San Leon Regulatory News (SLE)

30 December 2016

San Leon Energy plc

("San Leon" or the "Company") 

Operations Update and Loan Note Repayments

San Leon Energy plc, the AIM listed company focused on oil and gas development and appraisal in Africa and Europe, is pleased to provide an update on operations and cash flow receipts related to its initial indirect 9.72 per cent. interest in the OML 18 project, onshore Nigeria.

Operations

OML 18 Block

The electric line operations have now acquired water saturation logs within a group of wells, and perforation of new producing intervals has commenced based upon that data. Reperforation operations on the first of these wells was successful and increased gross OML 18 production (before losses and downtime) to approximately 61,000 barrels of oil per day ("BOPD"). The well has now been temporarily shut in to allow minor production upgrades and additional workover operations, and current gross OML 18 production is around 53,000 BOPD. The reperforation programme will continue to be implemented across a number of wells in this field in the coming months.

Krakama Field

In addition to the remaining new producing intervals which are expected to come onstream in the near-term using the electric line, slickline and coiled tubing operations, the wells on the Krakama field are now ready to produce, pending completion of the production facility modifications. Production from Krakama is now expected online during the first two months of 2017.

Buguma Field

A scoping study has been undertaken on the Buguma field ahead of operations required to bring the field into production. Following the completion of the study, equipment has now been identified and a procurement process is underway. Eroton anticipates production to commence in March 2017.

Services Update 

Under the Master Services Agreement, San Leon provides services to Eroton in OML18, through its oilfield services subsidiary. Numerous wells have been identified which require re-entry for recompletions in new zones using a service rig and San Leon expects to provide workover rig, drilling rig and production facility construction services to Eroton starting in 2017.

Cash Flow Receipts

In accordance with the terms of the $173.05 million loan note instruments held by San Leon pursuant to the OML 18 assets, approximately $20 million of loan principal and interest repayments became payable on 1 October 2016, and an additional quantum of approximately $19 million becomes payable on 1 January 2017. Amounts will be payable by Midwestern Leon Petroleum Limited ("Midwestern Leon"), which is 40 per cent. owned by the San Leon group, and has a 50 per cent shareholding and an initial effective 90 per cent. economic interest in Eroton.

The Company's Admission Document, published in August 2016, provided details on the mechanism for dividends from Eroton to be made via Midwestern Leon. The conditions required to be met prior to dividends commencing were set out in paragraph 2.11 "Satisfaction of the conditions to approve distributions by Eroton" on page 59 and the Company is today providing an update on which of those conditions have been met.

The Company has been informed by Eroton that the following conditions have been met:

(i) the issue of a competent person's report

(ii) compliance with all financial covenants and ratios stipulated in the Reserve Bank Lending ("RBL") facility agreement

(iii) undertaking from Eroton to commence discussions on an optimal hedging strategy from 1 January 2018 to final maturity date of the RBL facility agreement and has to be in place by September 2017.

The following conditions are yet to be satisfied:

(iv) reservation of nine months' worth of upcoming debt repayments due in the debt service reserve account; and

(v) submission of audited financial statements by Eroton whereby 60 per cent. of audited net profits can be paid to dividends account.

The Company has been informed by Eroton that the timing for the satisfaction of these conditions is also influenced by the receipt by Eroton of the outstanding balance of historic cash calls from the Nigerian National Petroleum Corporation ("NNPC"), which was expected during 2016 but has yet to occur. Only once all the RBL debt service reserve account conditions have been fulfilled will Eroton be in a position to complete its audited financial statements for the year ended 31 December 2016, whereupon the Eroton Board will be in a position to declare and pay dividend(s) to its shareholders.

San Leon has been working, and continues to work, with Eroton to explore other interim mechanisms to enable cash distributions to be made to San Leon, pending satisfaction of all of the RBL debt service reserve account conditions. The Company will update the market in due course regarding progress on the ability of Eroton to declare and pay a dividend in respect of year ending 31 December 2016.

Any delay in satisfaction of the RBL facility's debt service reserve account conditions and the subsequent delay in Eroton declaring and paying a first dividend, does not, in itself adversely affect the amounts of interest and principal due and payable by MidWestern Leon on the Loan Note Instrument held by San Leon.

Oisin Fanning, Chief Executive of San Leon, said:

"We are encouraged by the performance of the OML 18 field to date, including the approximate doubling of production over what was expected when the RBL was first put in place. We are confident, and fully supportive of Eroton in its attempts to satisfy all the conditions of the RBL facility in order to declare dividends in order for San Leon to receive its first cashflow from OML 18."

Enquiries:

www.sanleonenergy.com