San Leon Energy, the independent oil and gas production, development and exploration company focused on Nigeria, has entered into a series of agreements with Midwestern Oil & Gas to consolidate Midwestern's holdings in San Leon, Midwestern Leon Petroleum Limited ("MLPL") and Energy Link Infrastructure (Malta) Limited ("ELI") into a single holding in San Leon. In addition, San Leon announces further conditional investments in ELI. Taken together the Proposed Midwestern Reorganisation and Further ELI Investments are collectively referred to as the "Proposed Transactions".

Together the Proposed Transactions constitute a reverse takeover pursuant to rule 14 of the AIM Rules for Companies. Accordingly, San Leon expects to publish an AIM Admission Document (the "Admission Document" or "Document"), containing an updated CPR on OML 18, later today.  The Admission Document will provide information on the Proposed Transactions and include notice of a General Meeting to seek Shareholder approval for the Proposed Transactions and certain resolutions. The General Meeting will be convened for 5 August 2022 at 11.30am at the Herbert Park Hotel, Ballsbridge, Dublin 4, Ireland.

Extracts from the Admission Document and the definitions used in the Admission Document are set out in the Schedules and appendix to this Announcement.

Highlights

Series of transformational conditional transactions entered into by San Leon today to increase its exposure to OML 18 and the related infrastructure. 

Completion of the Proposed Transactions will consolidate and simplify the group structure: 

o  San Leon's exposure to the world class OML 18 asset increases fourfold to a 44.1% initial indirect economic interest; and

o  the Proposed Transactions will increase San Leon's ownership of ELI to c.50%.  ELI is progressing the ACOES pipeline project to provide a dedicated oil export route for OML 18, with the potential for third party fees.

·    CPR on OML 18 issued today with 2P reserves of 323 mmboe net attributable to San Leon with an economic NPV10 value of US$1.1 billion (recent consensus long-term oil price and assuming completion of the Proposed Transactions);

·    The Company has today entered into a US$50m loan facility with MM Capital to provide funding to San Leon; and

·    Further Loan Note Waiver granted to Midwestern to allow for the completion of the Proposed Transactions.

San Leon is proposing a capital restructuring and issue of preference shares to San Leon Shareholders immediately prior to completion with the preference shareholders having a preferential right to the first US$40m of future dividends paid by San Leon.

In addition Eroton, the operator of OML 18, is seeking to undertake a series of transactions to increase its interests in OML 18 and increase its funding facilities. Completion of these transactions (which are yet to be entered into) will be a condition of the Proposed Transactions.

Oisin Fanning, CEO of San Leon, commented:
"We are delighted to have entered into these agreements to effect the Proposed Transactions.  We believe that this series of transactions, when completed, will be truly transformational for the Company and will deliver value to our shareholders. The transactions will not only increase our initial indirect economic interest in OML 18, a world class asset with unrealised potential, but also our interest in ELI and the new ACOES pipeline which we have long considered to be critical to the future success of OML 18 through the expected reduction of pipeline losses and increase in the uptime for export that it is expected to provide.

"Going forward these transactions will pave the way for the Company to deliver its strategy of becoming a significant participant in the Nigerian oil and gas market, positioning San Leon to take advantage of further transactional opportunities to enhance and grow our business."

Overview of the Proposed Transactions (including the transactions Eroton is seeking to undertake)

Midwestern Reorganisation

On completion of the Proposed Midwestern Reorganisation (which is expected to occur in Q4 2022 following the Eroton OML 18 Transactions) San Leon will own a 44.1% initial indirect economic interest in OML 18 with the remaining 55% interest being held by NNPC (the Nigerian State-owned oil company) and 0.9% by Bilton. The Further ELI Investments will result in San Leon owning on completion a c.50% interest in ELI (which is the owner of the ACOES which will be utilised by OML18) and San Leon becoming a significant holder of loan receivables from ELI.

The Proposed Midwestern Reorganisation is conditional, inter alia, on the completion of the Eroton OML 18 Transactions and regulatory approvals and includes the MLPL Reorganisation, the ELI Reorganisation and the entry into certain associated documentation (summaries of which are set out below).  Further details of these transactions and agreements are summarised in Schedule 1 and Schedule 2 to this Announcement.

The Eroton OML 18 Transactions

Eroton, the operator of the OML 18 licence, currently holds a 27% effective economic interest in the OML 18 licence. Eroton has negotiated an agreement with Sahara pursuant to which, when executed, it will conditionally agree to acquire additional interests in OML 18 through the Sahara OML 18 Transaction and the Bilton OML 18 Transaction which has been entered into today. These Eroton OML 18 Transactions will result in the acquisition of Sahara's and Bilton's effective economic interests in OML 18 of 16.2% and 1.8% respectively. The MLPL Reorganisation and the ELI Reorganisation are conditional, inter alia, upon completion of the Eroton OML 18 Transactions.

In order to fund the Sahara OML 18 Transaction and Bilton OML 18 Transaction, Eroton proposes to enter into the New Eroton Debt Facilities which represent senior secured reserve-based lending facilities totaling US$750 million to be provided to Eroton by a lending consortium led by Afreximbank for the purposes of, inter alia: (i) facilitating the Eroton OML 18 Transactions; and (ii) the repayment of Eroton's existing financing. A credit committee approved term sheet associated with the New Eroton Debt Facilities has been received from the lead lender, Afreximbank, and further information is set out in the Schedule to this Announcement. The New Eroton Debt Facilities are conditional, amongst other things, upon definitive documentation in respect of the facility and associated security package being entered into. Subject to completion of the New Eroton Debt Facilities, the New Eroton Debt Facilities will replace the Existing Eroton Debt Facility, which will be repaid in full and GTB's security in connection with the Existing Eroton Debt Facility will be discharged.

The MLPL Reorganisation

By virtue of the MLPL Reorganisation, Midwestern will subscribe for shares in San Leon and San Leon will acquire from Midwestern the remaining 60% equity interest in MLPL that it does not currently own.

The MLPL Reorganisation will be conditional on, along with the other conditions summarised in the Schedule, the completion of the Eroton OML 18 Transactions and will be implemented immediately prior to Re-Admission by completion of the following steps:

·    the issue of 344,334,257 New Ordinary Shares by San Leon to Midwestern pursuant to the MLPL New Shares Subscription Agreement with such subscription consideration being paid for by way of the MLPL Reorganisation Loan Notes; and

·    the transfer by Midwestern of its equity interest in MLPL and the benefit of the MLPL Receivable to a member of the San Leon Group in return for the cancellation of the MLPL Loan Notes and the release of Midwestern from its guarantee in relation the MLPL Loan Notes.

The ELI Reorganisation

San Leon and Midwestern propose to effect a further reorganisation to consolidate Midwestern's holdings in the Company and ELI into a single holding in the Company, with the Company holding an additional c.14% interest in ELI.

The ELI Reorganisation, which is conditional (amongst other things) upon ELI Shareholder Consent and completion of the MLPL Reorganisation, is made up of the following constituent parts:

·    the issue of 73,782,535 New Ordinary Shares pursuant to the ELI New Shares Subscription Agreement with such amount being left outstanding between San Leon and for the benefit of the Company;

·    the transfer by Midwestern of its 13.77% equity interest in ELI Malta to San Leon ELI; and

·    the transfer by Midwestern of its associated loan receivable of US$15,300,000 from ELI Malta to San Leon ELI.

The Further ELI Investments

San Leon currently holds 38,998 ELI Shares representing a 10% equity interest in ELI. As part of the ELI Reorganisation, San Leon will acquire an additional 53,700 ELI Shares, being Midwestern's indirect 13.77% equity interest in ELI. The Company also currently has a conditional interest in 12,959 ELI Shares representing a 3.323% equity interest in ELI as a result of a series of transactions announced on 24 June 2021 and 12 February 2022, details of which are contained in the Schedule.

San Leon has also today conditionally agreed to make a new loan to ELI of US$16,000,000 at a coupon of 14% per annum over four years, and repayable quarterly following a one-year moratorium, which will be accompanied by San Leon subscribing for a further 48,748 new ELI Shares at nominal value, subject to ELI Shareholder Consent.

San Leon has also today entered into an agreement for  the further conditional purchase of 52 ,647 ELI Shares currently held by Ocean Pearl for US$15,000,000.

Upon completion of both the ELI Reorganisation and all of the Further ELI Investments, San Leon would become the largest shareholder in ELI, with its stake rising to 228,458 ELI Shares representing 50.64% and will be a significant lender to ELI, holding a total of US$48.3 million of loans (plus accrued interest) to ELI. The Further ELI Investments are not conditional upon the ELI Reorganisation or the MLPL Reorganisation but are all conditional upon shareholder approval as well as the conditions referred to in the Schedule.

KeyFacts Energy: San Leon Nigeria country profile