TIDMSLE
RNS Number : 2793Y
San Leon Energy PLC
16 May 2016
16 May 2016
San Leon Energy plc
Strategy Update
Nigerian Onshore Production Deal, Portfolio Review and Related
Party Transactions
San Leon Energy plc ("San Leon" or "the Company"), the AIM
quoted oil and gas exploration and production company focused on
Europe and Africa, is pleased to provide the following update:
Highlights
-- San Leon is seeking to raise a minimum of $200 million via a
placing of equity at a targeted price of 105 pence per ordinary
share of San Leon (approximately a 261% premium to the price at
suspension of 29.125 pence);
-- The placing proceeds will be used to complete the acquisition
of an indirect interest in OML 18, an onshore, producing oilfield
in the Southern Nigerian Delta covering 1,035 km(2) and formerly
operated by Royal Dutch Shell plc;
-- Significant cash flows are expected to be generated from OML
18, and a formal shareholder distribution policy is to be adopted
going forward;
-- As previously announced, the Acquisition constitutes a
reverse takeover under the AIM Rules and will be subject to
shareholder approval;
-- The Company continues to optimise its broader portfolio by selected asset disposals.
Introduction
Certain defined terms used herein are set forth in the
"Definitions" section of this press release.
All dollar amounts or references to "$" refer to US dollars.
On 22 January 2016, San Leon announced that it had reached
agreement to participate in a transaction which would result in the
Company securing a 9.72% indirect economic interest in OML 18,
onshore Nigeria. The OML 18 Production Arrangement represents an
entry by the Company into the Nigerian onshore oil and gas
production market, one of the largest in the world. The OML 18
Production Arrangement is considered by the Board to be a
transformational transaction for the Company.
Upon completion of the OML 18 Production Arrangement, the
Company will have:
-- A 9.72% indirect economic interest in OML 18, which benefits
from having a significant portion of its oil production hedged at
$95 per barrel until December 2017;
-- The right to receive a minimum 65% cash sweep of the
available funds distributed to BidCo from OML 18's production
proceeds for four years to redeem the loan notes (further details
below) and any accrued interest;
-- The right to receive dividends declared by BidCo, as a 40%
shareholder. Once shareholder approval has been granted, San Leon
will receive a share of future distributions made by BidCo which
will be based on cash flow generated by Eroton from OML 18 since
March 2015 (the original date of the acquisition of OML 18 from
Shell and its partners, since after that date Eroton cash flow has
been accruing in the company to fund the reserves based lending
repayment reserve);
-- The right to provide oilfield services, such as workover and
drilling rigs, to the operator of OML 18 which is expected to have
a significant development programme funded entirely from
operational cash flow.
OML 18 is located in the Southern Niger Delta, in Nigeria. In
March 2015, Eroton acquired a 45% interest in OML 18 from Shell,
Total and Agip for a total consideration of approximately $1.1
billion and became the operator of the asset. The remaining 55%
interest in OML 18 is held by Nigeria National Petroleum Company
("NNPC"). The arrangements between NNPC and Eroton are governed by
a joint venture agreement.
OML 18 estimated gross 2P reserves are approximately 500 million
barrels of oil and approximately 4.6 Tscf (Trillion standard cubic
feet) of gas and its gross 2C contingent resources are around 200
million barrels of oil and 1.6 Tscf of gas (operator estimates).
Under Eroton's operatorship, the production on the field has seen
significant increases rising from approximately 10,000 bopd
(barrels of oil per day) in March 2015 to approximately 50,000 bopd
today as well as more than 50 mmscf/d (million standard cubic feet
per day) of gas. In the development plans currently under
discussion for OML 18, the intention is to increase production to
in excess of 100,000 bopd. The Directors believe this to be a
world-class onshore producing asset.
The Directors believe that the OML 18 Production Arrangement
will:
-- be a transformational transaction for San Leon, by providing
it with an indirect interest in a world-class onshore producing
asset; and
-- underpin the future cash flow of San Leon and allow for
further transactional growth in combination with expected
significant returns to its Shareholders.
The Board will be strengthened through the addition of directors
with experience in the Nigerian oil and gas industry. Further
information will be announced at the same time as the publication
of the AIM re-admission document.
Deal Structure
The OML 18 Production Arrangement is structured in three parts,
of which the initial stage was completed on 22 March 2016, with the
finalisation of the Mart Acquisition. The Mart Acquisition
comprised the provision of approximately $73 million of funding
provided by funds managed by Toscafund and structured as secured
notes ("Loan Notes") issued by BidCo, which together with other
transaction costs, enabled the acquisition of Mart Resources.
The Loan Notes have a coupon of 17% per annum and mature on 22
March 2020. Principal and interest repayments will be paid through
a cash sweep of at least 65% of the available funds distributed to
BidCo from OML 18. The repayments have been guaranteed by
Midwestern and Mart Resources Limited (a wholly-owned subsidiary of
Midwestern), and the Loan Notes are secured via a securities pledge
on 100% of BidCo's currents assets, subordinate to reserves based
lending.
In order to complete the subsequent parts of the OML 18
Production Arrangement (collectively the "Remaining Transactions"),
BidCo will need to raise an additional $100 million which is also
intended to be structured as Loan Notes. Subject to completion of
the OML 18 Production Arrangement and San Leon shareholder and
regulatory approvals, San Leon will hold a 40% interest in
BidCo.
The Company has concluded that shareholder value would best be
obtained by San Leon becoming the ultimate beneficial owner of the
entire $173 million of Loan Notes. This structure, if completed,
would provide the Company with highly material cash flow from three
sources:
-- coupon and capital repayment of the Loan Notes, with associated cash sweep;
-- cash flows from ordinary dividends associated with its
indirect 9.72% economic interest in OML 18; and
-- revenues associated with the Company's right to provide
drilling and workover rig services to Eroton in its capacity as the
OML 18 Operator.
Related Party Transaction
On 22 March 2016, San Leon entered into a conditional agreement
to purchase up to all of the Loan Notes issued to Toscafund, plus
accrued interest. The purchase was subject to approvals, consents
and permissions including shareholder and regulatory approvals and
is also dependent upon San Leon raising capital through a placing
with institutional investors.
In consideration for providing the debt finance to BidCo, San
Leon has pledged its shares in BidCo to Toscafund (the "Share
Pledge") and agreed to issue 10 million warrants in San Leon to
Toscafund at a price of 25 pence per share (the "Warrants"). The
Warrants are exercisable for the period of 7 years from the date of
issue and their issue is subject to shareholder approval and any
other applicable regulatory approvals. The Company has also agreed
to pay Toscafund an arrangement fee of $3 million ("Arrangement
Fee") on completion of the purchase by the Company of any of the
Loan Notes.
Toscafund is a substantial shareholder in San Leon, and as such
the conditional agreement to acquire the Loan Notes, the Share
Pledge, the Warrants and the Arrangement Fee is classified as a
related party transaction under AIM Rule 13.
The Directors of San Leon consider, having consulted with the
Company's current Nominated Adviser, SP Angel Corporate Finance
LLP, that the terms of the conditional agreement to acquire the
Loan Notes, the Share Pledge, the Arrangement Fee and the Warrants
are fair and reasonable insofar as its shareholders are
concerned.
Placing
The Company is therefore planning to undertake an equity
fundraising of at least $200 million (the "Placing"), the net
proceeds of which will be used (subject to any necessary
shareholder and regulatory approvals) to:
-- purchase the Loan Notes from Toscafund;
-- repurchase the additional $100 million of loan notes required
to complete the Remaining Transactions;
-- fund transaction costs; and
-- provide working capital to the Company.
San Leon's share of future net cash flows generated from OML 18
is expected to support a dividend policy (which will be subject to
typical distribution conditions) to be implemented by the Company.
The Company will be targeting to return to Shareholders, via either
dividends or share buybacks, approximately 50% of available free
cash flows for a period of five years from receipt of first
cashflow from BidCo.
San Leon has retained Whitman Howard Limited and Brandon Hill
Capital Limited to act as its brokers in relation to the Placing,
at a targeted price per share of 105 pence, representing a premium
of approximately 261% to the price at suspension, of 29.125 pence).
Preliminary discussions with institutions have been very positive,
and Toscafund has confirmed to the Company that it intends to
participate in the Placing.
Suspension of Shares
As the OML 18 Production Arrangement would represent a reverse
takeover under AIM Rules, trading in the Company's ordinary shares
will remain suspended pending the publication of an admission
document by the Company or an announcement that the proposed
acquisition is not proceeding. Shareholders should also be mindful
that any acquisition that constitutes a reverse takeover under the
AIM Rules is conditional upon shareholder approval, and requires
the Company to publish an AIM re-admission document and to reapply
for the Company's ordinary shares to be re-admitted to trading on
AIM. As a consequence, there is no certainty that the Acquisition
will be completed.
Portfolio Optimisation
In line with the Company's previously-announced strategy to
focus on cash flow from appraisal and development, certain non-core
assets are being exited. This will reduce overhead costs and enable
better concentration of technical and management effort as the
geographical focus moves to Nigeria.
A number of Polish early-stage exploration licences are being
relinquished, full details of which will be provided shortly.
However, the majority of the Company's core Polish portfolio of
appraisal and development, as well as shale appraisal will be
retained. San Leon has also taken the decision to exit its
interests in Romania.
Oisin Fanning, Executive Chairman, commented:
"This is a hugely exciting and transformational project for San
Leon, so completing the equity raise and obtaining the necessary
regulatory and shareholder approvals for the OML Production
Arrangement is our immediate focus. I am conscious that the
Company's shares have been suspended from trading on AIM since 22
January and I am very grateful for the patience of shareholders
during that period. This is a complex transaction, and we are
committed to getting it right, both in terms of structure and also
in its implications for shareholder value. I am pleased to confirm
that production in OML 18 has continued to be strong and this is a
function of the operational controls and expertise that have been
implemented by Eroton, the operator of the asset, as well as the
implementation of the first stages of the field redevelopment plan.
I look forward to providing a further update to our shareholders
shortly."
Qualified person
Joel Price, who has reviewed this update, has more than 20
years' experience in the oil & gas industry and is a member of
the Society of Petroleum Engineers. He holds a BA in Natural
Sciences (Geology) from Cambridge University, an MEng in Petroleum
Engineering from Heriot-Watt University, and an MBA from Durham
University. Joel is Chief Operating Officer for San Leon Energy and
is based in San Leon's London office.
Enquiries:
San Leon Energy plc
Oisin Fanning, Executive
Chairman +353 1291 6292
SP Angel Corporate
Finance LLP
Nominated Adviser
and Joint Broker
Ewan Leggat
Richard Morrison +44 (0) 20
Richard Hail 3470 0470
Whitman Howard Limited
Joint Broker
Nick Lovering +44 (0) 20
Francis North 7659 1234
Brandon Hill Capital
Limited
Joint Broker
Oliver Stansfield +44 (0) 20
Jonathan Evans 3463 5000
Vigo Communications
Financial Public
Relations
Chris McMahon +44 (0) 20
Alexandra Roper 7830 9700
Plunkett Public Relations +353 (0) 1
Sharon Plunkett 280 7873
www.sanleonenergy.com
Definitions
"Acquisition" or The acquisition of an interest
"OML 18 Production in OML 18 by San Leon
Arrangement"
"Board" or "Directors"
"BidCo" The board of directors of the
Company
Midwestern Leon Petroleum Limited,
a Mauritian incorporated special
purpose vehicle, established for
the purpose of holding the combined
OML 18 interest of both San Leon
Energy and Midwestern Oil & Gas
Limited. On completion, San Leon
will hold 40% and Midwestern will
hold 60% of BidCo
"Eroton" Eroton Exploration & Production
"Mart Acquisition Company Limited, an indigenous
" company which is Operator of OML
18
The acquisition of all the issued
and outstanding common shares
of Mart Resources pursuant to
a binding arrangement agreement
signed by the Company, Mart Resources,
Midwestern and 1038821 B.C. Ltd
"Mart Resources" Mart Resources Inc.
"Midwestern" Midwestern Oil & Gas Company Limited,
"OML 18 " a private Nigerian upstream and
midstream exploration and production
company
The onshore mining lease in the
Southern Niger Delta region of
Nigeria known as OML 18
"Toscafund" Toscafund Asset Management LLP
This information is provided by RNS
The company news service from the London Stock Exchange
END
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