Notes to the Financial Statements

for the year ended 31 December 2020

 

These Notes are truncated but can be viewed in full in the Annual Report and Accounts for the year ended 31 December 2020. This document is available on the Company's website at www.sanleonenergy.com.

 

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 the 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 individual financial statements of the Company (Company financial statements) have been prepared in accordance with IFRS as adopted by the EU and as applied in accordance with the Companies Act 2014 which permits a Company that publishes its Company and Group financial statements together, to take advantage of the exemption in Section 304 of the Companies Act 2014, from presenting to its members its Company statement of comprehensive income and related notes that form part of the approved Company financial statements. The IFRS adopted by the EU as applied by the Company and the Group in the preparation of these financial statements are those that were effective for accounting periods commencing on or before 1 January 2020 or were early adopted as indicated below.

 

New standards required by EU companies for the year ended 31 December 2020

The following new standards and amendments were adopted by the Group and the Company for the first time in the current financial reporting period.

 

New standards and interpretations effective that were adopted

 

Standard	IASB effective date	EU effective date
Definition of material (Amendments to IAS 1 and IAS 8)	1 January 2020	1 January 2020
Amendments to References to the Conceptual Framework in IFRS Standards	1 January 2020	1 January 2020
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)	1 January 2020	1 January 2020
Definition of a Business (Amendments to IFRS 3)	1 January 2020	1 January 2020

 

The standards listed above, are effective from 1 January 2020 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 and the Company's financial statements or are still under assessment by the Group and the Company.

 

The principal new standards, amendments to standards and interpretations are as follows:

 

Standard	IASB effective date	EU effective 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
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
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)	Effective date deferred indefinitely	Effective date deferred indefinitely

 

New standards that came into effect on 1 January 2021 will be applied in the year ending 31 December 2021 first reporting to include these will be for the period ending 30 June 2021. The Directors do not believe that any of these standards will have a significant impact on Group and Company reporting.

 

 

 

Basis of preparation

The Group and Company 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 and Company for the period from 1 June 2021 to 31 December 2022.

 

The principal assumptions underlying the cash flow forecast and the availability of finance to the Group are as follows:

 

·  Following completion of a transaction in 2016, the Company paid US$174.5 million to acquire Loan Notes in Midwestern Leon Petroleum Limited ("MLPL"), which are repayable by MLPL to San Leon and a 40% shareholding in MLPL. 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 0.864% 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 which has resulted in Martwestern Energy Limited's ("Martwestern") economic interest in Eroton now standing at 98%. The Group will receive cash flows from the Loan Notes in the form of interest and capital repayments. This continued to be the case during 2020 and the basis of the forecast for 2021 and 2022. On 6 April 2020, the Company entered into an agreement amending the Loan Notes Instrument. The Amendment extends the term of the Loan Notes to December 2021 and changes the expected loan note repayment schedule. Up to 31 December 2020, Loan Note payments totalling US$195.6 million of both principal and interest have been made on behalf of MLPL. Since the reporting date, a further US$0.8 million has been received. Of the US$10.0 million due on 6 October 2020, a balance of US$4.2 million is still outstanding. Quarterly repayments are due to start from July 2021.

·  Income from the provision of subsurface technical and management services of US$5.3 million in 2022.

·  Ongoing exploration and administrative expenditure from the Group's existing activities are in line with current expectations and commitments.

·  Repayments from ELI of loan notes of US$10.6 million during 2021 and 2022.

·  OZA deal finalised in June 2021, with repayments of loan notes in 2022 of US$2.2 million.

 

Given the Group's well understood cost base, the principal uncertainty relates to the quantum and timing of receipt of interest and capital repayments on the Loan Notes with MLPL. 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 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 Directors have considered 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 upon the Company's indirect interest in OML 18, and upon the Loan Notes. The Directors are still confident in the operational potential and ultimately recovering the full amount of the outstanding Loan Notes, however due to the above issues management recognise the uncertainty in timing of future cashflows and for this reason the MLPL Loan Notes have been credit impaired.

 

The Directors have concluded, that whilst any MLPL Loan Note payments, if delayed or not received, represents an uncertainty, the receipt of any further MLPL Loan Note payment(s) is not required given other expected cash inflows considered in the assumptions, such as ELI Loan Note repayments, and mitigants such as the implementation of certain cost saving measures, to continue for a period of at least 12 months from the date of approval of the financial statements.

 

Based on its consideration of Group cash flow projections and underlying assumptions outlined above, the Directors have a reasonable expectation that the Group and Company will have adequate resources to continue in operational existence and to discharge its debts as they fall due for the foreseeable future and for a period of at least 12 months from the date of approval of the financial statements.

 

Accordingly, the Directors continue to adopt the going concern basis of preparation of the financial statements for the year ended 31 December 2020.

 

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 Company's functional currency and 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 4)

·  Impairment of investment in subsidiary (Note 7)

·  Recoverability of equity accounted investments (Note 6)

·  Recoverability of financial assets (Note 8)

 

Estimates

·  Measurement of equity accounted investments (Note 6)

·  Measurement of financial assets (Note 8)

·  Recognition and measurement of derivatives

·  Measurement of share-based payments

·  Recognition of deferred tax asset for tax losses

 

 

 

 

Basis of consolidation

The financial information incorporates the financial information of the Company and entities controlled by the Group (its subsidiaries). 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 and Company 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 and Company 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 and Company 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 fixed assets - investment in subsidiaries

Financial fixed assets in the Company Statement of Financial Position consist of investments in subsidiary undertakings and are stated at cost less provision for impairment where applicable.

 

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 Company 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 Company has therefore credit impaired the asset.

 

The Company 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 32 of the Annual Report and Accounts.

 

Revenue recognition

For the year ended 31 December 2020 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 a promised seismic processing service 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 Company'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 and the Company 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 Annual Report and Accounts.

 

Defined contribution pension scheme

The Company operates a defined contribution scheme. All contributions made are recognised in the Income Statement in the period in which they fall due.

 

 

 

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 17 Financial Assets in the Annual Report and Accounts

·  Note 22 Derivative in the Annual Report and Accounts

 

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

2020		Poland US$'000	Morocco US$'000	Albania US$'000	Nigeria US$'000	Ireland US$'000	Spain US$'000	Unallocated# US$'000	Total US$'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		-	-	-	55,729	9,513	-	-	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.

 

Revenue relates to the provision of seismic acquisition services in Poland.

 

2019		Poland US$'000	Morocco US$'000	Albania US$'000	Nigeria US$'000	Ireland US$'000	Spain US$'000	Unallocated# US$'000	Total US$'000 (Restated *)
Total revenue		266	-	-	-	-	-	-	266
Impairment of exploration and evaluation assets		(126)	(150)	(190)	-	-	(941)	-	(1,407)
Segment (loss) / profit before income tax (Restated *)		(15,074)	1,134	(190)	17,565	(48,373)	(1,014)	(12,749)	(58,701)
Property, plant and equipment		32	-	-	1,476	2,836	-	-	4,344
Equity accounted investments (Restated *)		-	-	-	44,798	-	-	-	44,798
Segment non-current assets (Restated *)		32	-	-	46,043	7,554	-	194	53,823
Segment liabilities		(194)	(268)	(804)	-	(2,835)	(739)	(3,251)	(8,091)
	# Unallocated expenditure and liabilities include amounts of a corporate nature and not specifically attributable to a reportable segment.

 

Revenue relates to the provision of seismic acquisition services in Poland.

 

* See Note 6 for details on restated amounts

 

 

3. LOSS on disposal of subsidiaries

	2020 US$'000	2019 US$'000
Other, recycling from equity to income statement (i)	(1,044)	(13,870)
Horizon Petroleum Ltd (ii)	-	100
	(1,044)	(13,770)

 

(i) Other

In 2020 the Company 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 losses of US$1.0 million (2019: US$13.9 million), that had previously been recognised in equity. The realisation of the cumulative foreign currency losses does not impact the consolidated assets or liabilities.

 

(ii) Horizon Petroleum Ltd 

 

In August 2019, sale and purchase agreements were completed for the sale of a 100% interest in two oil & gas concessions in Poland, known as Bielsko-Biala and Cieszyn (together the "Primary Concessions"), and a 100% interest in two additional oil & gas concessions in Poland, known as Prusice and Kotlarka, (together the "Secondary Concessions") with Horizon Petroleum Ltd. ('Horizon') (TSXV: HPL).

 

San Leon will receive a 6% net profit interest on the Primary and Secondary Concessions when the concessions are transformed and granted to Horizon. Under revised completion terms, a cash payment of US$1,080,000 is also due to be paid to San Leon if the Bielsko-Biala concession is transformed and granted to Horizon. At the same time, San Leon is also to receive US$769,558 (CAD$1.0 million) in shares of Horizon. A cash payment of approximately US$75,000 is due to be paid to San Leon for each of the Secondary Concessions if granted to Horizon.

 

The aggregate consideration of US$2.0 million has been noted as a contingent asset in Commitments and Contingencies (Note 28 in the Annual Report and Accounts).

 

On completion of the sale, a US$100,000 advance received by the Company in 2017 as part of the Memorandum of Understanding became non-refundable.

 

At 31 December 2020 and at the date of signing these accounts, the concessions have yet to be transformed and granted to Horizon.

 

 

4. Finance income

	2020 US$'000	2019 US$'000
Total finance income on Loan Notes (Note 8)	17,276	23,313
Movement in fair value of derivatives	119	531
Deposit interest received	47	278
Interest on Director's loan	-	1
	17,442	24,123

 

All interest income is in respect of assets measured at amortised cost.

 

5. LOSS per share

Basic 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:

	2020 US$'000	2019 US$'000 (Restated *)
Loss for the year	(11,853)	(44,622)

 

The weighted average number of shares in issue is calculated as follows:

	2020 Number of shares	2019 Number of shares
In issue at start of year (Note 10)	451,303,014	500,256,857
Shares to be issued at start of year	-	5,590,270
Effect of tender offer and buybacks in the year	(1,332,865)	(39,697,582)
Effect of shares issued and shares to be issued in the year	-	195,890
Weighted average number of ordinary shares in issue (basic)	449,970,149	466,345,435
Basic loss per ordinary share (cent)	(2.63)	(9.57)

 

* See Note 6 for details on restated amounts

 

Diluted 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:

	2020 US$'000	2019 US$'000 (Restated *)
Loss for the year	(11,853)	(44,622)

 

The diluted weighted average number of shares in issue is calculated as follows:

	2020 Number of shares	2019 Number of shares
Basic weighted average number of shares in issue during the year	449,970,149	466,345,435
Effect of share options and warrants in issue	-	-
	449,970,149	466,345,435
Diluted loss per ordinary share (cent)	(2.63)	(9.57)

 

* See Note 6 for details on restated amounts

 

The number of options which are anti-dilutive and have therefore not been included in the above calculations is 41,221,626 (2019: 39,559,074).

 

 

6. Equity accounted investments

Group	2020 US$'000	2019 US$'000 (Restated *)	2018 US$'000 (Restated *)
Cost and net book value
At 1 January	44,798	54,012	69,763
Additions (ELI)	443	-	-
Share of loss of equity accounted investments	(1,139)	(9,214)	(15,751)
At 31 December	44,102	44,798	54,012

 

The Group's only joint venture entities and associates at 31 December 2020 were as follows:  

Name	Registered office	Type	% held
Midwestern Leon Petroleum Limited	5th Floor Barkly Wharf, Le Caudan Waterfront, Port Louis, Republic of Mauritius	Joint Venture	40%
Energy Link Infrastructure (Malta) Limited	260 Triq San Albert, Griza, GZR 1150, Malta	Associate	10%

 

 

 

 

2020

 

A summary of the financial information of the equity investments is detailed below.

 

		Midwestern Leon Petroleum Limited (i)	Energy Link Infrastructure (Malta) 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

 

 

2019

 

A summary of the financial information of the equity investments is detailed below.

 

				Midwestern Leon Petroleum Limited (i)
Equity Interest				40%
				US$'000 (Restated *)
Loss from continuing operations				(23,035)
Total comprehensive loss				(23,035)
Non-current assets				186,642
Current assets (excluding cash)				262,444
Non-current liabilities				-
Current liabilities				(337,091)
Net assets				111,995
Group's interest in net assets of investee at 1 January 2019				54,012
Share of loss				(3,204)
Restatement of share of loss *				(6,010)
Group's interest in net assets of investee at 31 December 2019				44,798

 

 

 

2018

 

A summary of the financial information of the equity investments is detailed below.

 

				Midwestern Leon Petroleum Limited (i)
Equity Interest				40%
				US$'000 (Restated *)
Loss from continuing operations				(35,046)
Total comprehensive loss				(39,378)
Non-current assets				201,148
Current assets (excluding cash)				242,749
Non-current liabilities				(48,259)
Current liabilities				(260,608)
Net assets				135,030
Group's interest in net assets of investee at 1 January 2018				69,763
Share of loss				(14,693)
Restatement of share of loss *				(1,058)
Group's interest in net assets of investee at 31 December 2018				54,012

 

 

 

(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 17(i). The movement during 2020 reflects a share of the loss of MLPL being administrative costs of US$9.7 million (2019: US$2.1 million), other income of US$nil (2019: US$7.2 million), net finance income / costs of US$3.3 million income (2019: US$5.5 million costs), profit on investment of US$12.2 million (2019: US$14.6 million loss (restated *)), net impairment losses on financial assets of US$0.3 million (2019: US$nil) and a tax charge of US$7.9 million (2019: US$8.0 million).

 

The above interest is accounted for as an equity accounted investment as San Leon does not have control over the entity, which is governed under a Joint Venture Agreement requiring the approval of both parties to the Joint Venture Agreement in respect of all operating decisions.

 

The Group identified potential impairment indicators, being that MLPL is yet to receive a dividend from Eroton, the equity interest is currently loss making, US$5.0 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$54/bbl in 2021, US$57/bbl in 2022, 2023 and 2024 and a subsequent long term price US$62/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.

 

 

* Restatements

 

Restatement adjustments have been made in the 2019 comparative to reflect the following misstatements in MLPL's 100% owned subsidiary Martwestern Energy Limited ("Martwestern"), who in turn owns 50% of Eroton, which is recognised in Martwestern as an equity accounted investment:

-       Correction of the treatment of dividend received on equity investment which had been recognised as income, resulting in an increase in the restated loss of US$2.5 million

-       Share of restated total comprehensive loss of the investee (Eroton) due to the recognition of leases, resulting in an increase in the restated loss of US$3.5 million

-       Share of receivable impairment in investee (Eroton) not previously recognised in Martwestern, resulting in an increase in the restated loss of US$1.1 million in 2018

 

The earliest comparatives that required restatement for this error was in 2018.

 

The impact on the prior year financial statements is outlined below:

 

 

 

 

 

Income statement:

The impact of the restatement has resulted in the loss for the financial year increasing by US$6.0 million from a loss of US$38.6 million to a loss of US$44.6 million

 

 

Loss for the financial year ended 31 December 2019 as disclosed in the 2019 Annual Report					(38,612)
Restatement of loss on equity accounted investments					(6,010)
Restated loss for the financial year ended 31 December 2019					(44,622)

 

 

Basic and diluted loss per ordinary share (cent)

 

Basic and diluted loss per ordinary share (cent) for the financial year ended 31 December 2019 as disclosed in the 2019 Annual Report									(8.28)
Restatement of basic and diluted loss per ordinary share (cent) attributable to increase in loss on equity accounted investments					(1.29)
Restated basic and diluted loss per ordinary share (cent) for the financial year ended 31 December 2019					(9.57)

 

 

 

Statement of Financial Position:

The impact of the restatement has resulted in lower Equity accounted investments.

 

Equity accounted investments as at 31 December 2019 as disclosed in the 2019 Annual Report					51,866
Restatement of 2018 loss on equity accounted investments					(1,058)
Restatement of 2019 loss on equity accounted investments					(6,010)
Restated Equity accounted investments for the financial year ended 31 December 2019					44,798

 

Cash flow statement:

The impact of the restatement has resulted in lower Equity accounted investments.

 

Share of loss of equity-accounted investments for the ended 31 December 2019 as disclosed in the 2019 Annual Report					(3,204)
Restatement of loss on equity accounted investments					(6,010)
Restated share of loss of equity-accounted investments for the financial year ended 31 December 2019					(9,214)

 

 

(ii) Energy Link Infrastructure (Malta) Limited

 

In August 2020 the Company acquired a 10% non-controlling interest in ELI (Malta) Limited (See Note 8(ii)). The movement during 2020 reflects a share of the loss of ELI being sales income of US$5.7 million, other income of US$0.1 million, cost of sales of US$4.9 million and operating expenses including administrative costs of 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.

 

 

 

7. Financial assets - Company

 

	2020 US$'000	2019 US$'000
Investment in subsidiary undertakings at cost:
Balance at beginning and end of year	31,539	31,539

 

San Leon Energy Nigeria B.V. holds the equity interest in MLPL. As per Note 6(i), the Group identified potential impairment indicators with respect to the equity interest. These same indicators are also impairment indicators for the Company's holding in San Leon Energy B.V. The same tests as detailed in Note 6(i) were carried out to assess the carrying value of the Company's investment in its subsidiary and the analysis identified that the carrying value of the investment in MLPL is not impaired.

 

At 31 December 2020, the Company had the following principal subsidiaries, all of which are wholly owned through holding all of the issued ordinary shares of the entities:

 

 

Name	Registered Office	Principal Activities	Country of Incorporation
Directly held:
San Leon Energy B.V.	de Ronge 16,	Holding company	Netherlands
	1852 XB Heiloo
	The Netherlands
San Leon Services Limited	12 Castle Street	Service company	Jersey
	St. Helier
	Jersey
	JE2 3RT
San Leon Energy Nigeria B.V.	de Ronge 16,	Holding company	Netherlands
	1852 XB Heiloo
	The Netherlands
San Leon Energy Financing Limited	2 Shelbourne Buildings,	Financing company	Ireland
	Crampton Avenue
	Shelbourne Road,
	Ballsbridge,
	Dublin 4
San Leon Holdings Limited	27/28 Eastcastle Street,	Holding company	England
	London,
	England,
	W1W 8DH
Indirectly held:
San Leon Nigeria Limited	No. 801,	Service company	Nigeria
	Eden Heights,
	6 Elsie Femi Pearse Street,
	Victoria Island
	Lagos,
	Nigeria
San Leon Energy (UK) Limited	27/28 Eastcastle Street,	Service company	England
	London,
	England,
	W1W 8DH
San Leon Energy Eli Limited	27/28 Eastcastle Street,	Holding company	England
	London,
	England,
	W1W 8DH
San Leon Energy Oza Limited	27/28 Eastcastle Street,	Holding company	England
	London,
	England,
	W1W 8DH

 

A full list of subsidiaries will be annexed to the Annual Report of the Company to be filed with the Irish Registrar of Companies.

 

 

 

 

8. Financial Assets

Group	OML 18 (i) US$'000	ELI (ii) US$'000	Barryroe 4.5% net profit interest (iii) US$'000	Unquoted shares (iv) (viii) US$'000	Total US$'000
	Amortised cost	Amortised cost	FVTPL	FVOCI - equity  instrument
Cost / Valuation
At 1 January 2019	134,187	-	51,142	2,625	187,954
Finance income	23,313	-	-	-	23,313
Loan Notes receipts - principal	(23,361)	-	-	-	(23,361)
Loan Notes receipts - interest	(19,885)	-	-	-	(19,885)
Impairment of unquoted shares, Other comprehensive income	-	-	-	(2,625)	(2,625)
Additions (viii)	-	-	-	194	194
Fair value movement, Income statement	-	-	(48,373)	-	(48,373)
At 31 December 2019	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
Expected Credit Loss Provision
At 1 January 2019 and 31 December 2019		-	-	-	-
New financial asset acquired *		(385)	-	-	(385)
At 31 December 2020		(385)	-	-	(385)
# See OML18 ECL table below * See ELI ECL table below
Expected Credit Loss - OML 18		Performing 12-month ECL	Higher risk assets not credit impaired Lifetime ECL	Credit impaired Lifetime ECL	Total
At 1 January 2019		-	(5,467)	-	(5,467)
Net remeasurement of loss allowance		-	3,465	-	3,465
At 31 December 2019		-	(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)

 

 

Expected Credit Loss - ELI		Performing 12-month ECL	Higher risk assets not credit impaired Lifetime ECL	Credit impaired Lifetime ECL	Total
At 1 January 2019 and 31 December 2019		-	-	-	-
New financial assets originated		(385)	-	-	(385)
At 31 December 2020		(385)	-	-	(385)
	OML 18 (i) US$'000	ELI (ii) US$'000	Barryroe 4.5% net profit interest (iii) US$'000	Unquoted shares (iv) (viii) US$'000	Total US$'000
	Amortised cost	Amortised cost	FVTPL	FVOCI - equity  instrument
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
Book value at 31 December 2019	112,252	-	2,769	194	115,215
Current	112,252	-	-	-	112,252
Non-current	-	-	2,769	194	2,963

 

Net Profit Interests (Poznan, v) (Gora, vi) (Liesa, vii): These NPIs have a nil value from acquisition.

 

 

 

 

Company	OML 18 (i) US$'000	Barryroe 4.5% net profit interest (iii) US$'000	Unquoted shares (iv) US$'000	Total US$'000
	Amortised cost	FVTPL	FVOCI - equity  instrument
Cost / Valuation
At 1 January 2019	134,187	51,142	2,625	187,954
Finance income	23,313	-	-	23,313
Loan Notes receipts - principal	(23,361)	-	-	(23,361)
Loan Notes receipts - interest	(19,885)	-	-	(19,885)
Impairment of unquoted shares	-	-	(2,625)	(2,625)
Fair value movement, Income statement	-	(48,373)	-	(48,373)
At 31 December 2019	114,254	2,769	-	117,023
Finance income	16,480	-	-	16,480
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	-	-	-	-
Fair value movement, Income statement	-	4,073	-	4,073
At 31 December 2020	68,925	6,842	-	75,767
Expected Credit Loss Provision
At 1 January 2019, 31 December 2019 and 31 December 2020		-	-	-
# See OML18 ECL table below
Expected Credit Loss - OML 18	Performing 12-month ECL	Higher risk assets not credit impaired Lifetime ECL	Credit impaired Lifetime ECL	Total
At 1 January 2019	-	(5,467)	-	(5,467)
Net remeasurement of loss allowance	-	3,465	-	3,465
At 31 December 2019	-	(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)
Company	OML 18 (i) US$'000	Barryroe 4.5% net profit interest (iii) US$'000	Unquoted shares (iv) US$'000	Total US$'000
	Amortised cost	FVTPL	FVOCI - equity  instrument
Book value at 31 December 2020	68,925	6,842	-	75,767
Current	68,925	-	-	68,925
Non-current	-	6,842	-	6,842
Book value at 31 December 2019	112,252	2,769	-	115,021
Current	112,252	-	-	112,252
Non-current	-	2,769	-	2,769

 

(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:

 

Valuation technique	Significant unobservable inputs*	Inter-relationships between the unobservable inputs and fair value measurements
Discounted cash flows	·  Discount rate 25% based on a market rate of interest of 8% above the coupon rate of 17% ·  MLPL ability to generate cash flows for timely repayment ·  Loan Notes are repayable in full by 31 December 2021 (2019: 30 September 2020).	Nil
*Day 1 and considered appropriate at 31 December 2020.

 

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 31 of Annual Report and Accounts. 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. The outstanding loan will continue to have an annual coupon rate of 17% and an effective interest rate of 25% per annum until repaid. All other material terms of the Loan Notes Instrument remain 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.

 

During 2020 San Leon received total payments under the Loan Notes of US$46.5 million (2019: US$43.2 million). The payments received during 2020 represent principal of US$35.3 million (2019: US$23.3 million) and interest of US$11.2 million (2019: US$19.9 million)) on the Loan Notes repaid. As at 31 December 2020 there was US$84.2 million in principal and interest (2019: US$114.3 million), due under the Loan Notes. As at 31 December 2020, US$5.0 million was outstanding from the US$10.0 million due to be repaid on 6 October 2020. Since then, US$0.8 million of the balance outstanding has been received.

 

The Directors of San Leon have considered the credit risk of the Loan Notes at 31 December 2019 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 a provision for the lifetime expected credit loss of the Loan Notes had been recognised. In 2020, issues such as the impact of the Covid-19 pandemic on the global economy, the volatility in oil prices and demand, OPEC quotas, and recent operational challenges experienced by OML 18 resulted in a significant loss being recorded in MLPL at 31 December 2020. This, along with ongoing production issues at the field has impacted the financial strength of MLPL, particularly in respect of short term liquidity.

 

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, and is now considered to have increased further during the year ended 31 December 2020.

 

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. 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. As a result, the credit risk has been determined to have increased since 31 December 2019 and the Loan Notes are now considered to be impaired. In previous periods an annualised expected credit loss of 3.11% was applied to the amount outstanding on the Loan Notes. This rate was determined on the basis of long-term historical default rates of loans originated in similar geography and industry. A default rate determined by reference to historical default rates has been determined to be less appropriate in the current environment as a result of the uncertainty created by the Covid-19 pandemic and ongoing operational issues. In addition, the change in profile of the repayments due under the Loan Notes, arising as a result of the amendments to the Loan Notes agreed in April 2020, means that an expected default risk taking into account the timing of the payments is now also appropriate. 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 late payment 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. This has then been compared to publicly available macroeconomic data of default rates by geography and industry.

 

As at 31 December 2020 the Loan Notes are considered credit impaired. The expected credit loss of US$15.3 million (2019: US$2.0 million) has been presented net with the amortised cost of the Loan Notes.

 

*Refer to Alternate Performance Measures for full reconciliation of IFRS numbers and Alternative Performance Measures.

 

 

 

(ii) Energy Link Infrastructure (Malta) Limited

In August 2020, the Company acquired an indirect economic interest in the Alternate Crude Oil Evacuation System ("ACOES") project.

 

The interest was acquired through the direct investment in Energy Link Infrastructure (Malta) Limited ("ELI"), 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. 

 

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. 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:

 

Valuation technique	Significant unobservable inputs*	Inter-relationships between the unobservable inputs and fair value measurements
Discounted cash flows	·  Discount rate 16% based on a market rate of interest of 2% above the coupon rate of 14% ·  ELI ability to generate cash flows for timely repayment ·  Loan Notes are repayable in full by 6 October 2024.	Nil
*Day 1 and considered appropriate at 31 December 2020.

 

The intention for the ELI loan is to hold to collect.

 

The credit risk is managed via various undertakings, such as representations, warranties and covenants and the ability for a preferential distribution should some warranties be breached. These are described further in Note 31 of the Annual Report and Accounts. 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 on 31 July 2021.

 

During 2020 San Leon was not due any contractual repayments of the Loan Notes. As at 31 December 2020 there was US$15.4 million in principal and interest, due under the Loan Notes.

 

The Directors of San Leon have considered the credit risk of the Loan Notes at 31 December 2020. Both tranches of the Loan Notes were issued in H2 2020, with a one year repayment holiday. The first repayment due is on 31 July 2021 and therefore the Loan Notes are currently in good standing. Despite some project delays due to the impacts of Covid-19, it is not expected that that this would impact the ability of ELI to make Loan Note repayments, with current projections indicating that all debt will be serviced in accordance with contract expectations. The Directors do not consider the credit risk has significantly increased since initial recognition, and a provision for a 12-month expected credit loss of the Loan Notes has been recognised.

 

In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the expected credit loss and, this has been assessed as not having increased significantly since initial recognition. A factor that has been considered to reduce overall credit risk is a guarantee from ELI Nigeria, who guarantee all payment obligations of ELI Malta.

 

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 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 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$0.4 million, being 2.6% of the balance at acquisition 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.

 

The 2020 announcements by Providence in relation to Standard Exploration Licence 1/11 which contains the Barryroe oil accumulation indicated that a partner for the project had been found, which had reduced project risk around both funding and timing of the potential development of the asset. 

 

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 increase the Barryroe carrying value by US$4.0 million (2019: impairment of US$48.4 million) to US$6.8 million to reflect their estimate of the impact of these risks to the future cash flows on the value of the asset.

 

The key information relevant to the fair value of the Barryroe 4.5% net profit interest is as follows:

 

Valuation technique	Significant unobservable inputs	Inter-relationships between the unobservable inputs and fair value measurements
Market based approach using share price of Operator (Providence)	·  Estimated value of NPI as percentage of total field NPV 9.5% (2019: 9.5%)	The estimated fair value would increase / (decrease) if:   ·  US Dollar exchange rate increased / (decreased)

 

(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 2020 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$Nil (2019: US$Nil).

 

(v) Poznan 10% Net Profit Interest

In 2016, San Leon sold its 35% interest in the Poznan assets for a consideration of €1 plus a 10% NPI. Until active development commences a nil value has been placed on the NPI. There has been no change in 2020.

 

(vi) Gora 5% Net Profit Interest

In 2018, San Leon sold its interest in the Gora assets for a consideration of €1 plus a 5% NPI. Until active development commences a nil value has been placed on the NPI. There has been no change in 2020.

 

(vii) Liesa 5% Net Profit Interest

In 2018, San Leon sold its interest in the Liesa assets for a consideration of €1 plus a 5% Net Profit Interest ("NPI"). Until active development commences a nil value has been placed on the NPI. There has been no change in 2020.

 

(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.

 

(ix) Amedeo Resources plc

At 31 December 2020, the Company holds 213,512 ordinary shares at a market value of US$Nil (2019: US$Nil). The value of the investment was written down to nil in 2018 due to the shares of Amedeo Resources plc being de-listed.

 

 

9. Subsequent events

MLPL Loan Note

 

The Company has received US$0.8 million in Loan Note repayments since 31 December 2020.

 

Barryroe NPI

 

On 22 April 2021, Providence Resources plc announced that the farmout agreement with SpotOn Energy for the Barryroe Licence had been terminated due to SpotOn Energy's inability to secure financing. Providence are now progressing arrangements for an alternative funding package to finance 100% of the costs for the early development scheme of the Barryroe Licence.

 

Since this announcement the share price of Providence has materially reduced compared to the price quoted at 31 December 2020 which was used as a key input in the valuation of the Company's 4.5% NPI in Barryroe. Should the share price remain materially lower than at half year reporting, the carrying value of the Barryroe NPI will likely be impaired.

 

Appointment of new Director

 

On 7 May 2021, John Brown was appointed to the Board as an Independent Non-Executive Director.

 

Resignation of Director

 

On 7 May 2021, Alan Campbell stepped down from the Board as an Executive Director.

 

Property owned by Mr. Oisín Fanning

 

In June 2021, the Company signed a licence with Mr. Oisín Fanning to use the property previously disclosed in Note 31 of the Annual Report and Accounts for office space. The monthly rent payable is on average US$32,000.

 

ELI - additional investment

 

On 24 June 2021, the Company announced a conditional investment of US$2.0 million and an option to conditionally invest a further US$6.5 million in the equity of ELI. The equity being conditionally purchased and the equity that may be purchased via the option are existing equity interests in ELI owned by Walstrand (Malta) Limited, ELI's largest shareholder.

 

 

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 is considering making further debt and equity investments in ELI.

 

Elements of the above transactions would constitute a reverse takeover under rule 14 of the AIM Rules for Companies.

 

San Leon and Midwestern are in discussions for the Company to acquire the remaining 60% equity interest in MLPL from Midwestern. The consideration for this would be satisfied by the issuance of a substantial number of new ordinary shares in San Leon to Midwestern such that Midwestern would become the majority shareholder of San Leon.

 

The proposed transaction is at a very early stage and will therefore be subject to a number of factors, including, inter alia, the completion of due diligence, negotiation of transaction documentation, regulatory approvals, a "whitewash" under the Irish Takeover Rules and shareholder approval. As such, there is no certainty that the transaction will proceed nor any certainty regarding the terms on which they would proceed.

 

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.

 

Suspension of trading

 

As the transactions would constitute a reverse takeover under rule 14 of the AIM Rules, these will be subject, inter alia, to the approval of San Leon's shareholders. As such, a further announcement including, inter alia, full details of the transactions will be issued at the appropriate time once binding contracts are entered into and an AIM admission document published and sent to San Leon's shareholders with a notice of general meeting.

 

In accordance with rule 14 of the AIM Rules, the Company's ordinary shares were suspended from trading on AIM on 24 June 2021. The Company's ordinary shares will remain suspended until such time as either an AIM admission document is published or an announcement is released confirming that the relevant transactions are not proceeding.

 

 

 

10. Share capital - Group and Company

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 New Ordinary shares €0.01 each	Number of Deferred Ordinary shares €0.0001 each	Authorised Equity US$'000
Authorised equity
At 1 January 2019	2,847,406,025	1,265,259,397,525	177,475
At 31 December 2019	2,847,406,025	-	177,475
At 31 December 2020	2,847,406,025	-	177,475

 

Issued, called up and fully paid:

	Number of New Ordinary shares €0.01 each	Number of Deferred Ordinary shares €0.0001 each	Share capital US$'000	Share premium US$'000
At 1 January 2019	500,256,857	1,265,259,397,525	150,600	478,666
Issue of shares in lieu of salary (i)	5,590,270	-	63	2,036
Exercise of share options (ii)	250,000	-	3	96
Reduction of capital	-	(1,265,259,397,525)	(144,871)	(459,721)
Tender offer	(50,475,000)	-	(576)	-
Share buybacks	(4,319,113)	-	(47)	-
At 31 December 2019	451,303,014	-	5,172	21,077
Share buybacks	(1,389,988)	-	(15)	-
At 31 December 2020	449,913,026	-	5,157	21,077

 

 

(i) On 25 February 2019, 5,590,270 ordinary shares were issued to Oisín Fanning in lieu of 80% of his salary due to him for the period 1 September 2016 to 30 September 2018.

 

(ii) On 20 March 2019, the Company issued and allotted 250,000 New Ordinary Shares of €0.01 each in respect of options exercised. The options were exercised at a price of £0.30 (US$0.39) per share.

 

 

 

 

Reduction of Capital

 

On 8 February 2019, the Company obtained local statutory approval to cancel all the Deferred Shares of €0.0001 each, this resulted in the release of Share Capital of US$144.9 million, Share Premium of US$459.7 million, a required Special Reserve of US$5.0 million and an increase in retained earnings of US$599.0 million.

 

Tender offer

 

On 22 March 2019 the Company announced the result of the Tender Offer, being an offer by the Company to purchase shares from shareholders at 46p per share set out in the shareholder circular published by the Company on 20 February 2019 (the "Circular").

 

The maximum number of Ordinary Shares authorised by shareholders under the Tender Offer, being 50,475,000 Ordinary Shares, was acquired for a total cost of US$30.5 million. This represented approximately 9.97% of the issued ordinary share capital of the Company, at the date of the announcement.

 

The Tender Offer was oversubscribed, with a total of 81,177,508 Ordinary Shares validly tendered by Qualifying Shareholders. Qualifying Shareholders who tendered Ordinary Shares equal to or less than their Individual Basic Entitlement had their tender accepted in full. Qualifying Shareholders who validly tendered in excess of their Individual Basic Entitlement had their tender accepted in respect of their Individual Basic Entitlement (being approximately 9.97% of their shareholding) plus approximately 50.23% of the number of Ordinary Shares in excess of their Individual Basic Entitlement that they validly tendered.

 

All proceeds payable under the Tender Offer to the Company's shareholders were transferred to Computershare on 23 March 2019 for distribution to the shareholders.

 

As set out in the Circular, the Ordinary Shares were purchased by Cantor Fitzgerald Europe pursuant to the Tender Offer and the Company purchased such Ordinary Shares from Cantor Fitzgerald Europe under the terms of the Repurchase Agreement described in the Circular.

 

The Company cancelled the Ordinary Shares purchased by it under the Repurchase Agreement, reducing the number of Ordinary Shares in issue from 506,097,127 Ordinary Shares to 455,622,127 Ordinary Shares (the "Cancellation").

 

Share buyback programme

 

On 18 October 2019 the Company announced that, pursuant to the shareholder resolutions passed on 27 September 2019 at the Annual General Meeting, it planned to acquire ordinary shares of EUR 0.01 nominal value each ("Ordinary Shares"), up to a total value of US$2.0 million (the "Buyback Programme"). In accordance with the shareholder resolutions, the Company is proposed to acquire the Ordinary Shares at a maximum price of the greater of (i) 105% of the average market price of such shares for the previous five days and (ii) the higher of the price quoted for the last independent trade and the highest current independent bid or offer for such shares.

 

Ordinary Shares acquired as a result of the Buyback Programme were cancelled. The Buyback Programme was funded from the Company's cash balances.

 

At 31 December 2019 Company had repurchased 4,319,113 Ordinary Shares at an aggregate value of US$1.5 million. Following cancellation of the shares repurchased to 31 December 2019, the total number of Ordinary Shares in issue with voting rights was 451,303,014.

 

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 £1,570,085.49. Following cancellation of the final shares repurchased, the total number of Ordinary Shares in issue with voting rights was 449,913,026.

 

 

 

ALTERNATIVE PERFORMANCE MEASURES

The Group monitors the par value of the Loan Notes, which is a non-IFRS measure.

 

The Group believes that the disclosure of the par value of the Loan Notes will assist investors in evaluating the performance of the underlying Loan Notes. Given that these cash metrics are used by management, they also give the investor an insight into how the Group management review and monitor the Loan Notes on an ongoing basis.

 

A reconciliation from the value of the OML 18 Loan Notes under IFRS 9, excluding expected credit losses, and the par value is provided below: 

 

	IFRS 9 Amortised Cost US$'000	IFRS 9 Adjustment US$'000*	Par value US$'000
Loan Notes at 31 December 2019	114,254	4,494	118,748#
Interest accrued on Loan Notes (1 January 2020 to 6 April 2020)	6,783	(1,886)	4,897
Cash receipts (1 January 2020 to 6 April 2020)	(41,500)	-	(41,500)
Loan Notes at 6 April 2020	79,537	2,608	82,145
Interest accrued on Loan Notes (7 April 2020 to 31 December 2020)	9,697	595	10,292
Cash receipts (7 April 2020 to 31 December 2020)	(5,000)	-	(5,000)
Loan Notes at 31 December 2020	84,234	3,203	87,437^
Interest accrued on Loan Notes (1 January 2021 to 18 June 2021)	8,961	(2,496)	6,465
Cash receipts (1 January 2021 to18 June 2021)	(750)	-	(750)
Loan Notes at 18 June 2021	92,445	707	93,152

*The effective interest rate is 25% and the coupon rate is 17% (Note 8)

# Made up of capital balance of US$108.4 million and accrued interest of US$10.3 million

^ Made up of capital balance of US$82.1 million and accrued interest of US$5.3 million

 

 

A reconciliation from the value of the ELI Loan Notes under IFRS 9, excluding expected credit losses, and the par value is provided below: 

 

	IFRS 9 Amortised Cost US$'000	IFRS 9 Adjustment US$'000*	Par value US$'000
Loan Notes at 31 December 2020	15,353	399	15,752^
Interest accrued on Loan Notes (1 January 2021 to 18 June 2021)	1,092	(120)	972
Cash receipts (1 January 2021 to 18 June 2021)	-	-	-
Loan Notes at 18 June 2021	16,445	279	16,724

*The effective interest rate is 16% and the coupon rate is 14% (Note 8)

^ Made up of capital balance of US$15.0 million and accrued interest of US$0.8 million

 

 

 

Glossary

 

 

2C                                         Best estimate of Contingent Resources

1P                                          Proven Reserves

2P                                          Proven plus Probable Reserves

3P                                          Proven plus Probable plus Possible Reserves

AIM                                        The London Stock Exchange's AIM market

AIM Rules                             AIM Rules for Companies

BCF or bcf                            Billion cubic feet

Bilton                                    Bilton Energy Limited

B.V.                                        Dutch private limited company

BVI                                         British Virgin Islands

CPR                                       Competent Person's Report

Eroton                                   Eroton Exploration and Production Company Limited

US$'000                                 United States Dollars, thousands

ESM                                       European Stability Mechanism

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

'm                                           Millions

Martwestern                         Martwestern Energy Limited

Midwestern                           Midwestern Oil and Gas Company Limited

MLPL                                     Midwestern Leon Petroleum Limited

MSA                                       Master Services Agreement

mmbbL                                  Million barrels

Nomad                                   A company that has been approved as a nominated advisor for AIM by the London Stock Exchange

NNPC                                     Nigerian National Petroleum Corporation

NPI                                         Net Profit Interest

PLC                                        A publicly held company

San Leon or the Company  San Leon Energy PLC

SEDA                                     Standby Equity Distribution Agreement

Sp. z o.o.                               Polish limited liability company

Sp. z o.o. sp.k                       Polish LLP

SPV                                        Special purpose vehicle