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15 February 2022

San Leon Energy plc

("San Leon" or the "Company")

Further loan to, and acquisition of an equity interest in, Nigerian Oil Export System

San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, is pleased to announce that it has provided a further loan of US$2.0 million (the "Loan") to Energy Link Infrastructure (Malta) Limited ("ELI"), the company which owns the Alternative Crude Oil Evacuation System ("ACOES") project. As previously announced, the ACOES is being constructed to provide a dedicated oil export route from the OML 18 oil and gas block located onshore in Nigeria ("OML 18"), comprising a new pipeline from OML 18 and a floating storage and offloading vessel ("FSO"). Once commissioned, the system is expected by the operator of OML 18, Eroton Exploration and Production Company Limited ("Eroton"), to reduce the downtime and allocated pipeline losses currently associated with the Nembe Creek Trunk Line. In addition, it is anticipated that the FSO project will improve overall well uptime at OML 18. 

Oil export barging operations from OML 18 commenced in late September 2021 (while awaiting availability of the pipeline).  To date, oil volumes being barged have been small, reflecting lower production at OML 18 and with the purpose of the barging being primarily to test the new processes.  Barging has been to smaller storage vessels prior to offloading to the FSO.  The full ACOES, including the pipeline, is currently expected by Eroton to be fully operational in the third quarter of 2022.

The Loan is a US$2.0 million shareholder loan at a coupon of 14% per annum over four years which is repayable quarterly following a one-year moratorium from the date of investment.  The Loan will be accompanied by a transfer to San Leon by Walstrand (Malta) Limited, ELI's largest shareholder, of shares in ELI representing a 2.0% equity interest (the "ELI Equity Interest"), which San Leon will acquire at nominal value, representing a consideration payable of approximately US$91.

The Loan will be used by ELI to facilitate a recent funding requirement to allow for completion of the mooring for the floating storage and offloading vessel, which the Board considers to be a critical step in the progression of the ACOES project. Providing loans to Nigerian oil and gas related projects, which are often accompanied by associated equity interests, has been a key part of San Leon's business and strategy in recent years.  San Leon has had debt and equity interests in ELI since August 2020 and, given the longer-term ongoing strategic importance of ELI's ACOES project to OML 18, the Board believes that it is important for San Leon to assist ELI with the funding requirements for achieving its key project milestones on a timely basis.

Accordingly, the Loan and the ELI Equity Interest are distinct and separate to the proposed further debt and equity investments in ELI that are connected to the transaction as originally described by the Company in its announcement on 24 June 2021, the progress of which was most recently described in the Company's announcement of 24 December 2021, being the proposed reorganisation to consolidate Midwestern Oil and Gas Company Limited's ("Midwestern") shareholdings in the Company and Midwestern Leon Petroleum Limited ("MLPL") into a single shareholding in the Company (the "Potential Transaction"), which also comprises, inter alia, a proposed consolidation of Midwestern's indirect debt and equity interests in ELI with those of the Company, as well as further new debt and new equity investments to be made by San Leon in ELI.  Work on the Potential Transaction, which will be classified as a reverse takeover under the AIM Rules for Companies, is ongoing.

Taken together with San Leon's existing investment in ELI and its conditional purchase of 1.323% of ELI (calculated prior to the newly-issued shares of today's announcement), as announced last year, following completion of the conditional purchase, San Leon's holding in ELI will be 13.323%. Also as announced last year, San Leon has an option to conditionally purchase a further 4.302% of ELI for US$6.0 million.  Furthermore, the effect of the Potential Transaction will be to increase San Leon's interest in ELI further. Consequently, the 2.0% ELI Equity Interest that San Leon is receiving now in conjunction with the Loan is subject to anti-dilutive protection, whereby San Leon will be issued with further shares in ELI to maintain that percentage holding should the effect of the Potential Transaction be to in any way dilute this tranche of shares.

San Leon has now lent a total of US$17.0 million to ELI with a coupon of 14% per annum and from which repayment installments totaling US$6.0 million are now due.  As announced on 9 August 2021, the Company has previously agreed with ELI that, should new investments in ELI be made, then loan repayment installments would be offset from any investment monies payable to ELI by San Leon under these new arrangements.  The Company has elected not to enforce this provision on this occasion, in recognition of the fact that ELI's development is critical to the success of OML 18 and ELI's cash balances at this time are required to progress the overall ACOES project.  San Leon will continue to waive repayment installments due on its loans until the ACOES project has been further progressed and outstanding installments will continue to accrue interest at 14% per annum. 

Under the terms of ELI's senior debt facility, the lender has a charge over all of ELI's assets and, as further security, each shareholder (including San Leon) has pledged their shares to the lender. The ELI shares comprising the ELI Equity Interest will be subject to this pledge.  The terms of the pledge are that the ELI shares cannot be transferred or otherwise utilised without the lender's consent.

ELI's audited accounts for the year ended 31 December 2020 state that the company made a loss before tax of approximately US$4.4 million on revenue of approximately US$5.7 million and reported total assets of approximately US$198.7 million.  Two of San Leon's directors are currently appointed to ELI's board.

Oisin Fanning, CEO of San Leon Energy, commented:

"As our shareholders know, we have long considered ELI and the new ACOES pipeline to be critical to the success of OML 18 and so it is pleasing to be able to provide this Loan to ELI to advance an important stage of that key project.  The fact that we have been able to make this investment utilising cash received from our settlement in the legal proceedings with TAQA Offshore BV is particularly beneficial, both for our cash flows and for our risk profile, as we seek to progress our reverse takeover transaction."

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