (including Directors) 99 59
---------------------------------------------- -------- --------
Directors' pension 331 99
---------------------------------------------- -------- --------
6,070 6,969
---------------------------------------------- -------- --------
The Group contributes to a defined contribution pension scheme
for certain Executive Directors and employees. The scheme is
administered by trustees and is independent of the Group finances.
Total contributions by the Group to the pension scheme, including
contributions for Directors amounted to US$0.5 million (2020:
US$0.2 million).
10. Income tax
2021 2020
US$'000 US$'000
-------------------------------------------------- --------- ---------
Current tax
-------------------------------------------------- --------- ---------
Current year income tax 11 12
-------------------------------------------------- --------- ---------
Deferred tax
-------------------------------------------------- --------- ---------
Origination and reversal of temporary differences
(Note 27) 1,608 893
-------------------------------------------------- --------- ---------
Deferred tax movement in Barryroe NPI (Note
27) (844) 1,343
-------------------------------------------------- --------- ---------
Total income tax charge 775 2,248
-------------------------------------------------- --------- ---------
Deferred tax relating to items charged/credited
to equity
-----------------------------------------------
Deferred tax movement on fair value of other - -
financial assets, Unquoted shares
-----------------------------------------------
Total income tax charge - -
-----------------------------------------------
The difference between the total tax shown above and the amount
calculated by applying the applicable standard rate of Irish
corporation tax to the loss before tax is as follows:
2021 2020
US$'000 US$'000
--------------------------------------------- --------- ---------
Profit / (loss) before income tax 41,492 (9,605)
--------------------------------------------- --------- ---------
Tax on profit / (loss) at applicable Irish
corporation tax rate of 25% (2020: 25%) 10,373 (2,401)
--------------------------------------------- --------- ---------
Effects of:
--------------------------------------------- --------- ---------
Tax effect at fair value adjustment (844) 326
--------------------------------------------- --------- ---------
Prior year adjustment (57) -
--------------------------------------------- --------- ---------
Losses utilised in year (1,085) (690)
--------------------------------------------- --------- ---------
(Income) / expenses not taxable (10,174) 2,559
--------------------------------------------- --------- ---------
Income tax withheld 4 13
--------------------------------------------- --------- ---------
Effect of different tax rates (701) 2
--------------------------------------------- --------- ---------
Adjustment for difference on overseas profit
before tax (23) -
--------------------------------------------- --------- ---------
Excess losses carried forward 3,282 2,439
--------------------------------------------- --------- ---------
Tax charge for the year 775 2,248
--------------------------------------------- --------- ---------
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of
previous years. Liabilities for uncertain tax treatments are
recognised in accordance with IFRIC 23 and are measured using
either the most likely amount method or the expected value method -
whichever better predicts the resolution of the uncertainty.
11. PROFIT / (LOSS) per share
Basic profit / (loss) per share
Basic loss per share is calculated by dividing the loss
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year as
follows:
2021 2020
US$'000 US$'000
----------------------------- --------- ---------
Profit / (loss) for the year 40,717 (11,853)
----------------------------- --------- ---------
The weighted average number of shares in issue is calculated as
follows:
2021 2020
Number Number
of shares of shares
------------------------------------------- ----------- -----------
In issue at start of year (Note 22) 449,913,026 451,303,014
------------------------------------------- ----------- -----------
Effect of tender offer and buybacks in the
year - (1,332,865)
------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
in issue (basic) 449,913,026 449,970,149
------------------------------------------- ----------- -----------
Basic profit / (loss) per ordinary share
(cent) 9.05 (2.63)
------------------------------------------- ----------- -----------
Diluted profit / (loss) per share
Diluted loss per share is calculated by dividing the loss
attributable to equity holders of the Company by the weighted
average number of ordinary shares outstanding after adjustment for
effects of all dilutive potential ordinary shares as follows:
2021 2020
US$'000 US$'000
----------------------------- --------- ---------
Profit / (loss) for the year 40,717 (11,853)
----------------------------- --------- ---------
The diluted weighted average number of shares in issue is
calculated as follows:
2021 2020
Number Number
of shares of shares
------------------------------------------- ----------- -----------
Basic weighted average number of shares
in issue during the year 449,913,026 449,970,149
------------------------------------------- ----------- -----------
Effect of share options and warrants in
issue 5,700,841 -
------------------------------------------- ----------- -----------
455,613,867 449,970,149
------------------------------------------- ----------- -----------
Diluted profit / (loss) per ordinary share
(cent) 8.94 (2.63)
------------------------------------------- ----------- -----------
The number of options which are anti-dilutive and have therefore
not been included in the above calculations is 21,161,627 (2020:
41,221,627).
12. Intangible assets
Exploration
and
evaluation
assets
US$'000
----------------------------------------------------- -----------
Cost and net book value
----------------------------------------------------- -----------
At 1 January 2020 -
----------------------------------------------------- -----------
Additions (ii) 196
----------------------------------------------------- -----------
Write off / impairment of exploration and evaluation
assets (196)
----------------------------------------------------- -----------
At 31 December 2020 -
----------------------------------------------------- -----------
Additions (ii) 206
----------------------------------------------------- -----------
Write off / impairment of exploration and evaluation
assets (206)
----------------------------------------------------- -----------
At 31 December 2021 -
----------------------------------------------------- -----------
(i) The following geographical exploration areas in the Group
were impaired / written off during the year:
2021 2021
US$'000 US$'000
-------- -------- --------
Albania 206 196
-------- -------- --------
206 196
-------- -------- --------
(ii) This is the net amount incurred by San Leon Energy and
excludes amounts attributable to joint operating partners of US$Nil
in 2021 (2020: US$Nil).
The Directors have considered the carrying value at 31 December
2021 of capitalised costs in respect of its exploration and
evaluation assets. These assets have been assessed for impairment
indicators and in particular with regard to remaining licence
terms, likelihood of licence renewal, likelihood of further
expenditures and on-going appraisals for each area. Based on
internal assessments from the latest information available, the
Directors fully impaired the exploration and evaluation assets in
2021.
13. Equity accounted investments
2021 2020
US$'000 US$'000
--------------------------------------------- --------- ---------
Cost and net book value
--------------------------------------------- --------- ---------
At 1 January 44,102 44,798
---------------------------------------------- --------- ---------
Additions (ELI) - 443
---------------------------------------------- --------- ---------
Share of profit / (loss) of equity accounted
investments 14,532 (1,139)
---------------------------------------------- --------- ---------
At 31 December 58,634 44,102
---------------------------------------------- --------- ---------
The Group's only joint venture entities and associates at 31
December 2021 were as follows:
Name Registered office Type % held
--------------------------- ----------------------------------- ---------- ------
5(th) Floor Barkly Wharf, Le
Midwestern Leon Petroleum Caudan Waterfront, Joint
Limited Port Louis, Republic of Mauritius Venture 40%
--------------------------- ----------------------------------- ---------- ------
Energy Link Infrastructure 260 Triq San Albert, Griza,
(Malta) Limited GZR 1150, Malta Associate 10%
--------------------------- ----------------------------------- ---------- ------
2021
A summary of the financial information of the equity investments
is detailed below.
Midwestern Energy
Leon Petroleum Link Infrastructure
Limited (Malta)
(i) Limited
(ii) Total
------------------------------------------- --------------- -------------------- ---------
Equity Interest 40% 10%
-------------------------------------------- --------------- -------------------- ---------
US$'000 US$'000 US$'000
------------------------------------------- --------------- -------------------- ---------
Profit / (loss) from continuing operations 37,030 (9,109) 27,921
-------------------------------------------- --------------- -------------------- ---------
Total comprehensive profit / (loss) 37,030 (9,109) 27,921
-------------------------------------------- --------------- -------------------- ---------
Non-current assets 242,555 191,207 433,762
-------------------------------------------- --------------- -------------------- ---------
Current assets (excluding cash) 316,252 650 316,902
-------------------------------------------- --------------- -------------------- ---------
Cash - 35,102 35,102
-------------------------------------------- --------------- -------------------- ---------
Non-current liabilities - (55,790) (55,790)
-------------------------------------------- --------------- -------------------- ---------
Current liabilities (412,222) (175,496) (587,718)
-------------------------------------------- --------------- -------------------- ---------
Net assets / (liabilities) 146,585 (4,327) 142,258
-------------------------------------------- --------------- -------------------- ---------
Group's interest in net assets of investee
at 1 January 2021 43,822 280 44,102
-------------------------------------------- --------------- -------------------- ---------
Additions - - -
------------------------------------------- --------------- -------------------- ---------
Share of profit / (loss) 14,812 (280) 14,532
-------------------------------------------- --------------- -------------------- ---------
Group's interest in net assets of investee
at 31 December 2021 58,634 - 58,634
-------------------------------------------- --------------- -------------------- ---------
2020
A summary of the financial information of the
equity investments is detailed below.
Midwestern Energy
Leon Petroleum Link Infrastructure
Limited (Malta)
(i) Limited
(ii) Total
------------------------------------------------ --------------- -------------------- ---------
Equity Interest 40% 10%
------------------------------------------------- --------------- -------------------- ---------
US$'000 US$'000 US$'000
------------------------------------------------ --------------- -------------------- ---------
Loss from continuing operations (2,440) (2,804) (5,244)
------------------------------------------------- --------------- -------------------- ---------
Total comprehensive loss (2,440) (2,804) (5,244)
------------------------------------------------- --------------- -------------------- ---------
Non-current assets 198,948 147,922 346,870
------------------------------------------------- --------------- -------------------- ---------
Current assets (excluding cash) 286,687 167 286,854
------------------------------------------------- --------------- -------------------- ---------
Cash - 46,334 46,334
------------------------------------------------- --------------- -------------------- ---------
Non-current liabilities - (141,458) (141,458)
------------------------------------------------- --------------- -------------------- ---------
Current liabilities (376,082) (47,214) (423,296)
------------------------------------------------- --------------- -------------------- ---------
Net assets 109,553 5,751 115,304
------------------------------------------------- --------------- -------------------- ---------
Group's interest in net assets of investee
at 1 January 2020 44,798 - 44,798
------------------------------------------------- --------------- -------------------- ---------
Additions - 443 443
------------------------------------------------- --------------- -------------------- ---------
Share of loss (976) (163) (1,139)
------------------------------------------------- --------------- -------------------- ---------
Group's interest in net assets of investee
at 31 December 2020 43,822 280 44,102
------------------------------------------------- --------------- -------------------- ---------
(i) Midwestern Leon Petroleum Limited
During 2016 the Company acquired a 40% non-controlling interest
in MLPL as part of the OML 18 transaction. Full details of the OML
18 transaction are set out in Note 15(i). The movement during 2021
reflects a share of the profit of MLPL being administrative costs
of US$6.4 million (2020: US$9.7 million), other income of US$0.2
million (2020: US$Nil), net finance income of US$8.0 million (2020:
US$3.3 million), profit on investment of US$44.0 million (2020:
US$12.2 million loss), net profits on financial assets of US$1.2
million (2020: US$0.3 million losses) and a tax charge of US$10.0
million (2020: US$7.9 million).
The above interest is accounted for as an equity accounted
investment as San Leon does not have control over the entity, which
is governed under a Joint Venture Agreement requiring the approval
of both parties to the Joint Venture Agreement in respect of all
operating decisions.
The Group identified potential impairment indicators, being that
MLPL is yet to receive a dividend from Eroton, US$2.9 million of a
US$10.0 million repayment due on 6 October 2020 was still
outstanding at year end, and MLPL has entered into a loan to be
able to make Loan Note repayments to the Group. To test for a
potential impairment the carrying value of the equity interest in
MLPL was compared against the fair value less cost of sale. This
was estimated using a discounted cashflow model of the expected
future cashflows from MLPL's share of the underlying OML 18 asset.
Future cashflows of OML 18 were estimated using the following price
assumptions of US$69/bbl in 2023 and a subsequent long term price
of US$66/bbl escalated at 2% annually, with the cashflows
discounted using a post-tax discount rate of 10%. Assumptions
involved in the impairment assessment include estimates of
commercial reserves, production rates, future oil prices, discount
rates and operating and capital expenditure profiles, all of which
are inherently uncertain. This analysis identified that the
carrying value of the equity interest in MLPL is not impaired.
If the recoverable amount was estimated taking into account a
reduction in the oil price of 30% over the same period and an
increase in the discount rate to 25%, then the carrying value of
the equity interest in MLPL would still not be impaired.
The Directors recognise that the future realisation of the
equity accounted investment is dependent on future successful
exploration and appraisal activities and subsequent production of
oil and gas reserves.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020 the Company acquired a 10% non-controlling
interest in Energy Link Infrastructure (Malta) Limited (See Note
15(ii)). The movement during 2021 reflects a share of the loss of
ELI being sales income of US$1.4 million (2020: US$5.7 million),
other income of US$0.1 million (2020: US$0.1 million), cost of
sales of US$7.4 million (2020: US$4.9 million) and operating
expenses including administrative costs of US$3.2 million (2020:
US$3.7 million).
San Leon does not have control over the entity, however it has
been determined to have significant influence. On this basis, the
above interest is recognised as an equity accounted investment.
Significant influence has been determined based on the Company
having 10% of voting rights, a board position and a Shareholder
Agreement requiring a majority, and in some instances a super
majority (meaning 70% of votes are required to pass a resolution),
to approve all operating decisions.
Under the terms of ELI's senior debt facility, the lender has a
charge over all of the company's assets and, as further security,
each shareholder (including San Leon Energy) has pledged their
shares to the lender. The terms of the pledge are that the shares
cannot be transferred or otherwise utilised without the lender's
consent.
The Directors recognise that the future realisation of the
equity accounted investment is dependent on completion of the
pipeline and subsequent throughput of oil from various
customers.
14. Property, plant and equipment
Plant
Leased & Office Motor
assets equipment equipment vehicles Total
US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------------- -------- ---------- ---------- --------- --------
Cost
-------------------------------- -------- ---------- ---------- --------- --------
At 1 January 2020 3,281 9,050 1,203 495 14,029
-------------------------------- -------- ---------- ---------- --------- --------
Disposals - - (111) - (111)
-------------------------------- -------- ---------- ---------- --------- --------
Currency translation adjustment - 116 - (15) 101
-------------------------------- -------- ---------- ---------- --------- --------
At 31 December 2020 3,281 9,166 1,092 480 14,019
-------------------------------- -------- ---------- ---------- --------- --------
Additions 244 - - - 244
-------------------------------- -------- ---------- ---------- --------- --------
Disposals (231) - (9) (124) (364)
-------------------------------- -------- ---------- ---------- --------- --------
Currency translation adjustment - (513) (44) (72) (629)
-------------------------------- -------- ---------- ---------- --------- --------
At 31 December 2021 3,294 8,653 1,039 284 13,270
-------------------------------- -------- ---------- ---------- --------- --------
Depreciation
-------------------------------- -------- ---------- ---------- --------- --------
At 1 January 2020 329 7,803 1,138 415 9,685
-------------------------------- -------- ---------- ---------- --------- --------
Charge for the year 378 622 12 16 1,028
-------------------------------- -------- ---------- ---------- --------- --------
Disposals - - (111) - (111)
-------------------------------- -------- ---------- ---------- --------- --------
Currency translation adjustment - 122 16 (15) 123
-------------------------------- -------- ---------- ---------- --------- --------
At 31 December 2020 707 8,547 1,055 416 10,725
-------------------------------- -------- ---------- ---------- --------- --------
Charge for the year 370 619 22 17 1,028
-------------------------------- -------- ---------- ---------- --------- --------
Disposals (231) - (9) (124) (364)
-------------------------------- -------- ---------- ---------- --------- --------
Currency translation adjustment - (513) (44) (72) (629)
-------------------------------- -------- ---------- ---------- --------- --------
At 31 December 2021 846 8,653 1,024 237 10,760
-------------------------------- -------- ---------- ---------- --------- --------
Net book values
-------------------- ----- --- -----
At 31 December 2021 2,448 - 15 47 2,510
-------------------- ----- --- -----
At 31 December 2020 2,574 619 37 64 3,294
-------------------- ----- --- -----
15. Financial Assets
Barryroe
4.5%
net profit Unquoted
OML 18 interest shares
(i) ELI (ii) (iii) (iv) (viii) Total
US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------------- --------- ------------ ------------- ------------ --------
FVOCI
-
Amortised Amortised equity
cost cost FVTPL instrument
------------------------------------------- --------- ------------ ------------- ------------ --------
Cost / Valuation
------------------------------------------- --------- ------------ ------------- ------------ --------
At 1 January 2020 114,254 - 2,769 194 117,217
------------------------------------------- --------- ------------ ------------- ------------ --------
Net fair value of acquisition
of ELI Loan Notes - 14,557 - - 14,557
------------------------------------------- --------- ------------ ------------- ------------ --------
Finance income 16,480 796 - - 17,276
------------------------------------------- --------- ------------ ------------- ------------ --------
Loan Notes receipts - principal (35,285) - - - (35,285)
------------------------------------------- --------- ------------ ------------- ------------ --------
Loan Notes receipts - interest (11,215) - - - (11,215)
------------------------------------------- --------- ------------ ------------- ------------ --------
Lifetime ECL - credit-impaired
# (15,309) - - - (15,309)
------------------------------------------- --------- ------------ ------------- ------------ --------
Impairment of unquoted shares,
Other comprehensive income - - - (194) (194)
------------------------------------------- --------- ------------ ------------- ------------ --------
Fair value movement, Income statement - - 4,073 - 4,073
------------------------------------------- --------- ------------ ------------- ------------ --------
At 31 December 2020 68,925 15,353 6,842 - 91,120
------------------------------------------- --------- ------------ ------------- ------------ --------
Finance income 12,122 2,468 - - 14,590
------------------------------------------- --------- ------------ ------------- ------------ --------
Loan Notes receipts - principal - - - - -
------------------------------------------- --------- ------------ ------------- ------------ --------
Loan Notes receipts - interest (2,150) - - - (2,150)
------------------------------------------- --------- ------------ ------------- ------------ --------
Impairment reversal - (credit-impaired
assets) # 1,447 - - - 1,447
------------------------------------------- --------- ------------ ------------- ------------ --------
Fair value movement, Income statement - - (2,551) - (2,551)
------------------------------------------- --------- ------------ ------------- ------------ --------
At 31 December 2021 80,344 17,821 4,291 - 102,456
------------------------------------------- --------- ------------ ------------- ------------ --------
Expected Credit Loss Provision
------------------------------------------- --------- ------------ ------------- ------------ --------
At 1 January 2020 - - - -
------------------------------------------- --------- ------------ ------------- ------------ --------
New financial asset acquired * (385) - - (385)
------------------------------------------- --------- ------------ ------------- ------------ --------
At 31 December 2020 (385) - - (385)
------------------------------------------- --------- ------------ ------------- ------------ --------
Net remeasurement of loss allowance (255) - - (255)
------------------------------------------- --------- ------------ ------------- ------------ --------
At 31 December 2021 (640) - - (640)
------------------------------------------- --------- ------------ ------------- ------------ --------
# See OML18 ECL table below
* See ELI ECL table below
------------------------------------------- --------- ------------ ------------- ------------ --------
Higher
risk assets
Expected Credit Loss - OML 18 Performing not credit Credit
12-month impaired impaired Total
ECL Lifetime Lifetime
ECL ECL
------------------------------------------- --------- ------------ ------------- ------------ --------
At 1 January 2020 - (2,002) - (2,002)
------------------------------------------- --------- ------------ ------------- ------------ --------
Impact of modification - (5,857) - (5,857)
------------------------------------------- --------- ------------ ------------- ------------ --------
Net remeasurement of loss allowance - (7,450) - (7,450)
------------------------------------------- --------- ------------ ------------- ------------ --------
Transfer to lifetime ECL - credit-impaired - 15,309 (15,309) -
------------------------------------------- --------- ------------ ------------- ------------ --------
At 31 December 2020 - - (15,309) (15,309)
------------------------------------------- --------- ------------ ------------- ------------ --------
Impact of modification - - 1,503 1,503
------------------------------------------- --------- ------------ ------------- ------------ --------
Net remeasurement of loss allowance - - 1,447 1,447
------------------------------------------- --------- ------------ ------------- ------------ --------
Effective interest on ECL - - (3,794) (3,794)
------------------------------------------- --------- ------------ ------------- ------------ --------
At 31 December 2021 - - (16,153) (16,153)
------------------------------------------- --------- ------------ ------------- ------------ --------
Expected Credit Loss - ELI Higher
risk assets
Performing not credit Credit
12-month impaired impaired Total
ECL Lifetime Lifetime
ECL ECL
------------------------------------------- --------- ------------ ------------- ------------ --------
At 1 January 2020 - - - -
------------------------------------------- --------- ------------ ------------- ------------ --------
New financial asset acquired * (385) - - (385)
------------------------------------------- --------- ------------ ------------- ------------ --------
At 31 December 2020 (385) - - (385)
------------------------------------------- --------- ------------ ------------- ------------ --------
Transfer to Lifetime ECL 385 (385) - -
------------------------------------------- --------- ------------ ------------- ------------ --------
Net remeasurement of loss allowance - (255) - (255)
------------------------------------------- --------- ------------ ------------- ------------ --------
At 31 December 2021 - (640) - (640)
------------------------------------------- --------- ------------ ------------- ------------ --------
Barryroe
4.5%
net profit Unquoted
OML 18 interest shares
(i) ELI (ii) (iii) (iv) (viii) Total
US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------------- --------- ------------ ------------- ------------ --------
FVOCI
-
Amortised Amortised equity
cost cost FVTPL instrument
------------------------------------------- --------- ------------ ------------- ------------ --------
Book value at 31 December 2021 80,344 17,181 4,291 - 101,816
------------------------------------------- --------- ------------ ------------- ------------ --------
Current 80,344 10,815 - - 91,159
------------------------------------------- --------- ------------ ------------- ------------ --------
Non-current - 6,366 4,291 - 10,657
------------------------------------------- --------- ------------ ------------- ------------ --------
Book value at 31 December 2020 68,925 14,968 6,842 - 90,735
------------------------------------------- --------- ------------ ------------- ------------ --------
Current 68,925 3,964 - - 72,889
------------------------------------------- --------- ------------ ------------- ------------ --------
Non-current - 11,004 6,842 - 17,846
------------------------------------------- --------- ------------ ------------- ------------ --------
Net Profit Interests (Poznan, v) (Gora, vi) (Liesa, vii): These
NPIs have a nil value from acquisition.
(i) OML 18
In September 2016, the Company secured an indirect economic
interest in OML 18, onshore Nigeria.
The Company undertook a number of steps to effect this purchase.
MLPL, a company incorporated in Mauritius of which San Leon Nigeria
B.V. has a 40% shareholding, was established as a special purpose
vehicle to complete the transaction by purchasing all of the shares
in Martwestern, a company incorporated in Nigeria. Martwestern
holds a 50% shareholding in Eroton, a company incorporated in
Nigeria and the operator of OML 18, and Martwestern also holds an
initial 98% economic interest in Eroton. The economic effect of
this structure is that San Leon has an initial indirect economic
interest of 10.584% in OML 18. Shareholders will note that this is
higher than the percentage interest anticipated by San Leon at the
time of the acquisition in 2016. There have been no further
purchases or payments by San Leon but this revised percentage is
based on a reassessment and recalculation of the various parties'
interests in OML 18.
To partly fund the purchase of 100% of the shares of
Martwestern, MLPL borrowed US$174.5 million in incremental amounts
by issuing loan notes with an annual coupon of 17% ("Loan Notes")
and effective interest rate of 25%, as noted below. Midwestern Oil
and Gas Company Limited ("Midwestern") is the 60% shareholder of
MLPL and transferred its shares in Martwestern to MLPL as part of
the full transaction. Following its placing in September 2016, San
Leon became beneficiary and holder of all Loan Notes issued by MLPL
and the holder of an indirect economic interest in OML 18. San Leon
is due to be repaid the full amount of the US$174.5 million plus
the 17% coupon once certain conditions have been met and using an
agreed distribution mechanism. Through its wholly owned subsidiary,
San Leon Nigeria B.V., the Company is also a beneficiary of any
dividends that will be paid by MLPL as a 40% shareholder in MLPL
but the Loan Notes repayments must take priority over any dividend
payments made to the MLPL shareholders.
The fair value assessment of the Loan Notes on acquisition was
calculated as follows:
Total
US$'000
----------------------------------------------------------- --------
Total consideration 188,419
----------------------------------------------------------- --------
Fair value of Loan Notes attributable to equity investment
# (30,889)
----------------------------------------------------------- --------
Net fair value of Loan Notes 157,530
----------------------------------------------------------- --------
Arrangement fees (5,500)
----------------------------------------------------------- --------
Additions to Financial Assets in 2016 including accrued
interest
at date of acquisition 152,030
----------------------------------------------------------- --------
# The fair value of Loan Notes attributable to the equity
investment is calculated using a discount factor of management's
estimate of a market rate of interest of 8% above the coupon
rate of 17% over the term of the Loan Notes, giving an
effective interest rate of 25%.
The key information relevant to the fair value of the Loan Notes
on the date they were initially recognised is as follows:
Inter-relationships
between
the unobservable inputs
Significant unobservable and fair value
Valuation technique inputs* measurements
----------------------- ---------------------------------------------------------------- ---------------------------
Discounted cash flows * Discount rate 25% based on a market rate of interest Nil
of 8% above the coupon rate of 17%
* MLPL ability to generate cash flows for timely
repayment
* Loan Notes are repayable in full by 31 December 2021
(2020: 31 December 2021).
----------------------- ---------------------------------------------------------------- ---------------------------
* On initial recognition. Under the conditional payment waiver
the Loan Notes are expected to fall due on 30 June 2022. Other
unobservable inputs are considered appropriate at 31 December
2021.
The business model for the MLPL loan is to hold to collect. The
Loan Notes are accounted for at amortised cost.
The credit risk is managed via various undertakings, guarantees,
a pledge over shares and the mechanism whereby MLPL prioritises
payment of sums due under the Loan Notes. These are described
further in Note 29. Given the size and quality of the OML 18 oil
and gas asset the main credit risk is regarded as the timing of
payments by MLPL which is dependent on dividend distributions by
Eroton rather than being unable to pay the total quantum due under
the Loan Notes. To date Eroton have been unable to make a dividend
distribution. Consequently, MLPL had to enter into a loan in 2017
and subsequently, in order to be able to meet its obligations under
the Loan Notes and make payments to San Leon.
On 6 April 2020, the Company entered into an Agreement with
MLPL, amending the timing of the remaining payment of the Loan
Notes Instrument. At the date of the Agreement, the remaining
outstanding balance on the par value was US$82.1 million (accounted
for as US$79.5 million under IFRS). Under the terms of the
Agreement, US$10.0 million was due to be repaid on or before 6
October 2020, with the balance of the Loan Notes receivable payable
in three quarterly instalments, commencing in July 2021 and
completing by December 2021. Following the Agreement the
outstanding loan continued to have an annual coupon rate of 17% and
an effective interest rate of 25% per annum. All other material
terms of the Loan Notes Instrument remained unchanged. The
Agreement with MLPL was accounted for as a modification of the
financial asset which did not give rise to derecognition. A loss of
US$2.5 million was recognised in respect of the change in present
value of the revised cashflows discounted at the original
effective
interest rate.
On 24 June 2021 the Company announced that it had entered into
preliminary discussions with Midwestern in connection with the
potential acquisition of the shares of MLPL owned by Midwestern
(the "Potential Transaction"). The Company expects that the
Potential Transaction, if agreed, would include the elimination of
the Loan Notes. In connection with these discussions, on 6 July
2021 the Company agreed a conditional payment waiver in respect of
the amounts under the Agreement that fell due in July 2021 and
within 30 days of expiry of the conditional payment waiver. Under
the terms of the conditional payment waiver amounts payable under
the Agreement would fall due 90 days following expiry. Interest
continued to accrue on the outstanding principal of the Loan Notes
at 17%.
The conditional payment waiver was originally due to expire on
the earlier of 31 August 2021 or the date an agreement was reached
with Midwestern to effect the Potential Transaction. The
conditional payment waiver was subsequently extended to include
payments due up to December 2021.
The conditional payment waiver was accounted for as a
modification of the financial asset which did not give rise to
derecognition. The amortised cost of the Loan Notes immediately
prior to the modification was US$74.8 million (being a gross asset
of US$92.6 million and expected credit loss provision of US$17.8
million. A net modification loss of US$3.2 million was recognised
in respect of the change in present value of the revised cashflows
discounted at the original effective interest rate.
During 2021 San Leon received total payments under the Loan
Notes of US$2.2 million (2020: US$46.5 million). The payments
received during 2021 represent principal of US$Nil (2020: US$35.3
million) and interest of US$2.2 million (2020: US$11.2 million) on
the Loan Notes repaid. As at 31 December 2021 there was US$96.5
million in principal and interest (2020: US$84.2 million) due under
the Loan Notes. As at 31 December 2021, US$2.9 million was
outstanding from the US$10.0 million due to be repaid on 6 October
2020.
The Directors of San Leon have considered the credit risk of the
Loan Notes at 31 December 2021 and 31 December 2020. Due to the
inability of MLPL to make dividend distributions, the Directors
continue to consider that the credit risk has significantly
increased since initial recognition. At 31 December 2019 and
subsequently a provision for the lifetime expected credit loss of
the Loan Notes had been recognised.
In addition, the Directors have reviewed the counterparty credit
risk associated with measurement of the expected credit loss. This
was assessed as having increased significantly since initial
recognition.
Management are still confident in the operational potential of
OML 18 and ultimately recovering the full amount of the outstanding
Loan Notes, however due to the above issues management are unable
to determine the timing of future cashflows and for this reason the
Loan Notes are now considered credit impaired.
The Loan Notes are unique assets for which there is no directly
comparable market data. Repayments of the Loan Notes are expected
to be made from the underlying cashflows that support MLPL or, if
the Potential Transaction is agreed, the Loan Notes will be taken
into account and eliminated as part of the overall structure
agreed. The Directors have considered the credit risk of MLPL, in
particular in light of the Covid-19 pandemic and the resultant
impact on the oil price and demand, as well as ongoing short term
production issues. The Loan Notes continue to be considered to be
impaired. An impairment has been estimated based on a
forward-looking analysis where a range of outcomes has been
considered taking into account the size and timing of the
contractual cashflows, the risk of the Potential Transaction being
delayed or not agreed, risk of late payments and the risk of
default leading to less than full recovery of the amounts due in
respect of the Loan Notes. The Directors have considered the
possible scenarios and used their judgement to estimate a weighted
average outcome of these scenarios. The impairment is calculated as
the difference between the present value of the weighted average of
possible outcomes (discounted at the effective interest rate of the
Loan Notes) and the present value of the contractual cashflows.
As at 31 December 2021 the Loan Notes are considered credit
impaired. The expected credit loss of US$16.2 million (2020:
US$15.3 million) has been presented net as part of the amortised
cost of the Loan Notes. The expected credit loss has been
calculated with a very high probability that the Potential
Transaction will complete, and therefore the Loan Notes will
extinguish, and the Company believes that the value of the
Potential Transaction is worth at least the value of the Loan
Notes.
See Subsequent events (Note 31) for further information on the
discussions with Midwestern about acquiring Midwestern's indirect
interest in the OML 18.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020, the Company acquired an indirect economic
interest in the Alternate Crude Oil Evacuation System ("ACOES")
project.
The initial interest was acquired through the direct investment
in Energy Link Infrastructure (Malta) Limited ("ELI" or "ELI
Malta"), a company incorporated in Malta, which owns the ACOES
project through its 100% owned subsidiary Energy Link
Infrastructure (Nigeria) Limited, a company incorporated in Nigeria
("ELI Nigeria").
The investment comprises a 10% equity interest in ELI together
with a US$15.0 million shareholder loan at a coupon of 14% per
annum over 4 years, and repayable quarterly following a one year
moratorium from the date of investment (the "ELI Loan Notes").
Funds were provided to ELI in two tranches with the first US$10.0
million tranche being paid in August, and the second tranche of
US$5.0 million on 6 October 2020, being half of the funds due from
Midwestern Leon Petroleum Limited as part of the repayment of the
MLPL Loan Notes.
The fair value assessment of the Loan Notes on acquisition was
calculated as follows:
Total
US$'000
----------------------------------------------------------- --------
Total consideration 15,000
----------------------------------------------------------- --------
Fair value of Loan Notes attributable to equity investment
# (443)
----------------------------------------------------------- --------
Net fair value of Loan Notes 14,557
----------------------------------------------------------- --------
# The fair value of Loan Notes attributable to the equity
investment is calculated using a discount factor of management's
estimate of a market rate of interest of 2% above the coupon
rate of 14% over the term of the Loan Notes, giving an
effective interest rate of 16%.
The key information relevant to the fair value of the Loan Notes
on the date they were initially recognised is as follows:
Inter-relationships
between the unobservable
Significant unobservable inputs and fair value
Valuation technique inputs* measurements
----------------------- ----------------------------------------------------------- --------------------------
Discounted cash flows * Discount rate 16% based on a market rate of interest Nil
of 2% above the coupon rate of 14%
* ELI ability to generate cash flows for timely
repayment
* Loan Notes are repayable in full by 6 October 2024.
----------------------- ----------------------------------------------------------- --------------------------
*Day 1 and considered appropriate at 31 December 2021 and
31 December 2020.
The business model applicable to the ELI loan is to hold to
collect.
The credit risk is managed via various undertakings, such as
representations, warranties and covenants and the ability for a
preferential distribution should some warranties be breached. These
are described further in Note 29. Given the nature and stage of the
asset the main credit risk is regarded as the timing of payments by
ELI Malta which is dependent on dividend distributions by ELI
Nigeria rather than being unable to pay the total quantum due under
the ELI Loan Notes.
The Directors of San Leon have considered the credit risk of the
ELI Loan Notes at 31 December 2021 and 31 December 2020. Both
tranches of the ELI Loan Notes were issued in H2 2020, with a
one-year repayment holiday. Quarterly repayments were due from 31
July 2021 (for the first tranche) and 6 October 2021 (second
tranche). As at 31 December 2021 no repayments had been received.
As at 31 December 2021 there was US$17.8 million in principal and
interest due under the ELI Loan Notes.
San Leon announced on 24 June 2021 that it is considering making
further debt and equity investments in ELI and reaffirmed that
intention in subsequent announcements. The Company has agreed with
ELI that, should these further investments be made, then the First
Instalment will be offset from any investment monies payable to ELI
by San Leon under certain of these new arrangements. Pending any
further investment in ELI, the First Instalment will continue to
accrue interest at 14% per annum. Project delays have impacted the
ability of ELI to make ELI Loan Note repayments, with current
projections indicating that debt will start to be serviced in the
second half of 2022 when barging operations commence. It is the
Directors opinion that ELI will make full repayment of the
outstanding loan notes.
The Directors have considered the credit risk of the ELI Loan
Notes and the counterparty credit risk as at 31 December 2021. A
guarantee from ELI Nigeria, who guarantee all payment obligations
of ELI Malta, has also been taken into account. As a result of the
delay in operations and ELI Loan Notes being overdue, the Directors
have determined that there has been a significant increase in
credit risk since initial recognition of the ELI Loan Notes, and a
provision for the lifetime expected credit loss of the ELI Loan
Notes has been recognised. The ELI Loan Notes are not considered to
be credit impaired on the basis of the delays in ELI commencing
repayment of the loan notes.
An expected credit loss provision has been estimated based on a
forward-looking analysis where a range of outcomes has been
considered taking into account the size and timing of the
contractual cashflows, the risk of late payment and the risk of
default leading to less than full recovery of the amounts due in
respect of the ELI Loan Notes. The Directors have considered the
possible scenarios and used their judgement to estimate a weighted
average outcome of these scenarios. The ECL provision is calculated
as the difference between the present value of the weighted average
of possible outcomes (discounted at the effective interest rate of
the ELI Loan Notes) and the present value of the contractual
cashflows. This has then been compared to publicly available
macroeconomic data of default rates by geography, industry and
rating.
The Company determined that the expected credit loss provision
of US$0.6 million (2020: US$0.4 million), being 3.6% (2020: 2.5%)
of the outstanding balance was appropriate.
(iii) Barryroe - 4.5% Net Profit Interest
SLE holds a 4.5% Net Profit Interest in the Barryroe ("Barryroe
NPI") oil field at fair value through profit and loss under IFRS 9.
In 2019 a market-based valuation approach was adopted, using the
price of the publicly listed shares of Providence Resources plc
("Providence") (operator and holder of an 80% interest in the
Barryroe oil field) as its basis. The Directors believe the markets
assessment of the current risks and uncertainties of the project
have been reflected within the share price of Providence at year
end, and it is therefore appropriate to use this to update their
valuation.
Given the latest announcements, the Directors have reviewed the
modelling assumptions and consider it reasonable and appropriate to
continue to use a market based approach to decrease the Barryroe
carrying value by US$2.6 million (2020: gain of US$4.0 million) to
US$4.2 million to reflect their estimate of the impact of these
risks to the future cash flows on the value of the asset.
The key information relevant to the fair value of the Barryroe
4.5% net profit interest is as follows:
Inter-relationships
between the unobservable
Valuation Significant unobservable inputs and fair value
technique inputs measurements
------------- --------------------------------------------------------------- ------------------------------------------------------------
Market based * Estimated value of NPI as percentage of total field The estimated fair
approach NPV 9.5% (2020: 9.5%) value would increase
using share / (decrease) if:
price
of Operator * US Dollar exchange rate increased / (decreased)
(Providence)
------------- --------------------------------------------------------------- ------------------------------------------------------------
(iv) Ardilaun Energy Limited
As part of the consideration for the sale of Island Oil &
Gas Limited to Ardilaun Energy Limited ("Ardilaun") in 2014
Ardilaun agreed to issue shares equivalent to 15% of the issued
share capital of Ardilaun to San Leon. The original fair value of
the 15% interest in Ardilaun was based on a market transaction in
Ardilaun shares.
The Directors have considered the carrying value of this
interest at 31 December 2021 and given the length of time to obtain
Irish government approval for the transaction, the Directors feel
it is prudent to continue to carry the 15% of Ardilaun shares still
to be issued to San Leon at a value of US$Nil (2020: US$Nil).
(v) Poznan 10% Net Profit Interest
In 2016, San Leon sold its 35% interest in the Poznan assets for
a consideration of EUR1 plus a 10% NPI. Until active development
commences a nil value has been placed on the NPI. There has been no
change in 2021.
(vi) Gora 5% Net Profit Interest
In 2018, San Leon sold its interest in the Gora assets for a
consideration of EUR1 plus a 5% NPI. Until active development
commences a nil value has been placed on the NPI. There has been no
change in 2021.
(vii) Liesa 5% Net Profit Interest
In 2018, San Leon sold its interest in the Liesa assets for a
consideration of EUR1 plus a 5% Net Profit Interest ("NPI"). Until
active development commences a nil value has been placed on the
NPI. There has been no change in 2021.
(viii) Gemini Resources Limited
In 2019, San Leon converted a debtor of US$192,607 due from
Gemini Resources Limited ("Gemini") into 54,818 fully paid ordinary
shares in Gemini.
The Directors considered the carrying value of this interest at
31 December 2021 to be US$Nil.
(ix) Amedeo Resources plc
At 31 December 2021, the Company holds 213,512 ordinary shares
at a market value of US$Nil (2020: US$Nil). The value of the
investment was written down to nil in 2018 due to the shares of
Amedeo Resources plc being de-listed.
16. Inventory
2021 2020
US$'000 US$'000
---------------------------- -------- --------
Spare parts and consumables 168 183
---------------------------- -------- --------
Spare parts include drilling equipment and consumables utilised
by the Group's seismic services company.
17. Trade and other receivables
2021 2020
US$'000 US$'000
-------------------------------------- -------- --------
Amounts falling due within one
year:
-------------------------------------- -------- --------
Trade receivables 9,860 2
-------------------------------------- -------- --------
Corporation tax refundable - 39
-------------------------------------- -------- --------
VAT and other taxes refundable 80 88
-------------------------------------- -------- --------
Other debtors (i) 4,429 4,264
-------------------------------------- -------- --------
Expected credit loss on other debtors
(i) (3,630) (3,532)
-------------------------------------- -------- --------
Prepayments (ii) 2,903 1,017
-------------------------------------- -------- --------
13,642 1,878
-------------------------------------- -------- --------
(i) In 2017, other debtors included US$3.6 million due from NSP
Investments Holdings Ltd for the disposal of equity accounted
investments. During 2018, the Directors fully provided for the
amount.
In September 2021, Gemini Energy B. V. concluded transactions to
gain 100% ownership of these equity accounted investments. To
accommodate and agree to the transfer of the shares in the equity
accounted investments from NSP to Gemini, Gemini offered and agreed
to pay San Leon:
(a) a payment of US$1.5 million by no later than the first
anniversary of the transfer of the equity accounted investments
shares to Gemini; and
(b) make an additional payment of US$2.1 million under the terms
of a net profits interest agreement.
The Gemini obligations replace the amounts due from NSP and the
expected credit loss for the total amount remains.
See Related party transactions (Note 29) for further
details.
The remaining other debtors consists of rent deposits and
similar receivables.
(ii) Prepayments includes an amount of US$0.8 million (2020:
US$0.8 million) in relation to the Oza deal and US$2.0 million
(2020: US$Nil) in relation to the ELI conditional investment,
detailed in Subsequent Events (Note 31).
18. Cash and cash equivalents
2021 2020
US$'000 US$'000
----------------------------- -------- --------
Cash and cash equivalents 839 11,757
----------------------------- -------- --------
Solicitor client account (i) 6,753 6,753
----------------------------- -------- --------
7,592 18,510
----------------------------- -------- --------
(i) Solicitor client account at 31 December 2021 represents
monies held on behalf of the Company by Dentons ACAS-Law in
relation to the Oza deal, detailed in Subsequent Events (Note
31)
19. Trade and other payables
2021 2020
US$'000 US$'000
------------------------- -------- --------
Current
------------------------- -------- --------
Trade payables 1,286 719
------------------------- -------- --------
PAYE / PRSI 223 295
------------------------- -------- --------
Corporation tax 6 -
------------------------- -------- --------
Payroll and pensions 750 -
------------------------- -------- --------
Other creditors 67 36
------------------------- -------- --------
Accruals 2,080 2,248
------------------------- -------- --------
Current portion of lease 340 333
------------------------- -------- --------
4,752 3,631
------------------------- -------- --------
20. Derivative
2021 2020
US$'000 US$'000
------------ -------- --------
Non-current
------------ -------- --------
Derivative - 9
------------ -------- --------
- 9
------------ -------- --------
The key inputs into the valuation model are as follows:
Inter-relationships
between
the unobservable
Significant unobservable inputs and
Valuation technique inputs fair value measurement
------------------- ------------------------ ---------------------------
Black-Scholes model Option strike price: The estimated fair
GBP0.30 to GBP0.45 value would increase
up to date options / (decrease) if:
expired in the year
(2020: GBP0.30 to The share price increased
GBP0.45) / (decreased)
Average maturity: Sterling exchange
0 to 1 year up to rate increased /
date options expired (decreased)
in the year
(2020: 0 to 1 year) The risk free interest
rate increased /
Risk-free interest (decreased)
rate: 0.055% up to
date options expired
in the year
(2020: 0.055%)
Share price volatility:
62% up to date options
expired in the year
(2020: 62%)
------------------- ------------------------ ---------------------------
The derivative was in relation to options and warrants that were
issued in connection with financing provided to the Company between
2016 and 2018.
21. Provisions for liabilities
Decommissioning
US$'000
-------------------- ---------------
At 1 January 2020 56
-------------------- ---------------
At 31 December 2020 56
-------------------- ---------------
At 31 December 2021 56
-------------------- ---------------
Current 56
-------------------- ---------------
Non-current -
-------------------- ---------------
Decommissioning
The provision for decommissioning costs is recorded at the value
of the expenditures expected to be required to settle the Group's
future obligations on decommissioning of previously drilled
wells.
22. Share capital
Rights and obligations attaching to the Ordinary Shares
The Company has no securities in issue conferring special rights
with regards control of the Company. All Ordinary Shares rank pari
passu, and the rights attaching to the Ordinary Shares (including
as to voting and transfer) are as set out in the Company's Articles
of Association ("Articles").
Number of
Number of Deferred
New Ordinary Ordinary shares Authorised
shares EUR0.0001 Equity
EUR0.01 each each US$'000
-------------------- ------------- ---------------- ----------
Authorised equity
-------------------- ------------- ---------------- ----------
At 1 January 2020 2,847,406,025 - 177,475
-------------------- ------------- ---------------- ----------
At 31 December 2020 2,847,406,025 - 177,475
-------------------- ------------- ---------------- ----------
At 31 December 2021 2,847,406,025 - 177,475
-------------------- ------------- ---------------- ----------
Issued, called up and fully paid:
Number of
Number of Deferred
New Ordinary Ordinary shares Share Share
shares EUR0.0001 capital premium
EUR0.01 each each US$'000 US$'000
-------------------- ------------- ---------------- -------- --------
At 1 January 2020 451,303,014 - 5,172 21,077
-------------------- ------------- ---------------- -------- --------
Share buybacks (1,389,988) - (15) -
-------------------- ------------- ---------------- -------- --------
At 31 December 2020 449,913,026 - 5,157 21,077
-------------------- ------------- ---------------- -------- --------
At 31 December 2021 449,913,026 - 5,157 21,077
-------------------- ------------- ---------------- -------- --------
See Consolidated Statements of Changes in Equity
Share buyback programme
On 22 January 2020 the Company announced that it had completed
the buyback programme. Under the Buyback Programme, the Company
repurchased 5,709,101 Ordinary Shares at an aggregate value of
GBP1,570,085.49. Following cancellation of the final shares
repurchased, the total number of Ordinary Shares in issue with
voting rights was 449,913,026.
23. DIVIDS PAID
No dividends were declared in 2021. In May 2020, the Company
returned a special dividend to its shareholders of GBP0.06 per
share, totalling US$33.3 million (GBP27.0 million).
24. Reserves
The Statement of Changes in Equity outlines the movement in
reserves during the year. Further details of these reserves are set
out below:
Currency translation reserve
The currency translation reserve comprises all foreign currency
differences arising from the translation of the financial
statements of foreign operations.
The recycling of the currency translation reserve of US$16.6
million (2020: US$1.0 million) relates to the realisation of the
cumulative foreign currency gains and lossed on the disposal or
liquidation of non-core assets.
Share based payments reserve
The share-based payments reserve comprises the fair value of all
share options which have been charged over the vesting period, net
of the amount relating to share options which have expired, been
cancelled and have vested.
Fair value reserve
The fair value reserve comprises the cumulative net change in
the fair value of financial assets measured at Fair Value through
Other Comprehensive Income until the assets are derecognised.
Special reserve
Pursuant to a capital reduction in 2019 the Company undertook to
credit US$5,024,260 to a special reserve. This special reserve is
not a distributable reserve and must remain in place until such
time as obligations in respect of certain guarantees given by the
company have lapsed or become unenforceable.
25. Share based payments
Prior to 31 December 2012, the Group had one share-based payment
scheme for executives and senior employees of the Group. In
accordance with the provisions of the plan, as approved by
shareholders at a previous general meeting, executives and senior
employees may be granted options to purchase ordinary shares.
Each share option converts into one ordinary share of San Leon
Energy plc on exercise and options do not carry rights to dividends
nor voting rights. Options may be exercised at any time from the
date of vesting to the date of their expiry. The options vest in
tranches subject to the achievement of certain service and
non-market performance conditions. Market conditions in relation to
the achievement of share price trading levels also apply in the
case of certain options granted to the Directors, further details
of which are set out in the Directors' Report.
During the first quarter of 2013, this scheme was replaced by a
more formal Share Option Plan, which governs all future awards of
share options made by San Leon. All employees, and certain
Directors and consultants, may from time to time be eligible to
receive a discretionary bonus to be awarded in the form of options
over San Leon Ordinary shares. Historic options in respect of San
Leon shares will continue to be governed by the terms and
conditions set out in the historic share-based payments scheme.
The Group's equity share options are equity settled share-based
payments as defined in IFRS 2: Share Based Payments. The total
share-based payment charge for the year has been calculated based
on grant date fair value obtained using an option pricing model
with a discount for market conditions applied based on a Monte
Carlo simulator analysis where appropriate. The charge for the year
is US$Nil (2020: US$891,263) includes the charge for options issued
to the Directors of US$Nil (2020: US$418,048) and shares to be
issued to Directors of US$Nil (2020: US$Nil).
The movement on outstanding share options and warrants during
the year was as follows:
2021 2020
-------------------------------------- ---------------------- ----------------------
Number Weighted Number Weighted
of options average of options average
/ exercise / exercise
warrants price warrants price
-------------------------------------- ----------- --------- ----------- ---------
Balance at beginning of the financial
year 41,221,627 GBP0.397 40,559,075 GBP0.400
-------------------------------------- ----------- --------- ----------- ---------
Granted during the financial year - - 1,000,000 GBP0.450
-------------------------------------- ----------- --------- ----------- ---------
Modified during the financial year - - - GBP0.393
*
-------------------------------------- ----------- --------- ----------- ---------
Expired or cancelled during the
financial year (8,560,000) GBP0.445 (337,448) GBP0.592
-------------------------------------- ----------- --------- ----------- ---------
Exercised during the financial - - - -
year
-------------------------------------- ----------- --------- ----------- ---------
Balance at end of the financial
year 32,661,627 GBP0.412 41,221,627 GBP0.397
-------------------------------------- ----------- --------- ----------- ---------
Exercisable at end of the financial
year 32,661,627 GBP0.412 41,221,627 GBP0.397
-------------------------------------- ----------- --------- ----------- ---------
The range of exercise prices of outstanding options/warrants at
year end is GBP0.25 to GBP0.45 (2020: GBP0.25 to GBP0.45).
* On 26 February 2020 the Company repriced 1,500,000 options
from GBP0.45 to GBP0.35, the expiry date of these options was also
extended from 26 February 2020 by 4 years to 26 February 2024. The
resulting charge for the year was US$326,581.
* On 2 October 2020 the Company extended the expiry date of
2,222,222 options by 5 years to 2 October 2025. This resulted in a
charge for the year of US$146,635.
The weighted average remaining contractual life for options /
warrants outstanding at 31 December 2021 is 1.79 years (2020: 2.94
years).
During the current year no options were exercised (2020:
Nil).
The following table illustrates the number, exercise price and
expiry date of share options and warrants remaining at year
end.
Exercise Year
Type Number price of expiration
--------- ---------- -------- --------------
Options 6,250,000 GBP0.45 2022
--------- ---------- -------- --------------
Options 6,625,000 GBP0.45 2023
--------- ---------- -------- --------------
Warrants 10,000,000 GBP0.25 2023
--------- ---------- -------- --------------
Warrants 4,939,405 GBP0.45 2023
--------- ---------- -------- --------------
Options 1,500,000 GBP0.35 2024
--------- ---------- -------- --------------
Options 125,000 GBP0.45 2024
--------- ---------- -------- --------------
Options 2,222,222 GBP0.45 2025
--------- ---------- -------- --------------
Options 1,000,000 GBP0.45 2028
--------- ---------- -------- --------------
Total 32,661,627
--------- ---------- -------- --------------
The following table lists the fair value of options granted and
the inputs to the models used to calculate the grant date fair
values of awards granted in 2021 and 2020:
2021 2020
---------------------------------------- ----- -------------
Weighted average fair value of options N/a GBP0.25
granted during year
---------------------------------------- ----- -------------
Weighted average share price of options N/a GBP0.39
at date of grant
---------------------------------------- ----- -------------
Dividend yield N/a 0.00%
---------------------------------------- ----- -------------
Exercise price N/a GBP0.45
---------------------------------------- ----- -------------
Expected volatility N/a 72%
---------------------------------------- ----- -------------
Risk-free interest rate N/a 0.55%
---------------------------------------- ----- -------------
Expected option life N/a 7 years
---------------------------------------- ----- -------------
Expected early exercise % N/a 0%
---------------------------------------- ----- -------------
Model used N/a Black-Scholes
---------------------------------------- ----- -------------
The expected life used in the model is based on the expectation
of management attaching to the option and behavioural
considerations and is not necessarily indicative of exercise
patterns that may occur. Expected volatility is based on an
analysis of the historical volatility of San Leon Energy plc shares
and comparable listed entities. The fair value is measured at the
date of grant. There are no conditions attached to the options.
26. Commitments and contingencies
(a) Lease obligation commitments
Cash commitments under lease obligations as a lessee (Note 28)
are as follows:
Total Total
2021 2020
US$'000 US$'000
--------------------------- -------- --------
Payable:
--------------------------- -------- --------
Within one year 340 369
---------------------------- -------- --------
Between one and five years 1,359 1,472
---------------------------- -------- --------
Over five years 1,246 1,718
---------------------------- -------- --------
2,945 3,559
--------------------------- -------- --------
(b) Decklar Petroleum Limited
On 1 September 2020, the Company announced that it had
conditionally agreed to invest US$7.5 million by way of a loan to
Decklar Petroleum Limited, who is the holder of a Risk Service
Agreement with Millenium Oil and Gas Company Limited on the Oza
marginal field, carved out of OML 11, onshore Nigeria. Under the
agreements, if completed, the Company will also receive a 15%
interest in Decklar for a nominal amount paid. This transaction is
still awaiting final conditions precedents to complete. See Note 31
for further detail.
(c) Exploration, evaluation and development activities
The Group has commitments of US$Nil (2020: US$Nil) in the year
ended 31 December 2021 to contribute to its share of exploration
and evaluation expenditure in respect of exploration licences and
concessions held.
(d) Horizon Petroleum Ltd
The Group has a contingent asset, the consideration is in
aggregate of US$2.0 million in relation to the sale completed in
August 2019 to Horizon Petroleum Ltd.
The Group will receive the aggregate consideration when certain
concessions are transformed and granted to Horizon.
(e) Island Oil & Gas Limited Guarantee
The Company has a Guarantee in respect of the decommissioning
liabilities of Island (Seven Heads) Limited, a subsidiary of Island
Oil & Gas Limited ("Island"). In the event that Island are
unable to pay the decommissioning liabilities, under the Guarantee,
the Company could be liable for any amounts Island does not
pay.
27. Deferred tax
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the
following:
Assets Liabilities Net
------------------------------- ------------------ ------------------ ------------------
2021 2020 2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------- -------- -------- -------- -------- -------- --------
Financial assets - IFRS
9 - - (572) (1,416) (572) (1,416)
------------------------------- -------- -------- -------- -------- -------- --------
Financial assets - other 175 175 - - 175 175
------------------------------- -------- -------- -------- -------- -------- --------
Unrealised exchange difference - - (22) (4) (22) (4)
------------------------------- -------- -------- -------- -------- -------- --------
Interest not taxable
until received - - (863) (199) (863) (199)
------------------------------- -------- -------- -------- -------- -------- --------
Tax losses recognised - 926 - - - 926
------------------------------- -------- -------- -------- -------- -------- --------
175 1,101 (1,457) (1,619) (1,282) (518)
------------------------------- -------- -------- -------- -------- -------- --------
2021 2020
US$'000 US$'000
-------------------------------------------------- -------- --------
At 1 January (518) 1,718
-------------------------------------------------- -------- --------
Deferred tax on fair value movements in financial
assets IFRS 9, Barryroe NPI (Note 10) 844 (1,343)
-------------------------------------------------- -------- --------
Origination and reversal of temporary differences
(Note 10) (1,608) (893)
-------------------------------------------------- -------- --------
At 31 December (1,282) (518)
-------------------------------------------------- -------- --------
Unrecognised deferred tax assets
2021 2020
US$'000 US$'000
------------------------ -------- --------
Tax losses 5,036 8,631
------------------------ -------- --------
Capitalised expenditure 358 33,101
------------------------ -------- --------
5,394 41,732
------------------------ -------- --------
Deferred tax assets have not been recognised in respect of the
above items because it is not probable that future taxable profits
will be available against which the Group can utilise these
losses.
28. LEASES
Statement of Financial Position
2021 2020
US$'000 US$'000
---------------------------------------------- --------- ---------
Right of use asset (included within Property,
plant and equipment)
---------------------------------------------- --------- ---------
Property leases
---------------------------------------------- --------- ---------
At 1 January 2,574 2,952
---------------------------------------------- --------- ---------
Additions 244 -
---------------------------------------------- --------- ---------
Depreciation charge for the period (370) (378)
---------------------------------------------- --------- ---------
Closing net carrying amount 2,448 2,574
---------------------------------------------- --------- ---------
Lease liability
---------------------------------------------- --------- ---------
Property leases
---------------------------------------------- --------- ---------
At 1 January 2,761 2,834
---------------------------------------------- --------- ---------
Payments - principal (227) (211)
---------------------------------------------- --------- ---------
Payments - interest (129) (131)
---------------------------------------------- --------- ---------
Currency translation adjustment (140) 138
---------------------------------------------- --------- ---------
Interest 129 131
---------------------------------------------- --------- ---------
Closing net carrying amount 2,394 2,761
---------------------------------------------- --------- ---------
Current 340 333
---------------------------------------------- --------- ---------
Non-current 2,054 2,428
---------------------------------------------- --------- ---------
Income Statement
2021 2020
US$'000 US$'000
---------------------------------------------- --------- ---------
Right of use asset (included within Property,
plant and equipment)
---------------------------------------------- --------- ---------
Property leases
---------------------------------------------- --------- ---------
Depreciation charge 139 378
---------------------------------------------- --------- ---------
Interest expense 129 131
---------------------------------------------- --------- ---------
Total 268 509
---------------------------------------------- --------- ---------
29. Related party transactions
The Group has related party transactions with i) Directors ii)
shareholders iii) subsidiaries and iv) other entities with which it
has entered into business arrangements. Due to the influence or
material interest that these parties have in transactions with the
Group they are required to be disclosed and are detailed below.
Red Cedar Energy DMCC
San Leon Energy plc and Red Cedar Energy DMCC have a common
Director, Mr. Oisín Fanning. San Leon has a consultancy agreement
with Red Cedar Energy DMCC which was paid US$1,679,494 for amounts
due for 2021 (2020: US$Nil).
Property
The Company holds an option to acquire a property at market
value from Mr. Fanning. The option is due to expire in 2026 and the
option fee of US$409,000 is included in other debtors (Note 17) and
is refundable when the Company either exercises or terminates the
option. Mr. Fanning was paid US$323,395 (2020: US$215,999) rent for
the use of this property during the year by the Company.
The property is available for use by all staff and consultants
requiring overnight accommodation while conducting business on
behalf of the Company up to it being used for office space in June
2021, see below.
In June 2021, the Company signed a licence with Mr. Oisín
Fanning to use the property for office space.
Director change in Shareholding
On 11 May 2020 the Company was notified that Mr. Fanning, Chief
Executive Officer of the Company, acquired 98,000,000 ordinary
shares in the Company. Following the notification, Mr. Fanning had
an interest of 107,495,864 ordinary shares, representing 23.89% of
the issued share capital of the Company.
On 23 December 2020 the Company announced that it had been
informed that Mr. Fanning had been unable to secure the necessary
funding for the above share purchase. Consequently, settlement of
the share purchase did not occur. Following this, Mr. Fanning owns
9,495,864 ordinary shares in the Company, representing 2.1% of the
issued share capital of the Company.
Greenbay Energy Resources Limited
San Leon Energy plc and Greenbay Energy Limited have a common
Director, Mr. Mutiu Sunmonu. San Leon has a consultancy agreement
with Greenbay Energy Limited which was paid US$95,629 for amounts
due for 2021 (2020: US$95,181
In June 2019, San Leon Energy plc entered into an agreement with
Caledonian Properties Nigeria Limited ("Caledonian"), a company
owned by Mr. Mutiu Sunmonu, for the use of two properties in Lagos,
Nigeria, and was extended for a further 2 years in June 2021.
Caledonian was paid US$231,000 for the period 1 July 2019 to 30
June 2021 of which US$57,750 relates to 2021. Caledonian was also
paid US$244,444 for the period 1 July 2021 to 30 June 2023 of which
US$61,111 related to the period 1 July 2021 to 31 December 2021. It
is common practice to pay such sums up-front in Nigeria.
The properties are being provided at a competitive rate and it
is an arm's length transaction.
One of the properties is used as an office and the other
property is available for use by all staff and consultants
requiring accommodation while conducting business on behalf of the
Company.
Gemini Energy B. V. / Palomar Natural Resources (Netherlands)
B.V. / NSP Investments Holdings Ltd
On 18 November 2016, the Company announced the sale of its (i)
35% interest in TSH Energy Joint Venture B.V. (TSH) and (ii) 35%
interest in Poznan Energy B.V. (Poznan) to Palomar Natural
Resources (Palomar). This divested the Company's interest in the
Rawicz and Siekierki fields respectively. A 10% net profit interest
was retained in the Poznan assets. Palomar was regarded as a
related party as it already held the remaining interest in both TSH
and Poznan.
The total cash consideration due to the Company for the sale of
its 35% interest in TSH was US$9.0 million, of which US$4.5 million
was received in November 2016. The balance of US$4.5 million plus
accrued interest (the "Amount Due") was due to paid to San Leon on
or before 1 October 2017. As announced on 2 January 2018 under a
novation agreement and extension agreement dated 22 December 2017,
the Amount Due was the full responsibility of NSP Investments
Holdings Ltd, a BVI registered company that holds a 35% interest in
TSH. San Leon also announced that it had received a further US$1.5
million payment of the Amount Due. The Company was due to receive a
further US$3.6 million, including an extension fee plus any further
accrued interest on or before 1 September 2018. The Company had not
received the US$3.6 million by 31 December 2018 and, provided for
expected credit losses of US$3.4 million and reversed accrued
interest receivable in 2018 of US$0.2 million. No further payments
were received from NSP.
In September 2021, Gemini Energy B. V. concluded transactions to
gain 100% ownership of both TSH and Poznan. To accommodate and
agree to the transfer of the TSH and Poznan shares from NSP to
Gemini, Gemini offered and agreed to pay San Leon:
(a) a payment of US$1.5 million by no later than the first
anniversary of the transfer of the TSH Shares to Gemini; and
(b) make an additional payment of US$2.1 million under the terms
of a net profits interest agreement. The Gemini obligations replace
the amounts due from NSP.
Toscafund Asset Management LLP
Toscafund Asset Management LLP (Toscafund) is a related party on
the basis that funds managed by Toscafund hold a substantial
shareholding in San Leon Energy plc and the substantive
transactions which the parties entered into during 2016 and as more
fully described below detailing the purchase of the indirect
interest in OML 18.
On 11 May 2020 the Company was informed that funds managed by
Tosca Asset Management LLP had sold 98,000,000 ordinary shares in
the Company on 7 May 2020. On completion of the sale funds managed
by Tosca Asset Management LLP held 228,771,927 ordinary shares,
representing 50.85% of the issued share capital of the Company.
This sale was not completed and on 22 December 2020 the Company was
informed that funds managed by Tosca Asset Management LLP held
330,570,719 ordinary shares in the Company at that date.
OML 18
In September 2016, the Company secured an indirect economic
interest in Oil Mining Lease 18 ("OML 18"), onshore Nigeria.
The Company undertook a number of steps to effect this purchase.
MLPL, a company incorporated in Mauritius of which San Leon Nigeria
B.V. has a 40% shareholding, was established as a special purpose
vehicle to complete the transaction by purchasing all of the shares
in Martwestern, a company incorporated in Nigeria.
Martwestern holds a 50% shareholding in Eroton, a company
incorporated in Nigeria and the operator of OML 18, and it also
holds an initial 98% economic interest in Eroton. To partly fund
the purchase of 100% of the shares of Martwestern, MLPL borrowed
US$174.5 million in incremental amounts by issuing loan notes with
a coupon of 17% ("Loan Notes"). Midwestern is the 60% shareholder
of MLPL and transferred its shares in Martwestern to MLPL as part
of the full transaction. Following its placing in September 2016,
San Leon became beneficiary and holder of all Loan Notes issued by
MLPL and the holder of an indirect economic interest in OML 18. San
Leon is also a beneficiary of any dividends that will be paid by
MLPL as a 40% shareholder in MLPL but the Loan Notes repayments and
any other debt take priority over any dividend payments made to the
MLPL shareholders. The economic effect of this structure is that
San Leon has an initial indirect economic interest of 10.584%. in
OML 18. Shareholders will note this is higher than the percentage
interest anticipated by San Leon at the time of the acquisition.
There have been no further purchases or payments by San Leon but
this revised percentage is based on a reassessment and
recalculation of the various parties' interests in OML 18 which has
resulted in Martwestern's economic interest in Eroton now standing
at 98%.
To date, San Leon has received aggregate payments under the Loan
Notes totalling US$198.0 million. An expected credit loss of US$2.0
million was recognised at 31 December 2019. Due to uncertainty
around the timing of repayments, the Company has impaired the Loan
Notes, netting the expected credit loss of US$2.0 million against
the gross amortised value and recognising an impairment charge of
US$15.3 million at 31 December 2020. At 31 December 2021 the
impairment charge was increased by US$0.9 million to US$16.2
million.
To make payment of principal and interest due under the Loan
Notes, MLPL is dependent on Eroton making dividend payments to
Martwestern which in turn makes dividend payments to MLPL. MLPL
will use the receipt of dividends to make Loan Notes payments to
San Leon. There are various undertakings, guarantees and security
in place with Eroton, Martwestern and Midwestern with regard to the
Loan Notes, as more fully described below, in the event that MLPL
is not in a position to pay the Loan Notes from dividends
received.
The Loan Notes have been secured with undertakings by both
Eroton and Martwestern, including not to take any action within
their control which would result in default by MLPL, and to act
honestly and in good faith. In addition, to the extent practicable
and subject to law, use commercially reasonable efforts to declare
dividends in order that MLPL can satisfy its obligations under the
Loan Notes instrument.
The shares held by MLPL in Martwestern have also been pledged as
security to the obligations under the Loan Notes.
Midwestern and Mart Resources Limited jointly and severally
guaranteed the payment of the Loan Notes following a default and to
make immediate payment and performance of all obligations to
holders of the Loan Notes.
While San Leon is also a beneficiary of any dividends that will
be paid by MLPL as a 40% shareholder in MLPL, the Loan Notes
repayments must take priority over dividend payments made by MLPL
to shareholders with a minimum 65% cash sweep of available funds
for a period of four years in order to redeem the Loan Notes.
There are shareholders agreements which govern the relationship
between Midwestern and San Leon, and Bilton and Martwestern
regulating the rights and obligations with respect to MLPL,
Martwestern and Eroton. These agreements cover the appointment of
Directors and unanimous approval for major decisions.
A Master Services Agreement exists which entitles San Leon
Energy Nigeria B.V. to provide rig-related services to Eroton and
Midwestern for their activities.
Separately in 2018 San Leon entered into an agreement with
Eroton for the provision of subsurface technical and management
services with estimated consideration for the services of US$6.0
million until the end of 2022.
Further extensive details can be found on the Company's website
which contains a copy of the Admission Document at:
http://www.sanleonenergy.com/media/2491705/admission_document_2016.pdf
2017
As a consequence of MLPL not being in receipt of dividends in
2017, MLPL had to enter into a loan during 2017 and subsequently in
order to be able to meet its obligations under the Loan Notes and
make payments to San Leon. During 2017 San Leon received total
payments under the Loan Notes totalling US$39.6 million. All
payments during 2017 were received by the due date and in
accordance with the terms of the Loan Notes.
2018
During 2018 San Leon received total payments under the Loan
Notes totalling US$66.2 million. MLPL also entered into loan
agreements with third parties to enable it to make the repayments
during 2018.
2019
During 2019 San Leon received total payments under the Loan
Notes totalling US$43.2 million. MLPL used loan agreements similar
to those entered into in 2018 to continue to make the repayments
during 2019.
2020
During 2020 San Leon received total payments under the Loan
Notes totalling US$46.5 million. MLPL used loan agreements similar
to those entered into in 2018 to continue to make the repayments
during 2020.
2021
During 2021 San Leon received total payments under the Loan
Notes totalling US$2.2 million. MLPL used loan agreements similar
to those entered into in 2018 to continue to make the repayments
during 2021.
Key management
Key management is deemed to comprise the Board of Directors. The
total remuneration paid to key management was as follows:
2021 2020
US$'000 US$'000
----------------------------- -------- --------
Salary and emoluments 2,413 2,678
----------------------------- -------- --------
Bonuses 490 1,172
----------------------------- -------- --------
Social welfare costs 205 282
----------------------------- -------- --------
Fees and consulting services 500 607
----------------------------- -------- --------
Pension 331 99
----------------------------- -------- --------
Benefits 50 44
----------------------------- -------- --------
Share based payment expense - 418
----------------------------- -------- --------
3,989 5,300
----------------------------- -------- --------
30. Financial Instruments and Financial Risk Management
The Group's principal financial instruments comprise trade
receivables, other financial assets, trade payables and cash and
cash equivalents.
The main purpose of these financial instruments is to provide
finance for the Group's operations.
The Group's financial assets and liabilities are classified
as:
Financial liabilities: Amortised costs - trade and other
payables as described in Note 19;
Financial assets: Amortised cost - Financial assets as described
in Note 15 and Trade and other receivables as described in Note
17;
Financial assets: FVTPL - net profit interest as described in
Note 15;
Financial assets: FVOCI - equity instrument - unquoted
investments as described in Note 15;
The main risks arising from the Group's financial instruments
are foreign currency risk, credit risk, liquidity risk, interest
rate risk and capital management. Management reviews and agrees
policies for managing each of these risks in a non-speculative
manner which are summarised below.
(a) Currency risk
The Group is exposed to foreign currency risk on transactions
denominated in a currency other than the relevant functional
currency of the entities of the Group which consist of US Dollars,
Euro, Sterling and Polish Zloty. The US Dollar is the presentation
currency for financial reporting and budgeting. The Group manages
its exposure by matching receipts and payments in the same currency
and monitoring the residual net cash position. During the years
ended 31 December 2021 and 2020, the Group did not utilise either
forward currency contracts or other derivatives to manage foreign
currency risk.
At 31 December 2021, the Group's principal exposure to foreign
currency risk was as follows:
Denominated Denominated Denominated
in GBPGBP in EUREUR in PLN
US$'000 US$'000 US$'000
---------------------------- ----------- ----------- -----------
Trade and other receivables 597 7,226 49
------------------------------ ----------- ----------- -----------
Trade and other payables (1,266) (2,243) (10)
------------------------------ ----------- ----------- -----------
Provisions - (56) -
------------------------------ ----------- ----------- -----------
Cash and cash equivalents 672 50 102
------------------------------ ----------- ----------- -----------
Total 2021 3 4,977 141
------------------------------ ----------- ----------- -----------
At 31 December 2020, the Group's principal exposure to foreign
currency risk was as follows:
Denominated Denominated Denominated
in GBPGBP in EUREUR in PLN
US$'000 US$'000 US$'000
---------------------------- ----------- ----------- -----------
Trade and other receivables 810 261 30
------------------------------ ----------- ----------- -----------
Trade and other payables (427) (1,861) (27)
------------------------------ ----------- ----------- -----------
Provisions - (56) -
------------------------------ ----------- ----------- -----------
Cash and cash equivalents 1,332 208 115
------------------------------ ----------- ----------- -----------
Total 2020 1,715 (1,448) 118
------------------------------ ----------- ----------- -----------
The US Dollar exchange rates used in the preparation of the
financial statements were as follows:
2021 2021 2020 2020
Average Closing Average Closing
rate rate rate rate
------------- --------- -------- -------- --------
Sterling 0.727078 0.741904 0.778085 0.732646
------------- --------- -------- -------- --------
Euro 0.845794 0.882924 0.873668 0.814930
------------- --------- -------- -------- --------
Polish Zloty 3.862468 4.058714 3.887568 3.715834
------------- --------- -------- -------- --------
Sensitivity analysis
If the US Dollar increased by 1% in value against the above
currencies, the Group's profit for the year would decrease and
equity at year end would decrease by US$50,668. If the US Dollar
decreased by 1% in value against the above currencies, the Group's
profit for the year would increase and equity at year end would
increase by US$51,175.
(b) Credit risk
Credit risk refers to the risk that any counter-party will
default on its contractual obligations resulting in financial loss
to the Group.
The Group's financial assets excluding 'Financial assets - Net
Profit Interest', see (f) 'Fair values' comprise trade and other
receivables, cash and cash equivalents, OML 18 and ELI.
The maximum financial exposure due to credit risk on the Group's
financial assets not subject to impairment of IFRS 9, representing
the sum of cash and cash equivalents, trade and other receivables
and other current assets, as at 31 December 2021 was US$21.2
million (2020: US$20.4 million).
Trade and other receivables
Within trade and other receivables there is no significant
exposure to credit risk. The credit risk on amounts receivable from
joint operating partners is managed by agreeing budgets in advance
with partners and where appropriate collecting any material share
of exploration costs from partners in advance of completing the
exploration work programme. Amounts in trade and other receivables
impaired during 2021 are explained in Note 17 and management
believes that the existing sums are still collectable.
OML 18
The OML 18 transaction comprised the US$174.5 million Loan Notes
as detailed in Note 15. The credit risk is managed via various
undertakings, guarantees, a pledge over shares and the mechanism
whereby MLPL prioritises payment of sums due under the Loan Notes.
Given the size and quality of the OML 18 oil and gas asset the main
credit risk is regarded as the timing of payments by MLPL which is
dependent on dividend distributions by Eroton rather than being
unable to pay the total quantum due under the Loan Notes. To date
Eroton have been unable to make a dividend distribution.
Consequently, MLPL had to enter into a loan in 2017 and further
loan subsequently, in order to be able to meet its obligations
under the Loan Notes and make payments to San Leon.
The credit risk associated with the MLPL Loan Notes is regarded
as high and despite quarterly payments being largely received
previously to date, however not always on time, and given other
considerations, this has led the Company to determine that
providing for a loss over the lifetime of the loan is appropriate.
The expected credit loss has been calculated with a very high
probability that the Potential Transaction will complete, and
therefore the Loan Notes will extinguish, and the Company believes
that the value of the Potential Transaction is worth at least the
value of the Loan Notes. Establishing an expected credit loss over
the lifetime of the loan for a single receivable requires
significant judgement, as there is limited relevant historical data
in the Company, and no obvious reliable market data to benchmark.
The factors that were considered in coming to the conclusion of a
lifetime expected credit loss provision are explained as
follows.
The credit risk of the instrument needs to be evaluated without
consideration of collateral. Financial instruments are not
considered to have low credit risk because that risk is mitigated
by collateral.
MLPL is expected to repay all interest and principal due under
the loan agreement, however it is currently experiencing short term
cashflow issues which makes it challenging to predict when
repayments will be made. The increase in credit risk is due to the
uncertainty in timing of when Loan Note repayments are received. It
does not change the prevailing expectation that the loan will be
recovered in full.
In addition, the Directors have reviewed the counterparty credit
risk associated with measurement of the credit impairment. This
risk has previously been assessed as having increased significantly
since initial recognition, and is considered to have increased
further during the year ended 31 December 2020 and continued at
this level of risk in 2021.
As the asset is determined to be credit-impaired, the lifetime
expected credit loss has been presented net against the gross
carrying value of the Loan Notes balance on the Statement of
Financial Position and remeasured at each reporting date. The MLPL
loan asset will continue to be held using the effective interest
rate method.
The consideration of credit impairment for this asset is set out
in Note 15.
The Directors have considered the impact of Covid-19, the impact
on oil price and demand and short term production issues on the
Loan Notes and associated credit risk, all of which are tied to the
performance of the OML 18 asset. The short term production issues
are expected to delay Eroton's ability to return to full production
and benefit from the recovery in the oil price, with the overall
effect likely to be short term cashflow issues resulting in a delay
in receiving distributions from Eroton via MLPL. The Directors have
therefore concluded that the risk profile of the Loan Notes has
increased.
In the opinion of the Directors there is currently no difference
between the carrying amount of the MLPL loan net of the provision
and its fair value.
The following table provides information about the exposure to
credit risk and expected credit losses of the OML 18 Loan Notes as
at 31 December 2021.
Weighted Gross Impairment
average carrying loss
loss amount allowance Credit
Equivalent to Moody's credit rating rate US$000 US$000 impaired
------------------------------------ -------- --------- ---------- ---------
Lower than BBB 16.74% 96,497 16,153 Yes
------------------------------------ -------- --------- ---------- ---------
The following table provides information about the exposure to
credit risk and expected credit losses of the OML 18 Loan Notes as
at 31 December 2020.
Weighted Gross Impairment
average carrying loss
loss amount allowance Credit
Equivalent to Moody's credit rating rate US$000 US$000 impaired
------------------------------------ -------- --------- ---------- ---------
Lower than BBB 18.17% 84,234 15,309 Yes
------------------------------------ -------- --------- ---------- ---------
ELI
The ELI transaction comprises a US$15.0 million shareholder loan
as detailed in Note 15. The credit risk is managed via various
undertakings, such as representations, warranties and covenants and
the ability for a preferential distribution should some warranties
be breached. Given the nature and stage of the asset the main
credit risk is regarded as the timing of payments by ELI Malta
which is dependent on dividend distributions by ELI Nigeria rather
than being unable to pay the total quantum due under the Loan
Notes. Currently the Loan Notes are in good standing with the first
repayment due before 30 June 2022.
As a result of the delay in operations and ELI Loan Notes being
overdue, the Directors have determined that there has been a
significant increase in credit risk since initial recognition of
the ELI Loan Notes, and a provision for the lifetime expected
credit loss of the ELI Loan Notes has been recognised. The ELI Loan
Notes are not considered to be credit impaired on the basis of the
delays in ELI commencing repayment of the loan notes. Establishing
an expected credit loss over the lifetime of the loan for a single
receivable requires significant judgement, as there is limited
relevant historical data in the Company, and no obvious reliable
market data to benchmark. The factors that were considered in
coming to the conclusion of a lifetime expected credit loss
provision are explained as follows.
The credit risk of the instrument needs to be evaluated without
consideration of collateral. Financial instruments are not
considered to have low credit risk because that risk is mitigated
by collateral.
ELI is not considered to be in financial difficulty and is
expected to repay all interest and principal due under the loan
agreement.
In addition, the Directors have reviewed the counterparty credit
risk associated with measurement of the expected credit loss and,
this has been assessed as having not increased significantly since
initial recognition.
As the asset is not credit-impaired, a lifetime expected credit
loss is recorded as a separate provision on the Statement of
Financial Position and remeasured at each reporting date. The ELI
loan asset will continue to be held using the effective interest
rate method.
The consideration of expected credit losses for this asset is
set out in Note 15.
The Directors have considered the impact of Covid-19 on the Loan
Notes and associated credit risk, and although this has slightly
delayed the completion of the pipeline, the Directors do not expect
a material effect on the risk profile of the Loan Notes.
In the opinion of the Directors there is no difference between
the carrying amount of the MLPL loan and its fair value.
The following table provides information about the exposure to
credit risk and expected credit losses of the ELI Loan Notes as at
31 December 2021.
Weighted Gross Impairment
average carrying loss
loss amount allowance Credit
Equivalent to Moody's credit rating rate US$000 US$000 impaired
------------------------------------ -------- --------- ---------- ---------
Lower than BBB 3.59% 17,821 640 No
------------------------------------ -------- --------- ---------- ---------
The following table provides information about the exposure to
credit risk and expected credit losses of the ELI Loan Notes as at
31 December 2020.
Weighted Gross Impairment
average carrying loss
loss amount allowance Credit
Equivalent to Moody's credit rating rate US$000 US$000 impaired
------------------------------------ -------- --------- ---------- ---------
Lower than BBB 2.51% 15,353 385 No
------------------------------------ -------- --------- ---------- ---------
Cash and cash equivalents
The credit risk on cash and cash equivalents held in the Group's
bank accounts is considered limited because the counterparties are
banks with high credit-ratings assigned by international credit
rating agencies. The Group also holds limited funds for day to day
operational purposes with Irish banking institutions which are
subject to guarantee by the Irish government. The Group's maximum
exposure to credit risk is equal to the carrying amount of cash and
cash equivalents in its consolidated statement of financial
position. The Group does not expect any counterparty to fail to
meet its obligations.
Details of the Group's cash deposits, which are all for terms of
one month or less are as follows:
2021 2020
US$'000 US$'000
------------- -------- --------
Euro 50 208
------------- -------- --------
Sterling 672 1,332
------------- -------- --------
US Dollar 6,767 16,855
------------- -------- --------
Polish Zloty 102 114
------------- -------- --------
Others 1 1
------------- -------- --------
7,592 18,510
------------- -------- --------
(c) Liquidity risk management
Liquidity risk is the risk that the Group will not have
sufficient funds to meet liabilities as they fall due. The Group
manages liquidity risk by maintaining adequate cash reserves and by
continuously monitoring forecast and actual cash flows and matching
the maturity profiles of financial assets and liabilities. Cash
forecasts are produced to identify the liquidity requirements of
the Group. Surplus cash is placed on deposit in accordance with
limits and counterparties agreed by the Board, with the objective
to maximise return on funds whilst ensuring that the short-term
cash requirements of the Group are maintained.
All cash and cash equivalents held in the Group's bank accounts
are due on demand. All trade and other receivables and trade and
other payables are due within one month.
The Group's financial liabilities at 31 December 2021 are as
follows:
One Two Greater
Less to to than
than two five five
1 year years years years Total
US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------ -------- -------- -------- -------- --------
Trade and other payables, excluding
leases (Note 19) 4,412 - - - 4,412
------------------------------------ -------- -------- -------- -------- --------
Lease liability (Note 26) 340 340 1,019 1,246 2,945
------------------------------------ -------- -------- -------- -------- --------
Derivative (Note 20) - - - - -
------------------------------------ -------- -------- -------- -------- --------
4,752 340 1,019 1,246 7,357
------------------------------------ -------- -------- -------- -------- --------
The Group's financial liabilities at 31 December 2020 are as
follows:
One Two Greater
Less to to than
than two five five
1 year years years years Total
US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------ -------- -------- -------- -------- --------
Trade and other payables, excluding
leases (Note 19) 3,298 - - - 3,298
------------------------------------ -------- -------- -------- -------- --------
Lease liability (Note 26) 369 369 1,103 1,718 3,559
------------------------------------ -------- -------- -------- -------- --------
Derivative (Note 20) 9 - - - 9
------------------------------------ -------- -------- -------- -------- --------
3,676 369 1,103 1,718 6,866
------------------------------------ -------- -------- -------- -------- --------
The contractual cashflows are equal to the carrying value for
trade and other payables. Contractual cash flows from lease
liabilities once discounted at the incremental borrowing rate (Note
28) will then equate to the carrying value.
The impact of the Covid-19 pandemic, the volatility in oil
prices and demand, OPEC quotas, and recent operational challenges
being experienced by OML 18 could potentially have an impact on the
Company's indirect interest in OML 18 and receipt of Loan Note
repayments. However, San Leon is still confident in the operational
potential of OML 18 and ultimately recovering the full amount of
the outstanding Loan Notes. Any impact on the Company's liquidity
risk is expected to be short term and mitigated by the receipt of
cash from other sources, such as Loan Note repayments from ELI and
services income.
(d) Interest rate risk
The Group and Company's exposure to the risk of changes in
market interest rates relates primarily to the Group and Company's
holdings of cash and short-term deposits.
It is the Group's policy to place surplus funds on short term
deposit in order to maximise interest earned whilst maintaining
adequate short-term liquidity for operational requirements.
The OML 18 Loan Notes attract a 17% fixed rate of contractual
interest and the ELI Loan Notes attract a 14% fixed rate of
contractual interest, both referred to in Note 15, and as a
consequence there is no interest rate exposure.
(e) Capital management risk
The Group manage its capital to ensure that entities in the
Group will be able to continue as a going concern while maximising
the return to shareholders through the optimisation of the debt and
equity balance. The Group manages its capital structure and makes
adjustments to it, in light of changes in economic conditions. To
maintain or adjust its capital structure, the Group may adjust or
issue new shares or raise debt. The capital structure of the Group
consists of equity attributable to equity holders of the parent,
comprising issued capital, reserves and retained earnings as
disclosed in the consolidated statement of changes in equity.
The Group net debt and equity, and the net debt to equity ratio
at 31 December 2021 was as follows:
2021 2019
US$'000 US$'000
---------------------------------- -------- --------
Total Liabilities 8,144 6,642
---------------------------------- -------- --------
Less: cash and cash equivalents 7,592 18,510
---------------------------------- -------- --------
Adjusted net debt 552 (11,868)
---------------------------------- -------- --------
Total equity 176,218 152,060
---------------------------------- -------- --------
Adjusted net debt to equity ratio - (0.08)
---------------------------------- -------- --------
(f) Financial assets and liabilities by category
The following table sets out the carrying value of all the
financial assets and liabilities held at 31 December 2021:
Carrying
Fair Level Level Level
value amount 1 2 3^
31 December 31 December 31 December 31 December 31 December
2021 2021 2021 2021 2021
US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- ------------- ------------- ------------- ------------- -------------
Financial assets
-------------------------- ------------- ------------- ------------- ------------- -------------
OML 18# (Note 15) 80,344 80,344 - - 80,344
-------------------------- ------------- ------------- ------------- ------------- -------------
ELI (Note 15) 17,181 17,181 - - 17,181
-------------------------- ------------- ------------- ------------- ------------- -------------
Barryroe NPI (Note 15) 4,291 4,291 - - 4,291
-------------------------- ------------- ------------- ------------- ------------- -------------
Unquoted shares (Note - - - - -
15)
-------------------------- ------------- ------------- ------------- ------------- -------------
Trade receivables * (Note
17) 9,860 9,860 - - -
-------------------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents
(Note 18) 7,592 7,592 - - -
-------------------------- ------------- ------------- ------------- ------------- -------------
Other debtors * (Note
17) 799 799 - - -
-------------------------- ------------- ------------- ------------- ------------- -------------
Financial liabilities
-------------------------- ------------- ------------- ------------- ------------- -------------
Trade payables * (Note
19) (1,286) (1,286) - - -
-------------------------- ------------- ------------- ------------- ------------- -------------
Other creditors * (Note
19) (67) (67) - - -
-------------------------- ------------- ------------- ------------- ------------- -------------
Derivative (Note 20) - - - - -
-------------------------- ------------- ------------- ------------- ------------- -------------
At 31 December 2021 118,714 118,714 - - 101,816
-------------------------- ------------- ------------- ------------- ------------- -------------
# The credit risk of the OML 18 loan has been assessed
as having significantly increased since initial recognition,
affecting the underlying determination of the fair value.
Therefore, the carrying amount arising from the application
of the effective interest rate method is greater than the
fair value.
* The Group has not disclosed the fair value of financial
instruments such as short-term receivables and payables,
as it is considered that their carrying amounts are a reasonable
approximation of their fair values.
^ For detailed disclosures on the valuation techniques
of level 3 disclosures see the note referenced above.
During the period ended 31 December 2021, there were no
significant changes in the business or economic circumstances that
affect the fair value of financial assets and liabilities, no
reclassifications and no transfers between levels of the fair value
hierarchy used in measuring the fair value of the financial
instruments.
The following table sets out the carrying value of all the
financial assets and liabilities held at 31 December 2020:
Carrying
Level Level Level
Fair value amount 1 2 3^
31 December 31 December 31 December 31 December 31 December
2020 2020 2020 2020 2020
US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- ------------ ------------- ------------ ------------ ------------
Financial assets
-------------------------- ------------ ------------- ------------ ------------ ------------
OML 18 (Note 15) 68,925 68,925 - - 68,925
-------------------------- ------------ ------------- ------------ ------------ ------------
Barryroe NPI (Note 15) 14,968 14,968 - - 14,968
-------------------------- ------------ ------------- ------------ ------------ ------------
Unquoted shares (Note
15) 6,842 6,842 - - 6,842
-------------------------- ------------ ------------- ------------ ------------ ------------
Trade receivables* (Note
17) 2 2 - - -
-------------------------- ------------ ------------- ------------ ------------ ------------
Cash and cash equivalents
(Note 18) 18,510 18,510 - - -
-------------------------- ------------ ------------- ------------ ------------ ------------
Other debtors* (Note 17) 732 732 - - -
-------------------------- ------------ ------------- ------------ ------------ ------------
Financial liabilities
-------------------------- ------------ ------------- ------------ ------------ ------------
Trade payables* (Note
19) (719) (719) - - -
-------------------------- ------------ ------------- ------------ ------------ ------------
Other creditors* (Note
19) (36) (36) - - -
-------------------------- ------------ ------------- ------------ ------------ ------------
Derivative (Note 20) (9) (9) - - (9)
-------------------------- ------------ ------------- ------------ ------------ ------------
At 31 December 2020 109,215 109,215 - - 90,726
-------------------------- ------------ ------------- ------------ ------------ ------------
* The Group has not disclosed the fair value of financial
instruments such as short-term receivables and payables,
as it is considered that their carrying amounts are a reasonable
approximation of their fair values.
^ For detailed disclosures on the valuation techniques
of level 3 disclosures see the note referenced above.
During the period ended 31 December 2020, there were no
significant changes in the business or economic circumstances that
affect the fair value of financial assets and liabilities, no
reclassifications and no transfers between levels of the fair value
hierarchy used in measuring the fair value of the financial
instruments.
(g) Hedging
At 31 December 2021 and 31 December 2020, the Group had no
outstanding contracts designated as hedges.
31. Subsequent events
Change of Advisor
On 31 January 2022, it was announced that Brandon Hill is no
longer acting as the Company's broker.
Amendment to investment in the Oza field, Nigeria
On 1 September 2020, the Company announced that it had
conditionally agreed to provide a US$7.5 million loan to Decklar
Resources Limited ("Decklar"), via 10% per annum unsecured
subordinated loan notes of Decklar. Decklar is the holder of a Risk
Service Agreement with Millenium Oil and Gas Company Limited in
relation to Oza. The Company also announced that it would
conditionally subscribe for a 15% equity interest in Decklar at
nominal value.
San Leon's proposed investment (US$6.75 million) remained in
escrow and was to be released upon satisfaction (or waiver) of
certain conditions precedent. Despite delays to concluding the
transaction documents, Decklar has performed the workover of the
Oza-1 well, the results of which have already been announced by San
Leon. In summary, the Oza-1 well test has indicated positive oil
results from the lowermost zone, encountered gas in the middle zone
and oil in the uppermost zone. San Leon has evaluated these results
and the San Leon Board has recommended that it proceeds with an
investment in Oza. Decklar is in agreement with that strategy and
also to fully involve San Leon in future development planning and
determining the location of the first new well to be drilled on the
Oza Oil Field.
On 27 January 2022, the Company announced it had entered into an
amendment to its original agreement with Decklar, the principal
terms of which are:
1) San Leon has agreed to proceed with its investment in Oza,
waiving the remaining conditions precedent.
2) Of the US$6.75 million of funds held in escrow, US$4.75
million has now been released to Decklar and US$2.0 million has
been returned to San Leon pending final completion. San Leon is
obliged to either provide a further loan of US$2.0 million to
Decklar by 30 April 2022 or, alternatively, accept a pro rata
reduction in its shareholding in Decklar.
3) San Leon has agreed to waive its option to invest an additional US$7.5 million in Decklar.
The transactions contemplated by the Subscription Agreement and
Binding LOI are subject to final approval by the TSX Venture
Exchange.
The Company has previously advanced US$750,000 to Decklar as an
initial deposit. As a consequence of the above transactions, upon
completion San Leon will be interested in US$5,500,000 of 10%
unsecured subordinated Decklar loan notes and a 11.5% equity
interest in Decklar, which will be subscribed for at a nominal
value of 1,294,118 Nigerian Naira (approximately US$3,400). The key
terms of the loan notes remain unchanged from those described in
the Company's announcement of 1 September 2020.
In its audited accounts for the year ended 31 December 2020,
Decklar reported a loss before tax of US$5.1 million and total
assets of US$6.0 million. San Leon will be entitled to one seat on
the board of Decklar.
ELI - additional loan
On 15 February 2022, the Company provided f urther loan of
US$2.0 million (the "Loan") to Energy Link Infrastructure (Malta)
Limited ("ELI"), the company which owns the Alternative Crude Oil
Evacuation System ("ACOES") project. As previously announced, the
ACOES is being constructed to provide a dedicated oil export route
from the OML 18 oil and gas block located onshore in Nigeria ("OML
18"), comprising a new pipeline from OML 18 and a floating storage
and offloading vessel ("FSO"). Once commissioned, the system is
expected by the operator of OML 18, Eroton Exploration and
Production Company Limited ("Eroton"), to reduce the downtime and
allocated pipeline losses currently associated with the Nembe Creek
Trunk Line. In addition, it is anticipated that the FSO project
will improve overall well uptime at OML 18.
The Loan is a US$2.0 million shareholder loan at a coupon of 14%
per annum over four years which is repayable quarterly following a
one-year moratorium from the date of investment. The Loan will be
accompanied by a transfer to San Leon by Walstrand (Malta) Limited,
ELI's largest shareholder, of shares in ELI representing a 2.0%
equity interest (the "ELI Equity Interest"), which San Leon will
acquire at nominal value, representing a consideration payable of
approximately US$91.
The Loan will be used by ELI to facilitate a recent funding
requirement to allow for completion of the mooring for the floating
storage and offloading vessel, which the Board considers to be a
critical step in the progression of the ACOES project. Providing
loans to Nigerian oil and gas related projects, which are often
accompanied by associated equity interests, has been a key part of
San Leon's business and strategy in recent years. San Leon has had
debt and equity interests in ELI since August 2020 and, given the
longer-term ongoing strategic importance of ELI's ACOES project to
OML 18, the Board believes that it is important for San Leon to
assist ELI with the funding requirements for achieving its key
project milestones on a timely basis.
Taken together with San Leon's existing investment in ELI and
its conditional purchase of 1.32% of ELI (calculated prior to the
newly-issued shares of today's announcement), as announced last
year, following completion of the conditional purchase, San Leon's
holding in ELI will be 13.32%.
San Leon has now lent a total of US$17.0 million to ELI with a
coupon of 14% per annum and from which repayment installments
totaling US$6.0 million are now due . As announced on 9 August
2021, the Company has previously agreed with ELI that, should new
investments in ELI be made, then loan repayment installments would
be offset from any investment monies payable to ELI by San Leon
under these new arrangements. The Company has elected not to
enforce this provision on this occasion, in recognition of the fact
that ELI's development is critical to the success of OML 18 and
ELI's cash balances at this time are required to progress the
overall ACOES project. San Leon will continue to waive repayment
installments due on its loans until the ACOES project has been
further progressed and outstanding installments will continue to
accrue interest at 14% per annum .
Under the terms of ELI's senior debt facility, the lender has a
charge over all of ELI's assets and, as further security, each
shareholder (including San Leon) has pledged their shares to the
lender. The ELI shares comprising the ELI Equity Interest will be
subject to this pledge. The terms of the pledge are that the ELI
shares cannot be transferred or otherwise utilised without the
lender's consent.
Proposed transactions and Suspension of San Leon shares
On 24 June 2021, the Company announced that it was is in
preliminary discussions with Midwestern about acquiring
Midwestern's interest in the OML 18 oil and gas block located
onshore in Nigeria. At this date, heads of terms for the
transaction had not been agreed. The transaction would involve San
Leon acquiring the outstanding shares not already owned by San Leon
in relation to MLPL. San Leon is not contemplating acquiring
Midwestern. San Leon currently owns 40% of MLPL with Midwestern
owning the other 60%. In addition, the Company was considering
making further debt and equity investments in ELI.
On 8 July 2022, the Company issued an Admission document
describing the proposed transaction that will increase its indirect
economic interest in Eroton from 39.2% to 98.0% and, taking into
account the completion of the Eroton Transaction with Sahara and
Bilton, San Leon's initial indirect economic interest in OML 18
would increase from the current 10.58% to 44.1%. In addition to the
MLPL transaction, the Company will increase its interest in ELI to
c.50% and the loans to ELI from the Company will increase to c.$48
million. The transactions described in the Admission Document are
expected to complete in September 2022 after Nigerian consents for
the transactions have been received.
Related party
Midwestern currently holds more than 10% of the Company's
ordinary shares. Accordingly, Midwestern is classified as a related
party under the AIM Rules and the transactions above in which
Midwestern has an interest will therefore be treated as
transactions with a related party pursuant to rule 13 of the AIM
Rules.
Glossary
3P Proven plus Probable plus Possible Reserves
AIM The London Stock Exchange's AIM market
AIM Rules AIM Rules for Companies
Bilton Bilton Energy Limited
B.V. Dutch private limited company
BVI British Virgin Islands
Eroton Eroton Exploration and Production Company Limited
US$'000 United States Dollars, thousands
FSO Floating Storage and Offloading
Group San Leon and its subsidiaries
LLP Limited liability partnership
Loan Notes $174.5 million principal amount of 17% fixed rate
loan notes acquired by San Leon pursuant to the amended and
restated loan note instrument dated September 30, 2016 executed and
issued by Midwestern Leon Petroleum Limited
Ltd or limited A private limited company incorporated under the
laws of England and Wales, Scotland, certain Commonwealth countries
and Ireland
m Metres
Martwestern Martwestern Energy Limited
Midwestern Midwestern Oil and Gas Company Limited
MLPL Midwestern Leon Petroleum Limited
MSA Master Services Agreement
NPI Net Profit Interest
PLC A publicly held company
San Leon or the Company San Leon Energy PLC
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END
FR BKOBQDBKBKOK
(END) Dow Jones Newswires
July 08, 2022 03:01 ET (07:01 GMT)
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