Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information for the purposes of Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.

29 April 2022

San Leon Energy plc

("San Leon" or the "Company")

Further update on the potential transaction

San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, provides the following update on the proposed reorganisation to consolidate Midwestern Oil and Gas Company Limited's ("Midwestern") shareholdings in: i) the Company; and ii) Midwestern Leon Petroleum Limited ("MLPL") into a single shareholding in the Company (the "Potential Transaction"). The Potential Transaction also comprises, inter alia, a proposed consolidation of Midwestern's indirect debt and equity interests in Energy Link Infrastructure (Malta) Limited ("ELI") with those of the Company, as well as further new debt and new and existing equity investments to be made by San Leon in ELI. The Potential Transaction, if concluded, would be classified as a reverse takeover under the AIM Rules for Companies (the "AIM Rules").

AIM admission document update

Further to the Company's announcement on 28 February 2022, the Company now currently expects to publish an AIM admission document (the "Admission Document") in respect of the Potential Transaction by 24 June 2022 at the latest, following which point the Company will seek the restoration of trading of its ordinary shares on AIM. 

Proposed Eroton Transaction

On 29 November 2021, San Leon announced that, inter alia, it had been informed that the operator of the OML 18 oil and gas block located onshore in Nigeria ("OML 18"), Eroton Exploration and Production Company Limited ("Eroton"), is seeking to acquire an additional 18% interest in OML 18 from two of the other partners in OML 18, subject, inter alia, to: i) agreeing documentation; ii) finalising bank financing; and iii) receiving the relevant regulatory consents in Nigeria, thereby taking Eroton's interest in OML 18 to 45% (the "Proposed Eroton Transaction").

As previously noted in the Company's announcement of 28 February 2022, completion of the Potential Transaction is conditional upon completion of the Proposed Eroton Transaction. The entering into binding conditional transaction documentation in relation to the Proposed Eroton Transaction is contingent, inter alia, on Eroton's financing of this transaction which is expected to form part of a refinancing of OML 18's reserve-based lending facilities.  In that regard, it was also announced on 28 February 2022 that Eroton have received a term sheet in relation to a reserve-based lending facility, totaling US$750,000,000 (the "Proposed Eroton Debt Facilities"), which is proposed to be lent by a financing syndicate led by African Export-Import Bank ("Afrexim"). San Leon has been provided with an update on the progress of the funding for the Proposed Eroton Transaction and has been advised that significant progress has been made with this financing syndicate, with key milestones being achieved.

Further progress in relation to the Proposed Eroton Debt Facilities remains subject to, amongst other matters, definitive documentation and ELI successfully demonstrating the barging of oil to the floating storage and offloading vessel ("FSO") through part of the Alternative Crude Oil Evacuation System ("ACOES") project, to the off-taker's satisfaction which is expected to be met in May 2022, following receipt of the necessary Nigerian regulatory maritime approvals.  Given the level of recent activity by ELI, similar to the loan provided to ELI by San Leon as announced on 15 February 2022, the Board has made ELI aware that should it have financing needs in coming months to progress critical steps in relation to the ACOES project, then the Board are open to considering SLE making additional loans to ELI.  Should such loans be required it is expected that these will be separate, distinct and not conditional on the Potential Transaction.

Following this, San Leon understands that Eroton and the financing syndicate intend to seek to finalise the Proposed Eroton Debt Facilities in order to allow for binding conditional transaction documentation in relation to the Proposed Eroton Transaction to be concluded as soon as may be practicable.  San Leon understands that the proposed binding conditional transaction documentation is making progress toward being in agreed form.

Separate to the Proposed Eroton Debt Facilities, part of San Leon's potential new debt and new equity investments in ELI are expected to require financing, which the Board currently expects to be provided by way of a new loan to San Leon (the "Proposed New San Leon Loan Facility").  The Company is engaging with prospective lenders in this respect.

Potential Transaction update

As previously announced in relation to the Potential Transaction, progress has been made by the Company and its advisers in preparing the necessary transaction documentation in relation to the Potential Transaction, including work on progressing the Admission Document, which is now in developed form, given that the Potential Transaction will be classified as a reverse takeover under the AIM Rules for Companies (the "AIM Rules").  The Company intends for the Admission Document to include audited financial information for the three years to 31 December 2021 in relation to MLPL and ELI and the process for compiling this audited historical financial information is now underway, as is the San Leon audit for the same period.

The draft conditional reorganisation agreement to be entered into between: (i) the Company; (ii) Midwestern; and (iii) MLPL, to effect the acquisition of the outstanding shares not already owned by San Leon in relation to MLPL and Midwestern's indirect debt and equity interests in ELI, as part of the Potential Transaction, continue to remain, inter alia, subject to finalisation of the precise position in relation to its conditions precedent in respect of regulatory consents in Nigeria and San Leon obtaining the requisite financing for the Potential Transaction, pursuant to the Proposed New San Leon Loan Facility.  The Company and Midwestern continue to receive advice in relation to the relevant process here, in order to best reflect this in a finalised version of this agreement. 

As previously announced, as part of the Potential Transaction, San Leon would increase its indirect economic interest in Eroton from 39.2% to 98.0% and, taking into account the completion of the Proposed Eroton Transaction, San Leon's initial indirect economic interest in OML 18 would increase from the current 10.58% to 44.1%. 

In accordance with Rule 14 of the AIM Rules, the Company's ordinary shares will remain suspended from trading on AIM until such time as either the Admission Document is published or the Company announces that the Potential Transaction is no longer proceeding.

The announcement of binding agreements in relation to the Potential Transaction remains subject to a number of factors, including, inter alia, the completion of due diligence, the negotiation and the execution of binding contractual documentation, including the Proposed New San Leon Loan Facility and would be accompanied by the publication of the Admission Document.  Among other things, completion of the Potential Transaction is expected to be subject to various regulatory consents, completion of the Proposed Eroton Transaction, including the proposed Eroton Debt Facilities, a reorganisation of Midwestern's indirect equity and debt interests in ELI and the approval of San Leon's shareholders. Given the need for financing, binding contractual documentation and applicable regulatory consents, it remains the case that there can be no guarantee at this stage that the Potential Transaction or the Proposed Eroton Transaction will be entered into or, if entered into, will complete.

Further extension of the Conditional Payment Waiver in relation to the MLPL Loan Notes

In relation to the outstanding loan notes due from MLPL (the "Loan Notes"), further to the announcement on 28 February 2022, San Leon has agreed with MLPL, Midwestern and Martwestern (as defined below) to a further extension of the Conditional Payment Waiver to 24 June 2022 or, if sooner, the termination of discussions or the signing of an agreement to effect the Potential Transaction (but otherwise on the same terms as the waiver announced on 7 July 2021), in relation to three instalments that were originally due to be repaid on 5 July 2021, 30 September 2021 and 31 December 2021 (the "Extended Conditional Payment Waiver"). Interest continues to accrue on the principal amounts waived whilst the Extended Conditional Payment Waiver is in effect.  As at 28 April 2022, the Extended Conditional Payment Waiver relates to US$103.8 million, being a principal amount due of US$82.2 million and total accrued interest due of US$21.6 million, which will be payable 90 days after such expiry, save for, inter alia, if there is an event of default.

MLPL is part of the structure through which San Leon holds its current 10.58% indirect economic interest in OML 18.  San Leon currently has a 40% equity interest in MLPL with the remaining interest in MLPL currently being owned by Midwestern. Midwestern is also the guarantor of the Loan Notes.  MLPL has a 100% equity investment in Martwestern Energy Limited ("Martwestern"), which in turn has a 98% economic interest in Eroton, which currently holds a 27% working interest in OML 18 and is its operator.

As previously announced, it is expected that, inter alia, as part of the Potential Transaction, the amounts owed to San Leon by MLPL pursuant to the Loan Notes will be taken into account in the overall structure and eliminated from the resulting structure.

Related party transaction disclosure

Midwestern and MLPL are related parties of the Company for the purposes of the AIM Rules by virtue of Midwestern holding more than 10% of the existing Ordinary Shares in the Company and the level of Midwestern's current interest in MLPL. The Extended Conditional Payment Waiver is therefore a related party transaction under the AIM Rules. The Directors of San Leon (excluding Adekolapo Ademola who is not considered to be independent as he is a representative of Midwestern on the Company's board) consider, having consulted with the Company's nominated adviser, Allenby Capital Limited, that the terms of the Extended Conditional Payment Waiver are fair and reasonable insofar as the Company's shareholders are concerned.

Oisin Fanning, CEO of San Leon, commented:

"We believe that OML 18 is a world class oil and gas asset.  Our plans to further enhance our involvement in this asset, via the Potential Transaction, have the potential to be very significant.  A huge amount of work has been carried out and a great deal has been achieved to progress this transaction in the last few months.   We now currently expect to publish an admission document in respect of our Potential Transaction in June 2022. This we believe will deliver a transformational deal to the Company which will put San Leon in a very strong position as a significant player in West Africa with the potential to deliver considerable future value to all our stakeholders.  We look forward to providing further updates in due course."

The Company will release further announcements as and when appropriate.

Enquiries: