San Leon Energy pumps out cash as it looks for next opportunity

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Our robust financial position, additional significant funds expected to be received in the next 18 months, existing and anticipated new projects, are planned to provide continued shareholder returns.

Oisin Fanning, chief executive

What the company owns

San Leon Energy PLC (LON:SLE) previously financed a Nigerian company in the OML 18 asset which is now producing at a rate of around 50,000 bopd.

Through its deal with operator Eroton Exploration and Production it receives a 17% coupon on the loan (it has so far received US$149mln of payments, a US$98mln balance is outstanding, and around US$114mln is due for payment before the scheduled expiry in 2021).

It also landed a 10% economic interest in the underlying asset base, which will continue to generate important cash flows to the business after the operator’s debt is repaid.

On top of that, San Leon subsidiaries retain revenue-generating service contracts with Eroton for technical subsurface and broader (rig) field services.

How is it doing?

On 1 Feb 2021 Proactive reported:

San Leon said there has been progress on a loan agreement to fund a fast-track redevelopment of the Oza oil field in Nigeria. Following the completion of due diligence and a technical report, loan documents are anticipated to be issued by the end of this week.

As part of a deal struck in September, San Leon will invest in US$7.5mln of loan notes issued by Decklar Petroleum, a subsidiary of Asian Mineral Resources (CVE:ASN), and roughly US$4,600 for a 15% stake in Decklar.

San Leon has made an initial deposit of US$750,000 and the balance of the investment in Decklar is being held in escrow.

The AIM-listed company can also, under the deal, decide later if it wishes to buy another US$7.5mln of loan notes and an additional 15% of Decklar’s shares for US$6,500 up to 45 days after it has received well test results on the first Oza development well.

Previously, in 2020, the company received US$41.5mln in payments from operators, via loan note arrangements. Some US$88.7mln of future loan note payments remain.

With US$35.6mln in cash at the end of the half-year – US$22.6mln by September 18, 2020, after US$6.8mln was put in escrow – the company said it is positioned to invest and grow further. In early September, new deals were announced which will see San Leon secure an interest in the Oza field, onshore Nigeria.

“Whilst the world and the industry has been through turbulent times, we have taken advantage of the opportunities presented by this as well as utilising our cash position to further build our portfolio in Nigeria in line with our strategy,” Oisín Fanning, San Leon’s chief executive said in the results statement.

Fanning added: “Our strong position is expected to continue in the year ahead as we receive further loan note payments and deliver upon our strategy.”

San Leon paid out US$35.3mln to shareholders in the first half of 2020 and in May it announced that a US$33.3mln special dividend would be paid – representing a dividend yield of about 30% at that time – and a US$2mln share repurchase programme was completed early in the reporting period.

Also in May, Fanning purchased 98mln San Leon shares, taking his shareholding to 24%.

Eroton delivered an average of 25,200 barrels of oil per day to the Bonny terminal during the first half of 2020. San Leon noted that operations in Nigeria continue to be impacted by pipeline losses and downtime, an impact of around 32%

What the broker says

8 Oct 2020

Stockbroker Panmure has begun its coverage of San Leon Energy PLC (LON:SLE) with a ‘buy’ recommendation and a 59p price target, suggesting more than 100% upside to the current price.

Analyst Ashley Kelty, in a note, highlighted San Leon’s low-risk and value-creating model. “In our opinion, San Leon offers investors exposure to Nigerian production and development assets, with a clear path to near-term cashflow and significant longer-term upside,” Kelty said.

“Through investing indirectly in companies in Nigeria rather than directly in the assets, San Leon reduces the risk profile, whilst retaining greater upside.

What management says

04 Sep 2020

San Leon Energy PLC’s (LON:SLE) Oisin Fanning spoke to Proactive London’s Katie Pilbeam about its new US$7.5mln investment into the Oza oil field in Nigeria.

Meet the management

19 Oct 2020

San Leon Energy’s Joel Price presented at the Proactive One2One Virtual Forum.

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