Malcy’s Blog – Oil price, San Leon Energy, Gulfsands Petroleum, FAR, Zephyr Energy & finally

WTI $105.36 +$3.34, Brent $107.59 +$2.27, Diff -$2.23 -$1.07, NG $6.89 -38c, UKNG 158.0p +28p

By Malcolm Graham-Wood

Oil price

The oil price rose yesterday after rumours emerged that the EU are closer to a deal that would see them cut back on hydrocarbon imports from Russia. I would be surprised but maybe they will start with oil then move to gas…

The other thing is that Opec+ meets next Thursday and so far I suspect that they won’t change the monthly increase especially given that the Russian production number is uncertain at the moment. That decision doesnt need to be made quite yet.

San Leon Energy

San Leon has provided the following update on the proposed reorganisation to consolidate Midwestern Oil and Gas Company Limited’s  shareholdings in: i) the Company; and ii) Midwestern Leon Petroleum Limited into a single shareholding in the Company. The Potential Transaction also comprises, inter alia, a proposed consolidation of Midwestern’s indirect debt and equity interests in Energy Link Infrastructure (Malta) Limited  with those of the Company, as well as further new debt and new and existing equity investments to be made by San Leon in ELI. The Potential Transaction, if concluded, would be classified as a reverse takeover under the AIM Rules for Companies.

AIM admission document update

Further to the Company’s announcement on 28 February 2022, the Company now currently expects to publish an AIM admission document in respect of the Potential Transaction by 24 June 2022 at the latest, following which point the Company will seek the restoration of trading of its ordinary shares on AIM.

Proposed Eroton Transaction

On 29 November 2021, San Leon announced that, inter alia, it had been informed that the operator of the OML 18 oil and gas block located onshore in Nigeria, Eroton Exploration and Production Company Limited, is seeking to acquire an additional 18% interest in OML 18 from two of the other partners in OML 18, subject, inter alia, to: i) agreeing documentation; ii) finalising bank financing; and iii) receiving the relevant regulatory consents in Nigeria, thereby taking Eroton’s interest in OML 18 to 45%.

As previously noted in the Company’s announcement of 28 February 2022, completion of the Potential Transaction is conditional upon completion of the Proposed Eroton Transaction. The entering into binding conditional transaction documentation in relation to the Proposed Eroton Transaction is contingent, inter alia, on Eroton’s financing of this transaction which is expected to form part of a refinancing of OML 18’s reserve-based lending facilities.  In that regard, it was also announced on 28 February 2022 that Eroton have received a term sheet in relation to a reserve-based lending facility, totalling US$750,000,000, which is proposed to be lent by a financing syndicate led by African Export-Import Bank. San Leon has been provided with an update on the progress of the funding for the Proposed Eroton Transaction and has been advised that significant progress has been made with this financing syndicate, with key milestones being achieved.

Further progress in relation to the Proposed Eroton Debt Facilities remains subject to, amongst other matters, definitive documentation and ELI successfully demonstrating the barging of oil to the floating storage and offloading vessel  through part of the Alternative Crude Oil Evacuation System  project, to the off-taker’s satisfaction which is expected to be met in May 2022, following receipt of the necessary Nigerian regulatory maritime approvals.  Given the level of recent activity by ELI, similar to the loan provided to ELI by San Leon as announced on 15 February 2022, the Board has made ELI aware that should it have financing needs in coming months to progress critical steps in relation to the ACOES project, then the Board are open to considering SLE making additional loans to ELI.  Should such loans be required it is expected that these will be separate, distinct and not conditional on the Potential Transaction.

Following this, San Leon understands that Eroton and the financing syndicate intend to seek to finalise the Proposed Eroton Debt Facilities in order to allow for binding conditional transaction documentation in relation to the Proposed Eroton Transaction to be concluded as soon as may be practicable.  San Leon understands that the proposed binding conditional transaction documentation is making progress toward being in agreed form.

Separate to the Proposed Eroton Debt Facilities, part of San Leon’s potential new debt and new equity investments in ELI are expected to require financing, which the Board currently expects to be provided by way of a new loan to San Leon (the “Proposed New San Leon Loan Facility”).  The Company is engaging with prospective lenders in this respect.

Potential Transaction update

As previously announced in relation to the Potential Transaction, progress has been made by the Company and its advisers in preparing the necessary transaction documentation in relation to the Potential Transaction, including work on progressing the Admission Document, which is now in developed form, given that the Potential Transaction will be classified as a reverse takeover under the AIM Rules for Companies.  The Company intends for the Admission Document to include audited financial information for the three years to 31 December 2021 in relation to MLPL and ELI and the process for compiling this audited historical financial information is now underway, as is the San Leon audit for the same period.

The draft conditional reorganisation agreement to be entered into between: (i) the Company; (ii) Midwestern; and (iii) MLPL, to effect the acquisition of the outstanding shares not already owned by San Leon in relation to MLPL and Midwestern’s indirect debt and equity interests in ELI, as part of the Potential Transaction, continue to remain, inter alia, subject to finalisation of the precise position in relation to its conditions precedent in respect of regulatory consents in Nigeria and San Leon obtaining the requisite financing for the Potential Transaction, pursuant to the Proposed New San Leon Loan Facility.  The Company and Midwestern continue to receive advice in relation to the relevant process here, in order to best reflect this in a finalised version of this agreement.

As previously announced, as part of the Potential Transaction, San Leon would increase its indirect economic interest in Eroton from 39.2% to 98.0% and, taking into account the completion of the Proposed Eroton Transaction, San Leon’s initial indirect economic interest in OML 18 would increase from the current 10.58% to 44.1%.

In accordance with Rule 14 of the AIM Rules, the Company’s ordinary shares will remain suspended from trading on AIM until such time as either the Admission Document is published or the Company announces that the Potential Transaction is no longer proceeding.

The announcement of binding agreements in relation to the Potential Transaction remains subject to a number of factors, including, inter alia, the completion of due diligence, the negotiation and the execution of binding contractual documentation, including the Proposed New San Leon Loan Facility and would be accompanied by the publication of the Admission Document.  Among other things, completion of the Potential Transaction is expected to be subject to various regulatory consents, completion of the Proposed Eroton Transaction, including the proposed Eroton Debt Facilities, a reorganisation of Midwestern’s indirect equity and debt interests in ELI and the approval of San Leon’s shareholders. Given the need for financing, binding contractual documentation and applicable regulatory consents, it remains the case that there can be no guarantee at this stage that the Potential Transaction or the Proposed Eroton Transaction will be entered into or, if entered into, will complete.

Further extension of the Conditional Payment Waiver in relation to the MLPL Loan Notes

In relation to the outstanding loan notes due from MLPLfurther to the announcement on 28 February 2022, San Leon has agreed with MLPL, Midwestern and Martwestern (as defined below) to a further extension of the Conditional Payment Waiver to 24 June 2022 or, if sooner, the termination of discussions or the signing of an agreement to effect the Potential Transaction (but otherwise on the same terms as the waiver announced on 7 July 2021), in relation to three instalments that were originally due to be repaid on 5 July 2021, 30 September 2021 and 31 December 2021. Interest continues to accrue on the principal amounts waived whilst the Extended Conditional Payment Waiver is in effect.  As at 28 April 2022, the Extended Conditional Payment Waiver relates to US$103.8 million, being a principal amount due of US$82.2 million and total accrued interest due of US$21.6 million, which will be payable 90 days after such expiry, save for, inter alia, if there is an event of default.

MLPL is part of the structure through which San Leon holds its current 10.58% indirect economic interest in OML 18.  San Leon currently has a 40% equity interest in MLPL with the remaining interest in MLPL currently being owned by Midwestern. Midwestern is also the guarantor of the Loan Notes.  MLPL has a 100% equity investment in Martwestern Energy Limited, which in turn has a 98% economic interest in Eroton, which currently holds a 27% working interest in OML 18 and is its operator.

As previously announced, it is expected that, inter alia, as part of the Potential Transaction, the amounts owed to San Leon by MLPL pursuant to the Loan Notes will be taken into account in the overall structure and eliminated from the resulting structure.

Related party transaction disclosure

Midwestern and MLPL are related parties of the Company for the purposes of the AIM Rules by virtue of Midwestern holding more than 10% of the existing Ordinary Shares in the Company and the level of Midwestern’s current interest in MLPL. The Extended Conditional Payment Waiver is therefore a related party transaction under the AIM Rules. The Directors of San Leon (excluding Adekolapo Ademola who is not considered to be independent as he is a representative of Midwestern on the Company’s board) consider, having consulted with the Company’s nominated adviser, Allenby Capital Limited, that the terms of the Extended Conditional Payment Waiver are fair and reasonable insofar as the Company’s shareholders are concerned.

Oisin Fanning, CEO of San Leon, commented:

“We believe that OML 18 is a world class oil and gas asset.  Our plans to further enhance our involvement in this asset, via the Potential Transaction, have the potential to be very significant.  A huge amount of work has been carried out and a great deal has been achieved to progress this transaction in the last few months.   We now currently expect to publish an admission document in respect of our Potential Transaction in June 2022. This we believe will deliver a transformational deal to the Company which will put San Leon in a very strong position as a significant player in West Africa with the potential to deliver considerable future value to all our stakeholders.  We look forward to providing further updates in due course.”

Not long to go now in this soap opera as the documentation is expected in June and the shares will be readmitted after that. I believe that CEO Oisin Fanning has done a spectacular if complicated deal here and it will be transformational for the company. 

Gulfsands Petroleum

I would like to bring readers’ attention to an excellent recent interview with Gulfsands Managing Director John Bell who should be commended with keeping the company together during these times. The interview is from The Syria Report, in full at the bottom. 

Gulfsands assets are in force majeure due to UK sanction but since early 2017, around 37 million barrels – with an open market value of around USD 2.5bn – have been illegally taken from Gulfsands’ Block 26 in northeast Syria, and sold through opaque and unregulated processes in Syria and neighbouring countries.   

John observes that the Syrian people have not seen the benefits of this valuable resource and explains how Gulfsands is positioning itself to mobilise the Oil and Gas resources of Syria to help that country recover from its current crisis.  

There is no other industry that has the potential scale to make such an impact, generating billions of dollars (according to the interview, up to $20 billion per annum is possible) which, if properly channelled, can make a significant impact on the lives of ordinary Syrians.  Not only that but it can reduce reliance on aid and build self-sufficiency.

This , of course, cannot proceed until the international community and regional players, including those within Syria, deem it desirable to do so, and set the environment, including appropriate sanction waivers and oversight, to enable such an initiative to progress.  I know from talking to Gulfsands on previous occasions that sanction compliance is of paramount importance to them.

This interview also comes on the back of similar ideas floated by Ibrahim Hamidi in Asharq Al-Awsat a few weeks ago and I wish Gulfsands well in gaining traction with this initiative. 

The full interview can be read on Gulfsands website, the link is here. 


FAR has provided its quarterly activities report for the quarter ended 31 March 2022.

 Changes to the Board and management with Non-Executive Chairman, Mr Patrick O’Connor, assuming the responsibilities of the chief executive, Mr Garth Campbell-Cowan appointed as Chief Financial Officer and Dr Alan Stein joining the Board as a Non-Executive Director.
 A program of cost saving measures is ongoing.
 Analysis of data collected following completion of the Bambo-1 well suggests that the well may have encountered the edge of two oil columns.
 The Panthera prospect is located up-dip from one of these oil columns and is now the best ranked feature in The Gambia portfolio.
 FAR is considering transaction strategies to maximise the value from its drilling investment in The Gambia.
 It was determined that retaining the Woodside Contingent Payment of up to US$55 million within FAR as more effective than demerging the payment into a new entity.
 Cash at period end of US$39.9 million
 The new Board and management team are focused on a wide range of strategies to ensure
that the share price better reflects the underlying asset value.

Commenting on the activities during the quarter, Independent Chairman Patrick O’Connor said:

“This was a transformational quarter for the company with changes to the Board and management and
a commitment to fully explore all pathways to create shareholder value whilst simultaneously seeking to
capitalise on our investment in drilling offshore The Gambia.
Although the recent Bambo-1 well did not result in a commercial oil discovery, our post well analysis and
the results of laboratory studies suggests that we may have encountered the edge of an oil column in
two of our reservoir objectives. Based on this analysis we have determined to secure a transaction with a
suitably qualified third party to enable the Company to progress with its efforts in The Gambia.
After detailed investigation we will retain the Woodside Contingent Payment of up to US$55 million
within FAR rather than demerging the payment into a new entity. This will allow the Company to more
efficiently explore every opportunity to seek to reflect the underlying asset value in the FAR share price.”

In a clean out worthy of Greek mythology the Far board has a new CEO and CFO, I’m sure that getting consultants in to progress with The Gambia which does look very interesting. 

Zephyr Energy

Earlier this week Zephyr released its updated CPR by Sproule which gave very positive results for the Paradox Basin independent reserves and resource evaluation. With Zephyr booking the first reserves at Paradox as a direct result of the success at the 16-2 well as well as doubling the 2C resource estimates I asked CEO Colin Harrington if he would let me chat with him by way of a Core Finance interview.

Understandably he was happy to do so, as although he was sanguine about the market reaction, probably more than me, it was a good opportunity to put some meat on the bones. Colin was happy to take direct questions as to the effects of the CPR and how he sees it moulding the immediate future of the company.

He was also happy to take questions on matters such as the drilling programme (over two years) at the Paradox as well as how the company is funded and what effects the hedging strategy will have on the finances.

I said after the announcement that I thought the shares were a steal at 7p, at 5.9p today that makes them worthy of committing grand larceny… The link to the interview is here.

Core Finance CEO interview: Colin Harrington, Zephyr Energy

And finally…

Last night was not a good time for our teams, the Hammers lost 1-2 at home to Eintracht Frankfurt, Rangers lost 1-0 and the Foxes in the Boropa Plate drew 1-1 at Roma.

In the Prem Chelsea got a 1-1 at the Theatre of Dreams. This weekend the Noisy Neighbours are at Leeds, Liverpool at St James’ Park tomorrow whilst on Sunday the Toffees host Chelsea, Spurs host the Foxes and in the London derby the Gooners go to the Hammers. Monday sees the Red Devils hosting the Bees.

Also in footy I see that Sir Jim Ratcliffe has bid £4.25bn for Chelsea,  will the curse of Ineos land at the Bridge/

It’s time for the Guineas at Newmarket, tomorrow is the 2/- with Native Trail and Coroebus, has Buick chosen the right horse or will Luxemburg have it?

In the 1/- Guineas its Tenebrism or Tuesday, Ryan or Frankie?

The opinions expressed here are those of the author

Malcolm Graham-Wood

Disclaimer: Malcy’s Blog is provided for general information about the international oil and gas industry and the companies that operate within it. It does not constitute investment advice and Malcy does not buy or sell shares, warrants or bonds in any company written about within the blog. Information is taken from publicly available sources and any comment is that of the author who does not take any third party comment in the blog

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