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San Leon Energy

Having reached more than 55p last year and been more than 30p earlier this, shares in oil and gas development and appraisal company San Leon Energy (SLE) had fallen to 23p before a September results announcement. They responded positively to that – and have recovered to a current circa 27p. Is this the start of a long-term recovery?…


The company has stated “our strategy is to deliver value to shareholders as we mature our interests in Nigeria. We shall continue to strive to monetise our existing assets outside Nigeria, allowing focus on our OML 18 core area via our indirect economic interest, loan notes, and master services agreement”.

OML 18 is a concession covering 1,035 km2 and containing nine existing fields in the Southern Niger Delta in which San Leon has a current 9.72% indirect economic interest. This was secured for a total consideration of €169 million ($188.4 million) through a 40% owned special purpose vehicle which acquired a company (MartWestern Energy Limited) which holds a 50% shareholding in the operator of OML 18, Eroton Exploration and Production Company Limited. The funding arrangements see San Leon the beneficiary and holder of loan notes issued by the special purpose vehicle.

Historic Trading

Early this year the company announced that “discussions with both China Great United Petroleum (Holding) Limited, originally announced on 28 June 2017, and Geron Energy Investment, originally announced on 21 December 2016, have been terminated”– on the former an indicative price of 67-76p per share had been noted and on the latter 80p per share. That announcement added that “discussions continue between San Leon and Midwestern about a transaction that, if concluded, could constitute a reverse takeover”. A few months later it was announced that the company had terminated these discussions, though that “the board believes that the discussions have themselves strengthened the working relationship between the two companies and looks forward to working with Midwestern, as its partner, and jointly advancing production at OML 18”.

There then followed news that San Leon had received an application from Nigerian company SunTrust Oil seeking court leave for a claim in respect of alleged payments due for the sale of shares in Martwestern and that SunTrust had engaged in correspondence regarding required consents for assignment of interests in oil and gas assets in Nigeria. San Leon though emphasises “the 2016 OML 18 transactions having undergone extensive due diligence and documentation… Having taken legal advice, the company believes the claim has no foundation… and additionally the Nigerian courts lack jurisdiction for any such claim. The company confirms it has instructed its Nigerian solicitors to file objections restraining the applications of SunTrust”.

Early this year also saw it updated on OML 18; “delays in production increases”. These noted to have been as a result of factors including workover “downhole challenges”, tank tops and cargo shipping delays as well as intermittent upstream outages on the pipeline, pipeline losses and financial constraints.

Latest Results

However, the September results announcement showed San Leon still profitable in the first half of 2018 and a €17 million increase in net cash to €21 million and €23.3 million increase in current assets over total liabilities to €67.4 million, with also significant financial non-current assets of €108.7 million (-€9.2 million) and equity accounted investment non-current assets of €51.9 million (-€6.4 million). They also emphasised including;

  • “Workovers using cement packers have been performed on five wells, and are continuing. Gas lift has been installed in seven wells (with further wells to be added). Both activities are increasing production rates, and the gas lift installation is enabling the wells to restart production more rapidly after any production upset


  • Three of the five planned Lease Automatic Custody Transfer units are now operational in the field…


  • Eroton expects a drilling rig to arrive in OML 18 within the next month to drill the first new well of Eroton’s operatorship, with others planned to follow…


  • The proposed new dedicated export system for OML 18 (which is expected materially to reduce downtime and pipeline losses) is forecast by Eroton to be online during 2019.”  

This all saw CEO Oisín Fanning “look to the company’s future with increased confidence”. That was with a loan note balance of $157.8 million remaining to be repaid to it and as it “anticipates future cash flow from continued principal and interest repayments from the loan notes, income from the master services agreement, dividends from the company’s initial indirect 9.72% economic interest in OML 18 (once Eroton is in a position to pay such dividends), and through the potential income or sale of the company’s 4.5% net profit interest in the Barryroe oil field (offshore Ireland)”.

It has recently updated “it has now received a total of approximately USD $18.6 million in full satisfaction of payments due for Q3 2018… A balance of USD $146.1 million of principal remains outstanding and payable to the company as of 31 October 2018. Interest continues to accrue at 17% per annum on the outstanding principal, in addition to this balance”.


There are of course obvious risks – including natural operational, political and security and commodity price – which could impact the company receiving loan note repayments and then further income. However, the company emphasises it benefits from its partnership with Eroton in Nigeria and that its operational management experience is now being applied to workovers and new wells. Oisín Fanning has circa 30 years’ experience in structured finance, stockbroking and corporate finance, with around 12 years specialising in the oil and gas industry. He was closely involved with the restructuring of Dana Petroleum in the early 1990s and was also a major supporter of Tullow Oil in its early growth phase.

Confidence is also shown in that the company is currently progressing a capital reorganisation to enable a share buy-back programme and, via this, “intends initially to return not less than $10 million to shareholders”. This all compares to a current market capitalisation of just over £135 million (currently circa $177 million). Thus, albeit with the obvious risks, there looks interesting upside potential from here.