San Leon Energy : Interim results 2021

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.

30 September 2021

San Leon Energy Plc

("San Leon", "SLE" or "the Company")

Unaudited Interim Results

San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, today announces its unaudited interim results for the six months ended 30 June 2021. This includes an update on its indirect interest's in OML 18, a world-class oil and gas block located onshore in Nigeria and Energy Link Infrastructure (Malta) Limited ("ELI"), the company which owns the Alternative Crude Oil Evacuation System ("ACOES") project.

Highlights

Corporate

• On 24 June 2021 San Leon announced a conditional investment of US$2.0 million, as well as an option to conditionally invest a further US$6.5 million, in the equity of Energy Link Infrastructure (Malta) Limited ("ELI"), the company which owns the Alternative Crude Oil Evacuation System ("ACOES") project. This transaction is awaiting final conditions precedents to complete.
• Separately and in addition to the aforementioned announcement, on 24 June 2021, San Leon confirmed that it is in preliminary discussions with Midwestern Oil and Gas Company Limited ("Midwestern") about acquiring Midwestern's indirect interest in the OML 18 oil and gas block located onshore in Nigeria ("OML 18"). Any transaction would involve San Leon acquiring the outstanding shares not already owned by San Leon in relation to Midwestern Leon Petroleum Limited ("MLPL") from Midwestern.
  o The acquisition by San Leon of the outstanding shares in MLPL not already owned by San Leon would constitute a reverse takeover under rule 14 of the AIM Rules. San Leon is not contemplating acquiring Midwestern itself.
  o In accordance with rule 14 of the AIM Rules, the Company's ordinary shares were suspended from trading on AIM on 24 June 2021. The Company's ordinary shares will remain suspended until such time as either an AIM admission document is published or an announcement is released confirming that the reverse takeover in contemplation is not proceeding.
• On 7 July 2021 San Leon agreed with MLPL, Midwestern and Martwestern to a conditional payment waiver in respect of the repayment of approximately US$32 million of MLPL's Loan Notes and interest that fell due on 5 July 2021 (the "Conditional Payment Waiver"). The Conditional Payment Waiver expired at the end of August 2021 or, if sooner, the termination of discussions or the signing of an agreement to effect the Potential Transaction, and interest will accrue on this instalment of the Loan Notes over this period. The sums to which the Conditional Payment Waiver relates (and those falling due within 30 days after the expiry of the Conditional Payment Waiver) will be payable 90 days after such expiry, save for, inter alia, if there is an event of default.
  o On 20 September 2021 San Leon agreed an extension of the Conditional Payment Waiver to the end of September 2021. The Board is in discussions with MLPL, Midwestern and Martwestern in relation to a further extension of the Conditional Payment Waiver.
• On 12 July 2021 heads of terms were signed in respect of, inter alia, the proposed reorganisation to consolidate Midwestern's holdings in the Company and MLPL into a single holding in the Company (the "Potential Transaction").
• Board appointment process previously announced completed with the appointment of John Brown as Independent Non-Executive Director and Chair of the Audit and Risk Committee, and Adekolapo Ademola as Non- Independent Non-Executive Director on behalf of Midwestern. Non-Executive Directors, Mark Phillips, Bill Higgs

and Linda Beal, left the Board during 2020 and Alan Campbell has since stepped down from the Board in 2021 as part of a board restructure.

• On 2 August 2021 Lisa Mitchell resigned as its Chief Financial Officer and Executive Director to take up a new role. San Leon has commenced a search for a replacement.

Financial

• Cash and cash equivalents as at 30 June 2021 of US$12.1 million (US$6.8 million is restricted and held in escrow for the Oza transaction) (30 June 2020: US$35.6 million).
• Cash and cash equivalents as at 24 September 2021 was US$10.2 million (US$6.8 million is restricted and held in escrow for the Oza transaction).
• Up to 30 June 2021 US$0.8 million (six months to 30 June 2020: US$41.5 million) has been received by the Company in relation to payments due to San Leon under the MLPL Loan Notes. Since the reporting date a further US$1.1 million of the balance outstanding has been received.
• Profit from continuing operations for the period ended 30 June 2021 was US$8.1 million (six months to 30 June 2020: loss of US$20.3 million). For clarity, this figure does not reflect Loan Notes repayments received.

Operational

• Eroton has informed the Company that it continues to take all appropriate precautions for its operations and people with regards to responding to the Covid-19 pandemic.
• Oil delivered to the Bonny terminal for sales was approximately 6,600 barrels of oil per day ("bopd") in H1 2021 (25,200 bopd in H1 2020). The figure has been affected by continued losses and downtime associated with the use of the Nembe Creek Trunk Line ("NCTL"), OPEC restrictions, and reduced operations both as a result of the Covid-19 pandemic and also due to prudent capital discipline.
• Gas sales averaged 17.8 million standard cubic feet per day ("mmscf/d") in H1 2021 after downtime (39.1 mmscf/d in H1 2020).
• Production downtime of 3.3% in H1 2021 was caused by third party terminal and gathering system issues. Such issues in the third-party export system are expected to be substantially resolved by the implementation of the new ACOES for the purpose of transporting, storing and evacuating crude oil from the OML 18 export pipeline.
  o The ACOES pipeline will run from within the OML 18 acreage to a dedicated Floating Storage and Offloading ("FSO") vessel in the open sea, approximately 50 kilometres offshore.
  o Oil barging operations from OML 18 to the FSO commenced in late September 2021 (while awaiting availability of the pipeline), with the full ACOES including the pipeline expected by Eroton to be operational in early 2022.
• Pipeline losses by the Bonny Terminal operator have been markedly higher during this year due to lower pipeline throughput (30 June 2021: 65%; 30 June 2020: 20%). The ACOES export Pipeline and FSO system mentioned above are expected to reduce losses significantly.

Chief Executive Officer of San Leon, Oisín Fanning, commented:

"The Company is well-positioned either to pursue the proposed transaction with Midwestern, or to continue with its existing assets and strategy and await receipt of the remaining substantial Loan Notes repayments. Whichever route is taken, the progress on the ACOES system is expected to be of substantial benefit."

Enquiries:

San Leon Energy plc

Oisín Fanning, Chief Executive (+ 353 1291 6292)

Allenby Capital Limited (Nominated adviser and joint broker to the Company) Nick Naylor ([phone])

Alex Brearley ([phone])

Vivek Bhardwaj ([phone])

Panmure Gordon & Co (Joint broker to the Company)

Nick Lovering ([phone])

James Sinclair-Ford ([phone])

Brandon Hill Capital Limited (Joint broker to the Company)

Oliver Stansfield ([phone])

Jonathan Evans ([phone])

Tavistock (Financial Public Relations)

Nick Elwes ([phone])

Simon Hudson ([phone])

The Interim Report and Accounts are available on the Company's website at www.sanleonenergy.com.

Chairman's statement

2021 has been an active corporate period for San Leon, with the Company announcing preliminary discussions with its existing partner Midwestern about acquiring their indirect interest in the world-class OML 18 oil and gas block located onshore in Nigeria. This is part of the Company's continued implementation of its strategy to include the delivery of sustainable long-term returns to shareholders and expanding our asset base.

During the period of 2021 to date, US$1.9 million of Loan Note payments have been received. In July 2021 the Company agreed to the conditional payment waiver in respect of the repayment of approximately US$32 million of MLPL's Loan Notes and interest that fell due on 5 July and this has since been extended to the end of September 2021. The Board is in discussions with MLPL, Midwestern and Martwestern in relation to a further extension of the Conditional Payment Waiver. As at the end of June 2021 the balance outstanding of the existing Loan Notes Instrument between San Leon and MLPL was US$93.6 million of principal and interest on a cash receipt basis. Given the discussions regarding the proposed transaction referred to above, the timing of future cashflows will now be dependent on the structure of the reverse takeover and also on the transaction closing. (Please see Note 1 for details).

On the operational side, the first half of 2021 has been as challenging for OML 18 as it has also been for the rest of the industry. I am delighted to note that the first step of the ACOES is now operational, barging oil from OML 18 to the FSO, while the new oil export pipeline is awaited. The ACOES is expected to be a highly useful tool in reducing the substantial pipeline losses and downtime which have hampered cash flow from OML 18 production.

I am pleased to welcome John Brown, who has joined San Leon as Independent Non-Executive Director and who will chair the Audit and Risk Committee.

Financial Review

San Leon generated a profit after tax from continuing operations of US$8.1 million for the six months to 30 June 2021, compared with a loss after tax of US$20.3 million in the six months to 30 June 2020. The majority of this profit is attributable to the profit on equity investments for the six months to 30 June 2021 of US$7.7 million (30 June 2020: loss of US$14.1 million). This profit primarily relates to San Leon's equity investment in MLPL. MLPL has a 100% equity investment in Martwestern Energy, which in turn has a 98% economic interest in Eroton, which holds a 27% working interest in OML 18, Nigeria and is its operator.

The share of profit on equity accounted investments comprises 40% of MLPL's gross results being, administrative costs of US$1.1 million (30 June 2020: US$1.0 million), net finance income of US$4.1 million (30 June 2020: US$1.0 million), a profit on investment of US$21.2 million (30 June 2020: loss of US$31.6 million) and a tax charge of US$4.1 million (30 June 2020: US$3.7 million).

Revenue for the six months to 30 June 2021 was US$nil, compared with US$nil for the six months to 30 June 2020.

Administrative costs decreased to US$5.9 million for the six months to 30 June 2021 (30 June 2020: US$7.7 million).

Finance expense of US$0.1 million for the six months to 30 June 2021 (30 June 2020: US$0.1 million) relates to interest on obligations for leases.

Finance income of US$8.2 million (30 June 2020: US$7.8 million) is substantially interest income on the US$174.5 million Loan Notes and ELI Loan Notes.

The Expected Credit Loss ("ECL") provision has increased by US$0.8 million (30 June 2020: a credit of US$5.9 million).

The tax charge for the six months to 30 June 2021 is US$0.4 million (30 June 2020: US$0.8 million) predominantly relating to the decrease in the fair value of the Barryroe Net Profit Interest ("NPI") of US$1.1 million.

Outlook

San Leon continues to believe in the value inherent in OML 18, as evidenced by the proposed transaction with Midwestern. This would be a significant further step in our growth strategy. The ACOES is expected to help to unlock that strategy, and the beginning of barging operations signals the beginning of that phase of development.