San Leon Energy PLC (LON:SKLE), the independent oil and gas production, development and exploration company has updated the market on its operations in Nigeria.
In common with many oil and gas projects, operational activity on the OML 18 licence remains low whilst OPEC quota restrictions are in place.
In addition, appropriate budget restrictions have been implemented which are designed to preserve cash.
Resulting from its investment in OML 18, San Leon is due to receive its final payments of over US$98mln in three equal instalments, commencing in July 2021 and completing by December 2021.
Midwestern Oil & Gas Company Ltd, the guarantor of the notes, has confirmed it expects to make these payments on schedule. However, there has been a delay to the interim repayment due in the fourth quarter of last year.
So far, US$5.75 million of the US$10mln has been paid by Midwestern.
Midwestern has acknowledged the outstanding payment of US$4.25mln to San Leon is overdue, saying the delay is due to the combined effects of coronavirus (COVID-19), OPEC quota cuts and the fall in the oil price during 2020.
However, with these challenges having been addressed, Midwestern has confirmed the outstanding payment will be made in the coming months. Relationships between the companies remain strong and San Leon’s management are in regular communication with Midwestern.
Consequently, the company is confident that payments will be brought up to date and that the remaining payment schedule under the Loan Notes instrument will be delivered. As San Leon continues to earn interest of 17% on all payments until such time as they are made the delay to the payments has increased the company’s return from this investment.
The company’s cash balance on 12 March 2021 was US$10.8mln.
Considerable progress has been made since San Leon invested US$15mln in ELI, the company which owns the ACOES project.
ELI has received the Terminal Establishment Order approval from the Nigerian Minister for Petroleum Resources for the floating storage and offloading vessel, ELI Akaso, to be set up as an oil terminal.
ELI Akaso is currently undergoing preparatory maintenance in Ghana ahead of its expected arrival in Nigeria in the coming months.
Several oil producers in the region have made enquiries to ELI with regards to using the ELI Akaso for storage and export operations. Some of these enquiries are based on delivering crude oil to the oil terminal by barge, meaning that these storage and export operations can potentially commence ahead of completion of the pipeline.
Construction of the pipeline continues to progress and hook up with ELI Akaso is expected to take place in the summer of 2021.
The ACOES is expected significantly to reduce the pipeline losses and downtime currently applicable to OML 18 production.
Meanwhile, on 22 February 2021 Decklar Resources reported that the due diligence required to finalise the term debt arranged with a Nigerian bank and the trading subsidiary of a large multinational oil company active in Nigeria continued to progress in regard to the Oza field.
Decklar also announced that the final report by the independent technical consultant contracted to review reserve and production data and financial projections had been issued.
The definitive loan documents and formal legal agreements continue to be finalised and are nearing conclusion with the Nigerian bank. As previously announced, the remaining US$6.75mln for the subscription agreement with Decklar is in escrow and will be released upon satisfaction.
Decklar also recently closed a C$4.7mln financing which will be used to immediately advance operational activities to re-enter the Oza-1 well and to re-establish oil production at the Oza Oil Field.
This includes the mobilisation of the drilling rig during April 2021 as well as all testing and completion equipment.
At Barryroe San Leon has noted the announcement by Providence Resources earlier this month of the extension to the farm-out agreement, pending finalisation of the financing structure.
San Leon retains a 4.5% net profit interest over the Barryroe field, one of the largest undeveloped discoveries in Western Europe
“To date the company has received US$196mln in loan notes repayments from its 2016 investment of US$174.5mln into OML 18 and expects to receive over US$98mln during this year,” said Oisin Fanning, chief executive of San Leon.
“As we have announced in the past, our policy is to return 50% of our free cashflow to shareholders by way of special dividends. In addition to these loan notes repayments, San Leon also holds an indirect equity interest of 10.58% in OML 18 as part of that transaction. “The ACOES project is expected to provide significant material benefits both to the company’s OML 18 investment, and through returns from its equity stake in ELI. I also anticipate near-term operational activity on the Oza oil field, once the investment paperwork from all parties is complete.”