San Leon Energy : Interim results 2022

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 2022

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 2022. These results include an update on its indirect interests 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.

Corporate

• On 8 July 2022 San Leon announced, amongst other matters, that it had entered into a series of agreements with Midwestern Oil & Gas Company Limited ("Midwestern") to consolidate Midwestern's holdings in San Leon, Midwestern Leon Petroleum Limited ("MLPL") and Energy Link Infrastructure (Malta) Limited ("ELI") into a single holding in San Leon (together the "Proposed Midwestern Reorganisation"). In addition, San Leon announced further conditional investments in ELI (together the "Further ELI Investments"). Taken together the Proposed Midwestern Reorganisation and Further ELI Investments are collectively referred to as the "Proposed Transactions". The Proposed Transactions are transformational for San Leon and once complete will:
  o Consolidate and simplify the group structure;
  o Increase San Leon's exposure to the world class OML 18 asset fourfold to a 44.1% initial indirect economic interest; and
  o Increase San Leon's ownership of ELI to c.50% and a total of US$48.3 million loans (plus accrued interest) to ELI.
• On 27 January 2022 San Leon announced that it was proceeding with its investment in the Oza oil field in Nigeria and upon completion it will have the following interests in Decklar Petroleum Limited:
  o A total of US$5.5 million 10% unsecured subordinated Decklar Petroleum loan notes; and o An equity interest in Decklar Petroleum Limited of 11%.
• On 31 January 2022 San Leon announced that it had successfully concluded its ongoing legal proceedings with TAQA Offshore BV ("TAQA") in relation to San Leon's legacy interest in two royalties in Block Q13A, which is located offshore Netherlands. San Leon received payments totaling more than €5.7 million in settlement from TAQA.
• On 15 February 2022 San Leon announced a further loan of US$2.0 million to ELI at a coupon of 14% per annum over four years which is payable quarterly following a one-year moratorium from the date of investment. In addition, the loan was accompanied by a transfer of a 2.0% equity interest in ELI to San Leon which was acquired at nominal value, a consideration of approximately US$91.

Financial

• Cash and cash equivalents as at 30 June 2022 of US$0.3 million (30 June 2021: US$12.1 million of which US$6.8 million was restricted and held in escrow for the Oza transaction).
• As disclosed in the Company's AIM Admission Document published on 8 July 2022, a loan facility of US$50.0 million has been made available to the Company by MM Capital Holding for the purposes of funding its working capital requirements and financing the Further ELI Investments (otherwise known as the New Facility). The New Facility currently remains undrawn, at San Leon's election, as the Company is currently examining whether additional or alternative financing might be available on terms that may be better aligned with the Company's overall strategic and financing objectives, and San Leon is in discussions with several counterparties in this regard. As a result of electing not to drawdown the New Facility, the Company's current trade creditors amount to approximately US$3.5 million (predominantly related to

advisor fees incurred in relation to the Proposed Transaction) and with current cash resources being limited, a drawdown of funds under the New Facility or an alternative debt financing arrangement is required to allow trade creditor settlement. Depending on progress with the discussions on this alternative financing, the Board intends, in the near-term, to either draw down on the New Facility or put a different debt financing arrangement in place which will be drawn down once it is finalised, to allow trade creditors to be settled and the Further ELI Investments to be financed.

• In the six months ended 30 June 2022 US$0.3 million (six months to 30 June 2021: US$0.8 million) has been received by the Company in relation to payments due to San Leon under the MLPL Loan Notes. San Leon has agreed with MLPL, Midwestern and Martwestern to a Conditional Payment Waiver to 31 December 2022 to allow for the completion of the Proposed Transactions. As at 29 September 2022, the Conditional Payment Waiver relates to US$108.8 million, being a principal amount due of US$82.2 million and total accrued interest due of US$26.6 million, which will be payable 90 days after such expiry, save for, inter alia, if there is an event of default.
• Completion of the Proposed MLPL Reorganisation (which is part of the Proposed Transaction) is subject to a number of conditions, details of which were set out in the Company's announcement of 8 July 2022 and in the Admission Document. In order to acquire additional interests in OML 18 and take its economic interest to 45% of OML 18, Eroton proposes to enter into new senior secured reserve-based lending facilities totaling US$750 million (the "New Eroton Debt Facilities"), to be provided to Eroton by a lending consortium headed by Afreximbank. Whilst this process has made good progress in September 2022, it remains a complex procedure with several interested parties and, as a result, further additional time is needed to finalise the loan agreements and ancillary documentation. Consequently, the condition relating to the New Eroton Debt Facilities, which had been had already been extended to 30 September 2022, has now been extended to 31 October 2022 by agreement with Midwestern. Aside from the extension of timing, the structure of the New Eroton Debt Facilities remains in accordance with the description set out in the Admission Document. In addition to the requirement to enter into the New Eroton Debt Facilities, the MLPL Reorganisation Agreement requires the Sahara OML 18 Acquisition Agreement (as defined in the Admission Document) to be entered into by all parties by 30 September 2022. The Sahara OML 18 Acquisition Agreement is not expected to be entered into until after the New Eroton Debt Facilities have been entered into and the funds are available, so this date has also been extended to 31 October 2022 by agreement with Midwestern.
• The board of San Leon still remains confident that the Proposed Transactions will complete during the final quarter of this year, as originally set out in the Admission Document.

Operational

Eroton - OML 18

• Oil delivered to the Bonny terminal for sales averaged approximately 1,130 barrels of oil per day ("bopd") in H1 2022 (6,600 bopd in H1 2021). The figure has been affected by continued losses and downtime associated with the use of the Nembe Creek Trunk Line ("NCTL"), and reduced operations both as a result of the Covid-19 pandemic and also due to prudent capital discipline ahead of the availability of the ACOES.
• Gas sales averaged 41.8 million standard cubic feet per day ("mmscf/d") in H1 2022 after downtime (17.8 mmscf/d in H1 2021).
• Production downtime of 17% in H1 2021 (3% downtime 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.
• Pipeline losses by the Bonny Terminal operator have been markedly higher during this year (30 June 2022: 91%; 30 June 2021: 65%). The ACOES export Pipeline and FSO system are expected to reduce losses significantly when operational.

ELI - ACOES pipeline

• There have been various logistical delays to the implementation of the ACOES project in the first half of the year.
• The Floating Storage and Offloading ("FSO") vessel is now on station, approximately 40 kilometers offshore, and is expected to be spread moored and operational for receipt of barging cargoes in the coming weeks.

• Oil barging operations from OML 18 to the mother vessel continued during the period. Once the mother vessel has reached its capacity of 250,000 barrels, the oil will be transferred to the FSO.
• Good progress has been made during the period on commercial negotiations with third parties who are expected to use the FSO when it is fully operational. Third parties will barge oil to the FSO when its operations commence.
• The pipeline contractor has recently commenced mobilisation to site and will recommence laying the pipeline component of the ACOES imminently. The full ACOES which will be utilised by Eroton, including the pipeline, is now expected to be operational in Q1 2023.

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

"We were delighted to have entered into a series of agreements for the Proposed Transactions in early July 2022. We believe that this series of transactions, when completed, will be truly transformational for the Company and will deliver significant value to our shareholders. We are making good progress on clearing the conditions associated with the agreements and still expect to complete the Proposed Transactions in the fourth quarter of 2022.

"These transactions will pave the way for the Company to deliver its strategy of becoming a significant participant in the Nigerian oil and gas market, positioning San Leon to take advantage of further transactional opportunities to enhance and grow our business."

Enquiries:

Oisín Fanning, Chief Executive

Julian Tedder, Chief Financial Officer

Allenby Capital Limited (Nominated adviser and joint broker to the Company) +44 203 328 5656 Nick Naylor

Alex Brearley

Vivek Bhardwaj

Panmure Gordon & Co (Joint broker to the Company) +44 207 886 2500

James Sinclair-Ford

Tavistock (Financial Public Relations) +44 207 920 3150

Nick Elwes

Simon Hudson

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

Chairman's statement

Our focus in the first half of 2022 was on progressing the Proposed Transactions and I am pleased that this culminated in San Leon publishing an Admission Document on 8 July 2022 and our shares resuming trading on AIM. The Proposed Transactions were subsequently approved by our Shareholders at the Extraordinary General Meeting held on 5 August 2022. We are making good progress in satisfying the conditions required to complete the Proposed Transactions and expect final completion to be in the fourth quarter of 2022.

On the operational side, the first half of 2022 has been as challenging for OML 18 and the ACOES project. Oil export from OML 18 was at very low rates during the first half of 2022 while awaiting full barging availability of the ACOES system. Gas sales were rather healthier, at around 41.8 mmscf/d on average during the period. Current production from OML18 is approximately 12,000 bopd and this is expected to increase further over the coming months as operations are optimised.

Financial Review

As we announced on 8 July 2022 completion of the Proposed Transactions remains materially uncertain and further details on going concern are included in note 1 to the financial statements.

San Leon has reported a loss after tax from continuing operations of US$8.9 million for the six months to 30 June 2022 (six months to 30 June 2021: profit of US$8.1 million). The majority of this loss is attributable to the loss on equity investments for the six months to 30 June 2021 of US$12.5 million (30 June 2021: loss of US$7.7 million). This loss relates to San Leon's equity investment in MLPL. MLPL has a 100% equity investment in Martwestern Energy, which in turn has a 98% initial economic interest in Eroton, which holds a 27% working interest in OML 18, Nigeria and is its operator.

The share of loss on equity accounted investments comprises 40% of MLPL's gross results being, administrative costs of US$1.0 million (30 June 2021: US$1.1 million), net finance income of US$5.4 million (30 June 2021: US$4.1 million), a loss on investment of US$30.5 million (30 June 2021: profit of US$21.2 million), a net loss on financial assets of US$0.2 million (30 June 2021: US$Nil) and a tax charge of US$4.8 million (30 June 2021: US$4.1 million). Although ELI recorded a loss of US$6.3 million (30 June 2021: US$2.9 million) there was no share of loss of associate recorded because the opening investment as at 1 January 2022 had already been written down to US$Nil. The share of loss also includes Decklar Petroleum Limited's gross loss of US0.8 million in the first half of 2022.

Revenue for the six months to 30 June 2021 was US$0.1 million (six months to 30 June 2021: US$Nil) relating to receipts in relation to royalties received in respect of legacy interests in the Netherlands.

Administrative costs decreased to US$4.3 million for the six months to 30 June 2022 (30 June 2021: US$5.9 million).

Finance expense of US$0.1 million for the six months to 30 June 2022 (30 June 2021: US$0.1 million) relates to interest on obligations for leases.

Finance income of US$8.7 million (30 June 2021: US$8.2 million) is derived from accrued interest income on the MLPL and ELI Loan Notes.

The Expected Credit Loss ("ECL") provision has increased by US$0.8 million (30 June 2021: US$0.8 million).

The tax charge for the six months to 30 June 2022 is US$0.6 million (30 June 2021: US$0.4 million).

Outlook

San Leon looks forward to completing the Proposed Transactions in the fourth quarter of 2022 and working together with Eroton and ELI in 2023 to unlock the significant value in the OML 18 and ACOES assets. The Proposed Transactions are transformational for San Leon and are an important step in our growth strategy.

CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2022