San Leon Regulatory News (SLE)

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information for the purposes of Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.

24 December 2021

San Leon Energy plc

("San Leon" or the "Company")

Update on potential transaction

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 the Company and 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").

The Board of San Leon believes that the Potential Transaction (including the Proposed Eroton Transaction, as defined below) presents an opportunity for San Leon to:

· increase its economic interest in the OML 18 oil and gas block located onshore in Nigeria ("OML 18"); and

· become the largest shareholder of the Alternative Crude Oil Evacuation System ("ACOES") project which is intended to transport, store and evacuate crude oil from the OML 18 export pipeline. The ACOES is currently being constructed by ELI and, once operational, is expected to significantly reduce the pipeline losses and downtime currently applicable to OML 18's production.

Potential Transaction update

Further to the Company's announcement on 29 November 2021, the Company currently expects to publish an AIM admission document (the "Admission Document") in respect of the Potential Transaction by the end of February 2022, following which point the Company will seek the restoration of trading of the Company's ordinary shares on AIM.

As part of the Potential Transaction, it is proposed that new preference shares (the "Preference Shares") will be issued to the shareholders in the Company, immediately prior to the Potential Transaction completing. It is intended that the Preference Shares will entitle holders to a preferential right to any dividends declared and paid by the Company in the three years following completion of the Potential Transaction, up to a maximum amount equal to US$40 million in aggregate over a three-year period. To the extent that less than US$40 million of dividends are declared and paid by the Company during that three-year period, the right of the holders of the Preference Shares to a preferred dividend will continue in respect of the shortfall and the shortfall amount will increase by 10 per cent per annum until the full amount of the shortfall has been paid. Once the preferential right to the dividend has been satisfied, the Preference Shares will cease to hold economic value and will become deferred shares. Neither the Preference Shares nor the deferred shares will carry any voting rights at any time and neither will be admitted to or quoted on any stock exchange.

As explained below, it is envisaged that the loan notes currently owed to San Leon by MLPL (the "Loan Notes") will be eliminated pursuant to the Potential Transaction. The Preference Shares are therefore intended to provide a return to existing shareholders in place of dividends on ordinary shares that they may otherwise have anticipated receiving from San Leon following the repayment of the Loan Notes. Further details of the Preference Shares and the proposed elimination of the Loan Notes will be contained in the Admission Document, when published.

It is also anticipated that following completion of the Potential Transaction, Eroton will, in return for receiving services from San Leon, pay San Leon US$6 million per annum to cover management costs in relation to OML 18, being settled monthly in advance with the first such payment being made on such completion.

Potential Transaction background

San Leon currently has a 40% equity interest in MLPL with the remaining equity interest in MLPL being owned by Midwestern. MLPL has a 100% equity investment in Martwestern Energy Limited ("Martwestern"), which in turn has a 98% economic interest in Eroton Exploration and Production Company Limited ("Eroton"). San Leon therefore currently has an indirect economic interest in Eroton of 39.2%. Eroton currently has a 27% interest in OML 18 and is also the operator of OML 18. Accordingly, via this ownership structure, San Leon has a current indirect economic interest in OML 18 of 10.58%.

On 29 November 2021, San Leon announced that, inter alia, it had been informed that 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") and that Eroton had signed a non-binding term sheet with Africa Import Export Bank ("Afrexim") for a prospective US$750 million senior secured reserve-based lending facility, for the purpose of, inter alia, providing funding for the Proposed Eroton Transaction. Completion of the Potential Transaction will be conditional upon completion of the Proposed Eroton Transaction, the timing of which is currently uncertain.

As part of the Potential Transaction, San Leon would increase its indirect economic interest in Eroton from 39.2% to 98.0% and, following completion of the Proposed Eroton Transaction, San Leon's indirect economic interest in OML 18 would increase from the current 10.58% to 44.1%. Given that the Proposed Eroton Transaction is to be financed through a debt facility, it is not expected that the consideration payable in respect of the Potential Transaction (being an issue of new shares in the Company to Midwestern), will be impacted. As previously announced, it is expected that, inter alia, as part of the Potential Transaction, the amounts currently owed to San Leon by MLPL (pursuant to the Loan Notes), being approximately US$99 million as of the date of this announcement, will be eliminated.

The consideration for San Leon acquiring all of the outstanding shares in MLPL not already owned by the Company, and Midwestern's indirect debt and equity interest in ELI, would be satisfied by the issuance of a substantial number of new ordinary shares in San Leon to Midwestern, such that Midwestern would become the majority shareholder of San Leon, subject amongst other things to the approval of the Irish Takeover Panel of a waiver for Midwestern from the requirement for it to make an offer for the Company in accordance with Rule 9 of the Irish Takeover Rules and approval of independent shareholders.

Given that the Potential Transaction will be classified as a reverse takeover under the AIM Rules, 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.

Midwestern currently holds more than 10% of the Company's ordinary shares. Accordingly, Midwestern is classified as a related party under the AIM Rules and the transactions above in which Midwestern has an interest in will therefore be treated as transactions with a related party pursuant to Rule 13 of the AIM Rules.

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, negotiation and execution of binding contractual documentation and would be accompanied by the publication of the Admission Document. Completion of the Potential Transaction is expected to be subject to regulatory consents, a "whitewash" under the Irish Takeover Rules, 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. 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 be entered into or, if entered into, that they will complete.

The Company will release further announcements as and when appropriate.

Oisin Fanning, CEO of San Leon Energy, commented:

"Our Potential Transaction with Midwestern is a transformational opportunity for San Leon, achieving our twin aims of increasing our interest in OML 18 and building our shareholding in the operator of the new ACOES pipeline project. We have long considered OML 18 to be a world class oil and gas asset and our plans to further enhance our involvement there could be very significant to the Company's future growth plans. A considerable amount of work has already been carried out by both parties and their respective advisers. We continue to diligently progress the transaction towards completion."

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