TIDMSLE
RNS Number : 7667M
San Leon Energy PLC
22 January 2016
22 January 2015
San Leon Energy Plc
("San Leon" or "the Company")
Nigerian Onshore Production Deal and Temporary Suspension of
Shares
San Leon Energy Plc (the "Company"), the AIM listed company
focused on oil and gas exploration and production in Europe and
Africa, announces its proposed entry into Nigerian onshore oil and
gas production.
Highlights
-- US$180 million transaction to finance the acquisition of Mart
Resources, Inc. and an additional interest in MartWestern Energy
Limited, and to restructure the assets and liabilities of these
acquisitions with Midwestern Oil and Gas Company Limited. The
acquisition and restructuring will result in San Leon securing a
9.72% indirect economic interest in the world-class OML 18 block,
onshore Nigeria.
-- Significant portion of production covered by hedge at $95 per barrel until December 2017.
-- The transaction includes a definitive agreement signed
between San Leon Energy Plc, Mart Resources, Inc., and Midwestern
Oil and Gas Company Limited to acquire Mart Resources Inc. for
approximately US$62.6 million.
-- San Leon will receive a minimum 65% enhanced cash sweep of
Martwestern's production proceeds from OML 18 to cover the timely
repayment of debt incurred to finance the total acquisition
cost.
-- San Leon will have no other assets or liabilities resulting
from the transaction outside of the OML 18 block.
-- San Leon will additionally have the right to provide oilfield
services, such as workover and drilling rigs, to the OML 18
operator (EROTON Exploration and Production Limited).
-- Gross block production was 31,600 bopd in September 2015,
with production ramp-up plan proceeding.
-- Proof of debt funding for more than US$100 million of the
total US$180 million transaction has been secured by San Leon, and
the Company is in advanced discussions to raise the balance.
-- Subject to applicable approvals, the transaction is expected to close in March 2016.
-- No dilution to existing San Leon shareholders.
Deal Overview
Subject to customary conditions (including court approvals in
Canada, applicable third party approvals, applicable regulatory and
stock exchange approvals, and applicable shareholder approvals),
and the payment into escrow of the purchase price in respect of the
Mart Acquisition, the Company will acquire and simultaneously
restructure an interest in Nigerian onshore block OML 18. San Leon
will also, through a new subsidiary with a local indigenous
partner, have the right to provide oilfield services (such as
workover and drilling rigs) to the operator.
Deal Mechanics
A binding arrangement agreement has been signed between the
Company and Midwestern Oil and Gas Limited ("Midwestern", a private
indigenous Nigerian exploration and production company) to acquire
Mart Resources, Inc. ("Mart", a Canadian-listed exploration and
production company), the "Mart Transaction".
San Leon and Midwestern (through a Canadian acquiring entity)
will acquire all of the issued and outstanding common shares of
Mart by way of a Plan of Arrangement under the Business
Corporations Act (Alberta), at a price of C$0.25 per share, a 194%
premium to the closing price on 21(st) January 2016. The aggregate
consideration for the Mart shares will be approximately US$62.6
million.
Martwestern Energy Limited ("Martwestern"), a Nigerian holding
company which is a major shareholder of EROTON Exploration and
Production Limited ("EROTON", the Operator of OML 18), is owned by
Midwestern, Mart and SunTrust Oil Company Limited ("SunTrust" a
private indigenous Nigerian exploration and production company).
Under certain restructuring agreements between Midwestern and San
Leon, which will include the acquisition of SunTrust's 20% interest
in Martwestern, Midwestern will assume from the Mart Transaction
all assets and liabilities of Mart not associated with OML 18. The
balance of the US$180 million total transaction cost is accounted
for by the SunTrust acquisition and restructuring, and by
transaction fees. This transaction cost will be funded by the issue
of debt instruments by the Company, and the Company has already
secured proof of funds for a majority of this amount.
Following the restructuring of Martwestern, the Company will
hold a total indirect interest in OML 18 of 9.72%.
Attractiveness of he Deal to The Company
Unlike other divestments by IOCs in Nigeria, OML18 is unique in
that the critical infrastructure is in place, is operational and
has spare capacity. The development program (which has already seen
success from well reactivations) will consist of workovers,
equipment refurbishment and simple infill drilling. The Company
therefore regards the technical and operational risks to be
low.
A material part of current and future field production to the
end of 2017 is covered by an oil price hedge at $95 per barrel. The
hedge is paid on approximately 40% of the production for 2016 and
2017. Additionally, while the Company is paying back its
transaction debt, it will receive an enhanced cash sweep of a
minimum of 65% from Martwestern's share of OML 18 production to
ensure a particular minimum level of investment return. Together,
these factors significantly de-risk project performance for San
Leon and creditors, and incentivise the development of OML 18.
Additional income is expected to be generated by the right of
San Leon to provide oilfield services, such as workover and
drilling rigs, to the OML 18 Operator.
Timing
Subject to necessary approvals, the transaction is expected to
close in March 2016. San Leon has undertaken to deliver the
purchase price into escrow by February 17(th) 2016, and will pay a
reverse break fee to Mart of US$2.2 million in the event that it
fails to do so.
Two senior executives with considerable Nigerian experience
across operations, finance and transactions will join the San Leon
Board once the transaction has completed.
San Leon was assisted in this transaction by DSA Investments
Inc., a principal investment and family office with cross-sector
expertise in origination, structuring, equity and debt raising
together will full cycle project management of global transactions
particularly in the energy and infrastructure sectors.
Brandon Hill Capital provided transaction support to the
Company.
Full details of the proposed Mart transaction are available from
Mart's website and their press release of today.
OML 18 Background
The OML 18 licence area is mangrove swamp in the Southern
Nigerian Delta close to the Shell-operated Bonny export terminal.
It covers 1,035km(2) (larger than the country of Bahrain), is a
world-class resource of oil, natural gas and condensate and
includes the Alakiri, Awoba, Cawthorne Channel, Krakama, and Buguma
Creek fields and related facilities. The Awoba field straddles into
OML 24. The operational associated infrastructure includes seven
oil flow stations, three associated gas gathering processing plants
and one non-associated gas processing plant, and associated
gathering facilities. Approximately 140 wells have been drilled on
OML 18. Three fields are currently on production. Crude oil
production from OML 18 is exported through the Bonny Crude Oil
Terminal via the Nembe Creek Trunkline. Gas production from OML 18
is delivered to Notore Petrochemcial Plant, located adjacent to OML
18 via the Nigeria Gas Company's pipeline.
Gross crude oil production from OML 18, increased from
approximately 14,000 bopd in March 2015 to approximately 31,600
bopd in September 2015 as the initial stages of a comprehensive
well workover programme were executed. The programme will be
expanded to an extensive infill well drilling programme in due
course.
Temporary Suspension of Shares
The transaction, if completed, would constitute a Reverse
Takeover of San Leon under the AIM Rules and will be subject to the
approval of San Leon shareholders. Trading in San Leon's ordinary
shares has therefore been suspended from 3 p.m. today, 22 January
2016, pending publication of a re-admission document or
confirmation that the transaction is not proceeding.
Oisin Fanning, San Leon Executive Chairman, commented:
"As part of San Leon's long-term strategy to move towards
production and secure near-term operational cash flow, the Company
has been able to achieve a deal that capitalises on the current low
oil price environment and buy into production with significant yet
low risk upside and attractive hedges already in place. The
proposed transaction will provide San Leon with substantial
production and cash flow not only from both production but also
from service provision in a world-class asset, and is also expected
to provide a platform for further transactions. The move also
furthers our involvement in Nigeria where we have already announced
that our seismic subsidiary, NovaSeis, has signed a MoU with an
indigenous Nigerian company. We also look forward to welcoming the
new executives into the Company on completion of the transaction,
providing country-specific operating and financial expertise. We
firmly believe this will be transformational for the Company, and a
large step towards San Leon becoming a dividend-paying
company."
Qualified person
Joel Price, who has reviewed this update, has more than 20
years' experience in the oil & gas industry and is a member of
the Society of Petroleum Engineers. He holds a BA in Natural
Sciences (Geology) from Cambridge University, an MEng in Petroleum
Engineering from Heriot-Watt University, and an MBA from Durham
University. Joel is Chief Operating Officer for San Leon Energy and
is based in San Leon's London office.
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