San Leon Energy Provides Further Update on the Potential Transaction

Source: www.gulfoilandgas.com 6/24/2022, Location: Africa

San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, provides the following update in relation to the Potential Transaction, as described in the announcement made by the Company on 29 April 2022.

Considerable progress has been made by the Company in progressing the Potential Transaction and the Company is now expecting to publish an AIM admission document (the "Admission Document") in respect of the Potential Transaction by 8 July 2022, following which point the Company intends to seek the restoration of trading of its ordinary shares on AIM.

However, certain components of the Potential Transaction are required to be completed in the coming weeks and certain key elements, upon which the Potential Transaction is predicated upon, remain outside of the direct control of the Company also need to be progressed. The Board of San Leon (the "Board") considers that the key items still to be finalised include: (i) documentation of the Proposed Eroton Debt Facilities in relation to the Proposed Eroton Transaction; (ii) the progression and documentation of the Proposed New San Leon Loan Facility; and (iii) the preparation of historical financial information for the year ended 31 December 2021 in respect of ELI, MLPL and the Company. Further details of these matters can be found below.

Following the publication of an Admission Document, the Potential Transaction would still be subject to a number of conditions and other actions, details of which are set out below.

Proposed Eroton Transaction
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 the financing syndicate in relation to the Proposed Eroton Debt Facilities that are required for the Proposed Eroton Transaction to proceed. It is expected by the Board that the drafting of the banking documentation will commence shortly and will move towards agreed form in the coming couple of weeks with execution occurring at a point thereafter and potentially after the publication of the Admission Document.

The Board are of the view that the Proposed Eroton Transaction is important for several reasons, including:
(i) it underpins the valuation and rationale of the Potential Transaction by delivering, indirectly, to San Leon a far greater interest in OML 18 than is currently held by Eroton;
(ii) it resolves a series of disputes that have arisen between Eroton and its OML 18 joint venture partner, OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited) ("Sahara"). Several of these disputes have developed into legal actions, although none are currently being actively pursued, and all legal actions between Eroton and Sahara will be extinguished as part of the Proposed Eroton Transaction, thereby enabling Eroton to focus on the commercial development of this world class oil & gas field; and
(iii) the Proposed Eroton Debt Facilities enable Eroton's existing term loan facility agreement (the "Existing Eroton Debt Facility") with Guaranty Trust Bank Plc to be refinanced.

Accordingly, the Board believe that the Proposed Eroton Transaction is important to Eroton and to the Company.

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, including work on progressing the Admission Document, given that the Potential Transaction will be classified as a reverse takeover under the AIM Rules.

The Admission Document will include audited historical financial information for the three years to 31 December 2021 in relation to MLPL and ELI and will incorporate, by reference, audited historical financial information for the three years to 31 December 2021 for the Company. Substantial progress has been made in respect of compiling this audited historical financial information and the respective auditors and reporting accountants have advised that they expect to finalise their review of the historical financial information in around a week. It is the Company's intention to publish its audited accounts for the year ended 31 December 2021 (the "SLE 2021 Accounts") alongside the publication of the Admission Document in early July 2022.

Separate to the Proposed Eroton Debt Facilities, on 29 April 2022, San Leon announced that it was engaging with prospective lenders in respect of the Proposed New San Leon Loan Facility. San Leon is pleased to announce that the Company has since received an indicative proposal for a loan facility which is required to fund certain of its proposed further debt and equity investments in ELI and working capital requirements. The Company is now working to convert this into a fully documented and executed loan.

At present the publication of the Admission Document remains subject to a number of factors, including, inter alia, the execution of binding contractual documentation, including progressing and competing the Proposed New San Leon Loan Facility, and the completion of the preparation of the historical financial information. Among other things, when executed, completion of the Potential Transaction is also expected to be subject to various regulatory consents, the approval of San Leon's shareholders and, in relation to ELI, reorganisation of Midwestern's indirect equity and debt interests in ELI.

There can therefore be no guarantee that the Potential Transaction will occur.

A number of actions that are important to the Potential Transaction and the timescales for the execution and completion of such actions, such as the Proposed Eroton Transaction and the Proposed Eroton Debt Facilities are outside of the control of the Company.

Suspension of trading
As previously announced, as part of the Potential Transaction, San Leon would increase its initial 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 the AIM Rules, the Company's ordinary shares will remain suspended from trading on AIM until such time as: i) the Admission Document and the SLE 2021 Accounts have been published; or (ii) the admission of the Ordinary Shares to trading on AIM is cancelled; or (iii) the Company announces that the Potential Transaction is no longer proceeding and the SLE 2021 Accounts have been published.

Should the Company not be in a position to publish the Admission Document by 8 July 2022 then it is possible that trading in the Company's shares on AIM will be cancelled. If trading in the Company's shares on AIM is cancelled the Board intends to complete the Potential Transaction and seek to have the enlarged group's shares admitted to trading on AIM later this year.

Further extension of the Conditional Payment Waiver in relation to the MLPL Loan Notes
In relation to the outstanding loan notes due from MLPL, further to the announcement on 29 April 2022 (and previously), San Leon has agreed with MLPL, Midwestern and Martwestern (as defined below) to a further extension of the Conditional Payment Waiver to 8 July 2022 or, if sooner, the termination of discussions or the signing of agreements 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 "June 2022 Conditional Payment Waiver"). Interest continues to accrue on the principal amounts waived whilst the June 2022 Extended Conditional Payment Waiver is in effect. As at 23 June 2022, the June 2022 Conditional Payment Waiver relates to US$105.6 million, being a principal amount due of US$82.2 million and total accrued interest due of US$23.4 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 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.

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 June 2022 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 June 2022 Conditional Payment Waiver are fair and reasonable insofar as the Company's shareholders are concerned.

Unless otherwise defined herein, the capitalised defined terms used in this announcement have the same meaning as those used in the Company's announcement on 29 April 2022.

Oisin Fanning, CEO of San Leon, commented:
"OML 18 has an excellent production history as well as a vast amount of, to date, unrealised potential. The above series of proposed transactions that we, Eroton and ELI have been progressing for the past year have the ability to be transformational not only for OML 18 but also for San Leon itself and its shareholders. The Potential Transaction is expected to deliver to San Leon a far greater interest in this world class asset as well as pave the way for better infrastructure enabling more efficient production from the field. It would be no understatement to say this has been a very challenging and complex undertaking, but I am delighted to say that we have made considerable progress with the Potential Transaction and we now expect to be in a position to publish our Admission Document alongside our report and accounts by 8 July."


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