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Tuesday, March 16, 2021
San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, provides the following operational update.
OML 18
In common with many oil and gas projects, operational activity on OML 18 remains low whilst OPEC quota restrictions are in place. In addition, appropriate budget restrictions have been implemented which are designed to preserve cash. Eroton, the operator of OML 18, anticipates the startup of the Alternative Crude Oil Evacuation System (ACOES) project, which is expected to positively impact production, further details of which are set out below.
During the course of this year, San Leon is due to receive, under the Loan Note instrument which governs the loan it made at the time of its investment in OML 18, its final payments of over US$98 million in three equal instalments, commencing in July 2021 and completing by December 2021. Midwestern Oil & Gas Company Limited (Midwestern), as the guarantor of the Loan Notes, has confirmed to San Leon that 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. US$5.75 million has so far been paid by Midwestern of the US$10 million due, of which US$5 million has been paid to Energy Link Infrastructure (Malta) Limited (ELI), in accordance with San Leon’s investment agreement with the balance of $750,000 having been paid to San Leon directly.
Midwestern has acknowledged that the outstanding payment of US$4.25 million to San Leon is overdue and has explained that the delay has been caused by the combined effects of Covid-19, OPEC quota cuts and the fall in the oil price during 2020. However, with these challenges having been addressed, Midwestern has confirmed that 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$10.8 million (not including the US$6.75 million already allocated to its investment in the Oza oil field, further details of which are set out below).
New oil export system from OML 18
Considerable progress has been made since San Leon invested $15 million in ELI, the company which owns the ACOES project:
As previously announced, the ACOES is expected to significantly reduce the pipeline losses and downtime currently applicable to OML 18 production.
Oza Oil Field
On 22 February 2021 Decklar Resources (Decklar) reported that the due diligence required to finalize the term debt arranged with a Nigerian bank and the trading subsidiary of a large multinational oil company active in Nigeria continued to progress. 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 finalized and are nearing conclusion with the Nigerian bank. As previously announced, the remaining US$6,750,000 for the subscription agreement with Decklar is in escrow and will be released upon satisfaction (or waiver) of the final conditions precedent which is anticipated in the near future.
Decklar also recently closed a CAD $4,722,400 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 mobilization of the drilling rig during April 2021 as well as all testing and completion equipment. Various civil works have been completed around the Oza-1 well in preparation for its workover. Immediately following the re-entry of Oza-1, the rig will be skid on the same drilling pad and a new horizontal well will be drilled on one of the three oil zones anticipated to be tested at the Oza-1 well re-entry.
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