San Leon Provides Update on Potential Transaction & Extension of Conditional Payment Waiver

Source: www.gulfoilandgas.com 2/28/2022, Location: Africa

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 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 24 December 2021, the Company now currently expects to publish an AIM admission document (the "Admission Document") in respect of the Potential Transaction by the end of April 2022, following which point the Company will seek the restoration of trading of the Company's 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 agreeing documentation, finalising bank financing and 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 24 December 2021, completion of the Potential Transaction will be 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. San Leon has recently been provided with updates on the progress of the funding for the Proposed Eroton Transaction, which includes Eroton having 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.

San Leon has also been informed that:
i) updated OML 18 off-take agreements will be entered into by Eroton in order for the financing syndicate to finalise the Proposed Eroton Debt Facilities; and
ii) in order for the current off-taker (which is also a lender within the financing syndicate) to enter into a new off-take agreement, ELI will need to have successfully demonstrated 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-takers' satisfaction.

The loan of US$2.0 million provided to ELI by San Leon, as announced on 15 February 2022, is expected to assist with advancing this process, although the barging of oil to the FSO through part of the ACOES will also be subject to, amongst other matters, receipt of the necessary Nigerian regulatory maritime approvals. San Leon has been informed that ELI is likely to have demonstrated the barging of oil to the FSO to the off-takers' satisfaction during March 2022, and 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.

Potential Transaction update
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, given that the Potential Transaction will be classified as a reverse takeover under the AIM Rules for Companies (the "AIM Rules").

The draft conditional 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 Proposed Transaction, currently remains subject to finalisation of the precise position in relation to its conditions precedent in respect of regulatory consents in Nigeria. The Company and Midwestern are receiving 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 an AIM admission document is published or an announcement is released in the event that the reverse takeover in contemplation is not 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 further negotiation and the execution of binding contractual documentation 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, a reorganisation of Midwestern's indirect equity and debt interests in ELI and the approval of San Leon's shareholders. Given the need for binding contractual documentation and applicable regulatory consents, it remains the case that there can be no guarantee at this stage that the Potential Transaction (including the proposed debt and equity investments by San Leon in ELI) or the Proposed Eroton Transaction will complete.

The Company will release further announcements as and when appropriate.

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 1 February 2022, San Leon has agreed with MLPL, Midwestern and Martwestern (as defined below) to a further extension of the Conditional Payment Waiver to the end of April 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 February 2022, the Extended Conditional Payment Waiver relates to US$101.5 million, being a principal amount due of US$82.2 million and total accrued interest due of US$19.3 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.


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