San Leon Energy plc
Annual Report and Accounts
2018
San Leon Energy plc Annual Report and Accounts 2018
San Leon Energy plc ("San Leon" or
the "Company”) is a publicly listed
oil and gas company with a strategy
to become a leading independent
exploration and production company
in Nigeria. It seeks to achieve this by
securing and developing high potential
opportunities, and generating near-term
operating cash flow for its shareholders
through a portfolio of assets.
It currently holds a 10.58% indirect
economic interest in Oil Mining Lease
18 (“OML 18”), onshore Nigeria. This
investment has generated cash receipts
to the Company of €56.4 million
(US$66.2 million) in 2018.
This enabled the Company to return
€26.8 million (US$30.5 million) to its
shareholders in March 2019.
The Nigerian sceneries shown in this report are
the personal work of Musa Tukurah, a Nigerian
portrait / reportage photographer.
CONTENTS
|
1
FINANCIAL
STATEMENTS
52
Independent auditor's report
to the members of
San Leon Energy plc
58 Consolidated income statement
59
Consolidated statement
of comprehensive income
60
Consolidated statement
of changes in equity
64
Company statement
of changes in equity
66
Consolidated statement
of financial position
67
Company statement
of financial position
68
Consolidated statement
of cash flows
70 Company statement of cash flows
71 Notes to financial statements
135 Corporate information
136 Glossary
137 Conversion
OVERVIEW
02
Corporate, operational,
financial highlights
04 Group overview
STRATEGIC
report
08 Chairman’s statement
10 Four expected cash flow sources
11 Cash generation
14 CEO’s statement
GOVERNANCE
18 Board of Directors
20 Corporate governance statement
30
Audit & remuneration committee
report
38 Directors’ report
44 Corporate social responsibility
2 | San Leon Energy plc Annual Report and Accounts 2018
CORPORATE
OPERATIONAL
• December start-up of
OML 18’s new well drilling
activity.
• Significant progress on
planning new oil export
pipeline and offshore storage
facility, targeting reduced
export downtime and losses.
• Tender offer completed in
early 2019, repurchasing
€26.8 million (US$30.5
million) of Company shares,
delivering on San Leon's
shareholder return
commitment.
• Appointed Linda Beal and
Bill Higgs as non-executive
directors, bolstering financial
and operational oversight
respectively.
HIGHLIGHTS
|
3
FINANCIAL
• €56.4 million (US$66.2 million)
received in cash from OML 18
investment in 2018, transforming
San Leon's financial position and
outlook.
• Post year end, the Company reported
the restructuring of the Reserves Based
Lending (“RBL”) facility held by Eroton
Exploration and Production Limited
(“Eroton”) which frees up near-term
cash resources for operations.
1,035 km2
OML 18 is larger than
the country of BAHRAIN
OML 18:
A world-
class asset
Some 2018 developments in OML 18:
· New well drilling commenced
· Non-rig workovers performed
· Preparations for new oil export pipeline
Legend
Flow Station
Gas Pipelines (Approximate Location)
Oil Pipelines (Approximate Location)
OML 18
Field
GROUP OVERVIEW
|
5
MATERIAL RESERVES IN NIGERIA
The 2016 Competent Person Report ("CPR") by
Petrovision illustrated the scale of the reserves
applicable to OML 18 partners. A summary is
provided in the table below. An updated CPR is
being prepared by Petrovision.
Considerable contingent resources and
exploration potential also exist. Further details
regarding San Leon’s investment in OML 18 can
be found in Note 17 of the Financial Statements
and in the 2016 AIM admission document in the
investors section of the Company's website.
GROSS TECHNICAL RESERVES BEFORE ECONOMIC CUT-OFF
1P
389
2P
576
3P
777
3119
3213
5080
OML 18
Oil + Condensate
(mmstb^)
Gas
(bscf*)
^ million stock tank barrels of oil.
* billion standard cubic feet of gas.
OTHER ASSETS
Nigeria is now San Leon’s core area.
With the exception of the Barryroe
Net Profit Interest (“NPI”), the
Company is seeking to monetise
or exit all other assets.
Ireland (Offshore) – Barryroe
San Leon holds a 4.5% NPI on the Barryroe oil
field which is located in Standard Exploration
Licence 1 / 11 in the North Celtic Sea, offshore
Ireland. The field has had six hydrocarbon
bearing wells successfully drilled on structure.
On 28 March 2018 Providence Resources
announced that, along with its partner, it had
agreed to farm-out a 50% working interest in
the Licence to a Chinese consortium led by
APEC Energy Enterprises Limited (“APEC”).
On 20 September 2018, Providence Resources
further announced the signing of the binding
farm-out with APEC which included a carry for
four vertical wells and one horizontal sidetrack,
plus the optional drilling of two additional
horizontal wells, together with cash advances for
agreed project and operational costs. Further
information is available in Providence’s press
releases on those dates.
These announcements by Providence provide
increased confidence in the project and previous
uncertainty has now significantly decreased.
We note the announcements by Providence in
June 2019 and we do not believe the short delay
in payment receipt indicates a significant increase
in risk. The directors have reviewed recently
published information regarding timing, oil
price, costs and risk, and consider them reasonable
and appropriate and have decided to maintain
the carrying value of the Barryroe 4.5% NPI.
Albania
San Leon holds a 100% participating interest in
the Durresi Block, offshore Albania. The licence
area contains the A4-1X gas / condensate / light
oil discovery, along trend from several existing
analogous discoveries / developments in Italian
waters, as well as several undrilled oil and gas
prospects. The Company is negotiating to enter
the appraisal stage, with a view to farming out
the asset, and this year has impaired the asset
to nil value to reflect the time that farming out
is taking.
Poland
On 19 September 2017, San Leon announced it
had entered into definitive agreements,
with two parties, in respect of the sale of its
remaining interests in Poland, subject to certain
conditions including approval by the Polish
government. One agreement has now
completed, resulting in the award to San Leon
of two net profit interests. If the second
agreement completes, San Leon will retain an
additional net profit interest. Further details
can be found in the press release on that date.
NovaSeis
NovaSeis was set up in 2011 to acquire, process
and interpret San Leon’s onshore seismic in
regions such as Poland and Morocco, as well as
to provide third party services. Further details
may be found at www.novaseis.eu.
Ardilaun
As part of the consideration for the sale of
Island Oil & Gas Limited to Ardilaun Energy
Limited (“Ardilaun”) in 2014, Ardilaun agreed to
issue shares equivalent to 15% of the issued
share capital of Ardilaun to San Leon Energy plc.
6 | San Leon Energy plc Annual Report and Accounts 2018
OUR STRATEGY
The Company's strategy is to become
a leading independent exploration and
production company in Nigeria. We are
seeking to achieve this by securing and
developing high potential opportunities,
and generating near-term operating
cash flow through a portfolio of sources,
yielding value to shareholders.
GROUP OVERVIEW
|
7
OML 18 Ownership
Structure
Direct interest in OML 18
Initial economic interest in OML 18
OML 18
GOVERNED BY JOA
55%
27%
16.2%
1.8%
NNPC
EROTON
SAHARA
2%
INITIAL ECONOMIC
INTEREST IN
EROTON
98%
BILTON
2.34%
MLPL
60%
40%
MIDWESTERN
15.88%
SAN LEON
10.58%*
* After various financial and production hurdles are
met, San Leon’s indirect economic interest in OML 18
reduces to 5.4%.
San Leon holds an initial
indirect 10.58% economic
interest in OML 18
The parties in the OML 18 shareholding
structure are described below.
NNPC: Nigerian National Petroleum Corporation.
Eroton Exploration and Production Company
Limited: Current operator that completed
purchase of 45% of OML 18 for $1.1 billion from
Shell, Total and ENI in March 2015.
Sahara Field Production Limited: Nigerian
privately-owned integrated oil & gas company –
part of power and energy conglomerate
established in 1996. Effective 16.2% stake was
part of Eroton's original 45% purchase.
Bilton Energy Limited: Indigenous company
whose entry costs into OML 18 were carried
by certain partners.
MLPL: Midwestern Leon Petroleum Limited, a
Mauritian-incorporated special purpose vehicle,
holding the combined OML 18 interest of both
SLE and Midwestern Oil & Gas Limited, through
Martwestern Energy Limited (a Nigerian holding
company 100%-owned by MLPL, not shown in
structure).
Midwestern Oil and Gas Company Limited:
Awarded operatorship of Umusadege
Marginal Field located in OML 56 in 2003. Took
production from 3,000 to ~20,000 bopd.
8 | San Leon Energy plc Annual Report and Accounts 2018
CHAIRMAN'S
STATEMENT
The Company received €56.4 million (US$66.2 million)
in cash from its OML 18 investment in 2018, which
transformed its financial position and outlook.
“
THE COMPANY NOW HAS A
VERY CLEAR FOCUS ON ITS
NIGERIAN INTERESTS.”
I am pleased to report that significant progress was made to address the
operational and financial challenges with the Company’s involvement in
OML 18, onshore Nigeria, which I described last year. The December
start-up of Eroton’s new well drilling activity, planning progress on the
new oil export facility, the receipt of cash call arrears payments by
Eroton from the Nigerian National Petroleum Corporation (“NNPC”)
and (announced post reporting period) the restructuring of the Reserves
Based Lending (“RBL”) facility held by Eroton which frees up near-term
cash resources for operations, are all very welcome.
The Company now has a very clear focus on its Nigerian interests and
growth strategy, the structure of which is described in the group
overview section, and has continued its strategy of reducing non-core
costs outside Nigeria. The completion of the transfer of various Polish
assets to Gemini Resources Limited ("Gemini"), and the abandonment
and land rehabilitation of four other wells in Poland after the reporting
period is consistent with this strategy.
The two non-Nigerian assets which are being retained are the Durresi
block offshore Albania, for which a farm out is sought, and the Net Profit
Interest (“NPI”) in Barryroe, the Irish asset operated by Providence
Resources Inc, who recently secured a farm-out deal for appraisal /
development drilling.
In November 2017 San Leon confirmed that it had received a letter from
Midwestern Oil and Gas Company Limited (“Midwestern”) with an
indicative proposal that included San Leon acquiring Midwestern’s 60%
shareholding in MLPL (the “Proposal”). Through MLPL, Midwestern and
San Leon are both indirect shareholders in Eroton, the operator of
OML 18. Since the Proposal could have resulted in a transaction being
characterised as a “reverse takeover”, the Company’s shares were
temporarily suspended. In late April 2018, the Company announced that
its Board had elected not to accept Midwestern’s proposal, as it was not
in the best interests of San Leon’s shareholders since it did not provide
a sufficient balance of added value for shareholders and certainty of
near-term cash flow, and the Company’s shares recommenced trading.
The Company fulfilled its pledge to begin returning value to shareholders,
repurchasing €26.8 million (US$30.5 million) of its own shares through a
tender offer in March 2019, after the reporting period.
The Company bolstered its board in finance and operations through the
appointment in January 2018 of Linda Beal as a non-executive Director
and chair of the Audit Committee, and in May 2018 of Bill Higgs as a
non-executive Director and subsequently chair of the Risk and Safety
Committee.
“
The Company’s financial
position has gone from
strength to strength
since this time last year.”
Mutiu Sunmonu
Chairman
This year we will be welcoming Lisa Mitchell as Chief Financial Officer and
Executive Director. We continue to work to increase the diversity of the
board as this enhances independent thinking and healthy challenge.
Linda has extensive experience of working with African oil and gas
groups, African-based advisers, and corporate and asset transactions.
Bill has considerable operational experience, including in Africa, with
companies ranging from a major to smaller independents. Lisa brings
substantial levels of financial expertise and local Nigerian experience to
the Company, as we continue to seek growth in San Leon’s value in Africa.
The Company bade grateful farewell to Director Ray King in his
retirement. Ray had served since San Leon’s inception. This year we will
also see the departure of Ewen Ainsworth, who has decided to move on
after two-and-a-half years of service as our Finance Director. On behalf
of the board I thank Ray and Ewen for the contribution that they have
made to all our work.
The Company’s financial position has gone from strength to strength since
this time last year. Income from the Loan Notes is continuing, and the
start of full drilling activity on OML 18 augurs well for income under the
Master Services Agreement with Eroton. Financial strength was clearly
demonstrated by the Company's share repurchase. This formed the
beginning of the fulfilment of the Company's capital distribution policy.
The catch-up of NNPC’s arrears, beginning of new well drilling, and
restructuring of the OML 18 RBL, all move Eroton closer to being able to
distribute dividends to its shareholders, of which San Leon is indirectly
one. I look forward with confidence to the Company's future
development and growth.
Mutiu Sunmonu
Chairman
10 | San Leon Energy plc Annual Report and Accounts 2018
FOUR EXPECTED CASH
FLOW SOURCES
Company €26.8 million
(US$30.5 million) share repurchase
completed in March 2019, made
possible by strong cash flow
€56.4 million
(US$66.2 million)
received in payments
in 2018
Strategic report
| 11
CASH
GENERATION
Our current portfolio of potential sources for
cash flow is:
1) Payment under the Loan Notes.
2) Dividend payments as a consequence of holding an
initial indirect 10.58% economic interest in OML 18.
3) Income from the provision of rig-based drilling and
workover (and associated) services, and production
services, under a Master Services Agreement (“MSA”)
with Eroton the operator of OML 18.
4) 4.5% Barryroe Net Profit Interest (through potential
income or a potential sale).
“
Significant progress
has been achieved in
recent months.”
1) LOAN NOTES REPAYMENT AND INTEREST
The Company entered into a Loan Notes agreement in September 2016
with MLPL, whereby, once certain conditions have been met and using
an agreed distribution mechanism, San Leon would be repaid the
principal of €165.6 million (US$174.5 million) plus an annual coupon
of 17% through to 2020. By 31 December 2018, San Leon had received
a total of €90.7 million ($105.8 million) of Loan Notes payments, the
start of such payments having been delayed due to the OML 18
operational and external issues described in the following ‘Indirect Equity
Interest’ section. During H1 2019, a further payment of €9.4 million
(US$10.7 million) was received, bringing total receipts to date to
€100.1 million (US$116.5 million) and leaving €141.1 million (US$159.7 million)
of principal and interest on a cash receipt basis outstanding and payable
as of 24 June 2019.
Such receipts to date have been paid on behalf of MLPL due to the
existence of guarantees to the Company under the Loan Notes
instruments, as dividends have yet to be received by MLPL. The Company
has a future receivable profile of €46.7 million (US$52.9 million) for the
remainder of 2019, with further quarterly payments through 2020, and
the board, having assessed the risk of non-payment, anticipates that
MLPL will continue to make Loan Notes repayments, noting that San Leon
has various guarantees and a share pledge in place which provide some
security for payments due to the Company under the Loan Notes.
€14.7 million (US$16.5 million) was due on 1 April 2019 under the terms
of the Loan Notes and is outstanding as mentioned on page 39.
12 | San Leon Energy plc Annual Report and Accounts 2018
Removing the above challenges – and significant
progress has been achieved in recent months –
will enable greater capital allocation to
production growth and support future
dividends from Eroton to the Company via
its initial indirect 10.58% economic interest
in OML 18.
As announced in January 2019, Eroton
successfully refinanced the RBL facility with the
effect of significantly reducing near-term
RBL repayments, as well as reducing the Debt
Service Reserve Account ("DSRA") requirement
to approximately US$50 million.
The future ability of MLPL to pay dividends to its
shareholders (including to San Leon) will require
future payments of dividends by Eroton to
Martwestern and from Martwestern to MLPL,
and also the settlement of MLPL’s Loan Notes
obligations.
3) SERVICES REVENUE
San Leon will provide certain services for heavy
well workovers and new well drilling on OML 18,
through a new service entity under its control.
The budget for services for increasing production
from OML 18 via such operations is hundreds
of millions of dollars, illustrating the potential
for services income under the MSA.
4) BARRYROE NET PROFIT INTEREST
The Company’s 4.5% Net Profit Interest in
Barryroe oil field, offshore Ireland, provides
a zero cost potential future cash stream that
has a carrying value of €44.7 million. Providence
Resources Plc, the operator of Barryroe, has
announced a confirmed farm-out to drill four
wells and is at the initial stages of development.
Recent announcements by Providence provides
increased confidence in the project and previous
uncertainty has now significantly decreased,
notwithstanding the announcement in June
2019 relating to delays in funding.
2) INDIRECT EQUITY INTEREST
Eroton is the Operator of OML 18 while San
Leon has a defined partner role through its
shareholding in MLPL. San Leon has appointed
a senior operational consultant into Eroton to
assist in the development of the OML 18 asset,
and provides drilling and technical support
to Eroton.
No dividend has been paid by Eroton in 2018
because OML 18 cash flow has not been as
hoped due to a combination of operational
issues and funding constraints. These
operational and funding issues, and the actions
being taken to address them, are summarised
below.
Firstly, the majority of the 12% production
downtime in 2018 was caused by problems in
the third party terminal and gathering system.
Underlying production from the assets was
approximately 45,000 bopd during 2018 before
that downtime. This issue is being addressed by
the planned implementation of the new export
pipeline and Floating Storage and Offloading
(“FSO”) project. Reducing field downtime is also
expected to improve overall well performance,
since when wells are shut in for field downtime
it can take time to bring all wells back to normal
production rates again once the field is back
operating.
Secondly, substantial pipeline losses have been
allocated to all operators by the Bonny Terminal
operator. The 26% pipeline losses (reducing field
oil sales further to approximately 30,000 bopd)
have been a significant burden on net oil sales.
This issue has now been partially addressed
by the installation of Lease Automatic Custody
Transfer (“LACT”) units in late 2018 to make sure
that the OML 18 partners have fiscal metering
of the oil prior to export into the gathering
system. In the longer term, the export pipeline
and FSO system mentioned above will provide
additional control.
Finally, for much of 2018 the NNPC still had
significant outstanding payments due to
Eroton. In December 2018 the Company
announced that NNPC had paid the large
majority of its arrears to Eroton, providing
capital for further investment in the asset.
NNPC continues to pay its current cash call
obligations.
Strategic report
| 13
The Company has future expected
receipts from Loan Notes repayments
of €141.1 million (US$159.7 million)
inclusive of interest by Q4 2020.
14 | San Leon Energy plc Annual Report and Accounts 2018
CEO’S STATEMENT
OML 18 IS AT AN
EXCITING STAGE
OML 18 is seeing significant progress
where Eroton is overcoming operational
and financial hurdles as it seeks to reap
rewards for shareholders, including San Leon.
The issues with Nembe Creek Trunk Line (“NCTL”) downtime and
allocated pipeline losses, together with delayed new well drilling have
meant that both gross production at the wellhead, and sales oil volumes,
were significantly lower than expected. Gross oil production, taking out
the effect of NCTL downtime, was 45,008 bopd. Sales oil, including the
effects of downtime and allocated losses, was 30,069 bopd.
However a number of successes in the latter part of 2018 have gone
a long way to position OML 18 very well. In H2 2018, Eroton installed
the much anticipated Lease Automatic Custody Transfer (“LACT”) units
on most of its production helping to reduce allocated losses to Eroton’s
production using the NCTL and therefore to increase sales oil volumes.
In December 2018 Eroton reached a landmark and began drilling the
first new well under its operatorship, with the target of increasing gross
oil production. Later that month, the Company announced that NNPC
had paid the large majority of its 2015-2016 cash call arrears, and was
up-to-date with more recent cash calls.
Just after the reporting period, in January 2019, San Leon announced that
Eroton had successfully restructured its Reserves Based Lending (“RBL”)
facility, providing a material boost to cash availability for operations,
and reducing the burden of cash required in the Debt Service Reserve
Account (“DSRA”) – preparing the way for Eroton to distribute dividends
to its shareholders (of which San Leon is an indirect shareholder) in due
course.
With the increase in operational activity, debottlenecking of OML 18’s
finances, and export solutions in progress (LACT units installed, and
the planned new export pipeline well advanced in planning), challenges
are being tackled, and I look to our future with OML 18 with increased
confidence.
“
2018 was characterised
by great progress – both
operational and financial –
on OML 18.”
Oisín Fanning
CEO
OTHER ASSETS
In March 2018 Providence Resources Inc
(“Providence”), operator of the Barryroe oil and
gas discovery offshore Ireland, announced that
it had agreed a farm out of part of the asset
to a Chinese consortium. In September 2018
Providence announced that binding terms had
been signed for this agreement, paving the way
for a four-well drilling programme. San Leon
welcomes this significant step forward in the
appraisal and development of the asset, and
considers its 4.5% NPI over the whole of the
Barryroe asset to be of significant potential
value. An NPI structure means that San Leon
has no costs whatsoever with regard to Barryroe,
but has a right to a share of cash flow from the
asset once Barryroe equity holders’ costs have
been deducted.
The Company continues to discuss with the
Albanian authorities the next phase of
exploration on the offshore Durresi licence.
The main target of interest on the block has
an offset discovery (well A4-1X), and the recent
installation by third parties of major gas
pipeline infrastructure in the area provides
additional options for asset monetisation.
CASH FLOW
The four anticipated sources of cash flow are
described in the Cash Generation section. Of
these, receipts to date – totalling €90.7 million
(US$105.5 million) as of 31 December 2018
comes from repayment of Loan Notes. The
balance of the principal on a cash receipt basis
payable as of 24 June 2019 is €118.3 million
(US$133.9 million), which continues to accrue
interest at 17%. Final payment of the Loan
Notes is anticipated late 2020.
The increase in operational activity is an
opportunity for the Company to generate
income from the provision of rig and rig-related
services, and production services, from its
Master Service Agreement with Eroton, and
I look forward to providing an update on such
income.
Cash flow from the Company’s indirect
shareholding in Eroton is anticipated once
OML 18 is generating sufficient free cash flow
(assisted by recent operational and RBL changes).
Strategic report
| 15
CORPORATE
The year began with the Company being in
discussions with multiple parties regarding
potential corporate transactions. By April, these
discussions had all been terminated, and the
Company’s shares resumed trading after a
period of necessary suspension. I am grateful to
shareholders for their patience while discussions
were ongoing. The last of the entities with
which the Company was in discussions was
Midwestern, which partners the Company in
its indirect shareholding in OML 18. Ultimately
the Company decided that the proposed deal
was not in the best interests of San Leon’s
shareholders at the time as it did not provide
a sufficient balance of added value for San Leon
shareholders and certainty of near-term cash
flow. Indeed following the receipt by San Leon
of the June 2018 quarterly Loan Notes
repayment, it held cash in excess of total
liabilities for the first time in many years. Loan
Notes receipts continue, and put the Company
in a strong financial position.
April also saw the Company appoint Cantor
Fitzgerald Europe as Nominated Advisor
(“Nomad”), financial adviser and joint broker.
During May 2018 the first of several allegations
by SunTrust Oil (“SunTrust”) were made in the
Nigerian press, against San Leon and other
entities involved in the 2016 transactions
through which the Company became an
indirect shareholder in Eroton and OML 18.
The Company made it clear that all such
allegations were spurious and would be
vigorously defended, and it maintains that
position.
The appointments of Linda Beal and Bill Higgs
as non-executive Directors in the first half of
2018 and Lisa Mitchell as Chief Financial Officer
and Executive Director in 2019 are very
welcome both from an overall Board function
point of view, as well as providing valuable
relevant financial and operational ideas and
challenge. I would like to thank Ray King for his
many years of invaluable service as a director
and Company Secretary and I wish him well
in his retirement. I would also like to thank
Ewen for his contribution since San Leon’s
readmission in 2016, and wish him well in his
future endeavours.
I look forward to updating shareholders with
news of the planned continued operational
activity on OML 18, its effect on production,
and how our various expected cash flow
streams are performing.
16 | San Leon Energy plc Annual Report and Accounts 2018
corporate governance
| 17
CORPORATE
GOVERNANCE
San Leon Energy plc
Annual Report and Accounts
2018
18 | San Leon Energy plc Annual Report and Accounts 2018
Board of
Directors
Mutiu Sunmonu
Non-Executive Chairman
Background and experience
Mr Sunmonu has led the Company as
Non-Executive Chairman since the purchase
of our indirect economic interest in OML 18
in September 2016. Mr Sunmonu is a former
managing director of Shell Petroleum
Development Company and was country
chairman of Shell companies in Nigeria from
2008 to February 2015. He led Shell’s multi-
billion dollar operations in Nigeria employing
over 4000 direct staff with revenue contribution
to the Nigerian Government of ~$70 billion
dollars during 2009-2013. He has worked in
the industry for over 36 years in Nigeria, the
UK and the Netherlands. His strategic vision,
proven track record and deep knowledge of
Nigeria, brings valuable Nigerian operating
experience and relationships to San Leon
Energy plc.
Committee memberships
Member of Audit, Risk and Safety,
Remuneration and Nomination Committees.
Oisín Fanning
Chief Executive Officer
Background and experience
Mr Fanning has almost 30 years’ experience in
structured finance, stockbroking and corporate
finance, with 22 years specialising in the oil and
gas industry. Formerly CEO of Astley & Pearce
Ltd., MMI Stockbrokers, and Smart Telecom Plc,
Oisín was closely involved with the restructuring
of Dana Petroleum Plc in the early 1990s. He was
also a major supporter of Tullow Oil Plc in its
early growth phase. Oisín is both visionary and
deeply practical in pursuing business goals
on behalf of stakeholders. He recognises the
importance of finding and developing talented
people and building relationships with local
governments, partners and communities.
Committee memberships
Member of Nomination Committee.
Joel Price
Chief Operating Officer
Background and experience
Mr Price is a petroleum engineer with 25 years’
experience, having worked across well
operations, reservoir engineering, production
optimisation, asset management and business
development. He was instrumental in the
drilling and hydraulic fracturing of the first
multi-fracked horizontal wells in Poland. Joel
was previously in various technical roles with
Hess in the UK and Algeria, including extensive
well workover and field rehabilitation, followed
by 3 years as Business Development Manager
at Delta Hydrocarbons BV in The Netherlands
(evaluating opportunities worldwide). He holds
a BA Hons. in Natural Sciences (Geology) from
Cambridge University, an MEng in Petroleum
Engineering from Heriot-Watt University, and an
MBA with distinction from Durham University.
Committee memberships
Member of Risk and Safety Committee.
Ewen Ainsworth
Finance Director
Background and experience
Mr Ainsworth is an experienced Finance
Director, having worked in a variety of senior
and board-level finance roles in the oil and gas
industry for nearly 30 years, most recently as
Finance Director for Gulf Keystone Petroleum
Limited. He qualified as a chartered management
accountant, moving into leading commercial
roles. He holds a degree in Economics and
Geography from Middlesex University, and
is a member of the Energy Institute.
Corporate Governance
| 19
Linda Beal
Non-Executive Director
Background and experience
Ms Beal was a partner at PwC for 16 years
specialising in the natural resources sector and
became global leader for energy and natural
resources at Grant Thornton. She has extensive
experience of advising groups with African
assets. Ms Beal is a chartered accountant
and holds a degree in Mathematics from
Nottingham University.
Committee memberships
Chair of Audit Committee and Member of
Remuneration Committee.
Alan Campbell
Director of Commercial & Business
Development and Company Secretary
Background and experience
Mr Campbell has 17 years’ experience in
international business, banking and the oil & gas
industry. He has project managed international
merger, acquisition and divestment transactions
valued at over US $350 million – including
origination, negotiation, due diligence, deal
structuring, closing, post deal integration and
management. Mr Campbell holds a Master’s
Degree in Project Finance & Venture
Management (First Class Honours). He has
extensive commercial, evaluation, and strategic
expertise, and ability to project manage and
deliver objectives in often complex multi-
faceted transactions.
Bill Higgs
Non-Executive Director
Background and experience
Mr Higgs has nearly 30 years of global
exploration, development and operational
experience, including over five years in executive
roles for independent exploration and production
companies including Genel Energy plc where
he is currently the Chief Executive Officer. Prior
to becoming CEO of Genel Energy, he held roles
as Chief Operating Officer at Genel Energy
and Ophir Energy plc. He was also the CEO of
Mediterranean Oil and Gas where he oversaw
the successful sale of the company in 2014. He
previously spent 23 years at Chevron across a
number of global roles including responsibility
for reservoir management of the giant Tengiz oil
and sour gas field in Kazakhstan. He is a qualified
geologist with extensive expertise in all
engineering and other technical and commercial
aspects of hydrocarbon development and
production.
Committee memberships
Chair of Risk and Safety Committee.
Mark Phillips
Non-Executive Director
Background and experience
Mr Phillips was a founding partner of private
equity firm Penta Capital LLP and had previously
been a senior investment executive with the
private equity team at Royal Bank of Scotland plc.
He holds an honours degree in Economics and
Law from the University of Strathclyde as well as
an MBA from the University of Edinburgh. He is a
member of The Merchant Company of Edinburgh
and brings a wealth of economic, financial
investment and strategic advice to the Board.
Committee memberships
Chair of Nomination and Remuneration
Committees and Member of Audit Committee.
20 | San Leon Energy plc Annual Report and Accounts 2018
Corporate Governance
Statement
CORPORATE GOVERNANCE AND
THE UK CORPORATE GOVERNANCE CODE
The directors of San Leon Energy plc are committed
to maintaining high standards of corporate governance
to ensure the Company is run effectively. We aim to
conduct our business in an open, honest and ethical
manner. The Board is accountable to shareholders
for good corporate governance and has adopted the
procedures set out below in this regard.
Changes to AIM rules on 30 March 2018
required AIM companies to apply a recognised
corporate governance code by 28 September
2018. The Board adopted the principles of
the Quoted Companies Alliance Corporate
Governance Code (“QCA Code”). The QCA Code
is based on ten principles that companies
should follow to deliver growth in long-term
shareholder value. The QCA has stated what
it considers to be appropriate arrangements
for growing companies and asks companies
to provide an explanation about how they are
meeting the principles through the prescribed
disclosures. We have considered how we apply
each principle to the extent that the Board
judges these to be appropriate in view of the
Company’s size, strategy, resources and stage
of development, and below we provide an
explanation of the approach taken in relation to
each. This report explains in broad terms how
the Company applies the main principles of the
QCA Code. We have identified one area where
we are not in full compliance with the guidelines
of the QCA Code and explain in detail why we
have departed from the guidelines in that area
(page 25).
THE BOARD
The Board is responsible for setting the overall
strategy of the business, reviewing management
performance and ensuring the Group has
sufficient financial and human resources
to meet its objectives. It directs the Group’s
activities in an effective manner through Board
meetings and monitors performance through
timely and relevant reporting procedures.
The Board plays a central role in developing and
maintaining the Company’s culture and values
by setting the ‘tone from the top’, defining the
behaviours expected by the Board and ensuring
that ethical standards are upheld. Thus, the
Board aims for the right balance between
entrepreneurial leadership and the prudent
and effective risk management, which are
vital to maintaining a sustainable business
and creating value for shareholders.
The QCA Code requires that the boards of
AIM companies have an appropriate balance
between executive and non-executive directors
and should have at least two independent
non-executive directors. In 2018 we have
strengthened the Board and satisfied this
requirement following the appointments of
Linda Beal and Bill Higgs as independent
non-executive directors.
Corporate Governance
| 21
Risk assessment and evaluation is an essential
part of the Company’s planning and an
important aspect of the Company’s internal
control system. The Company strives to develop
strong working relationships with its partners
and suppliers in its various operating locations
to manage and mitigate the operational risks.
Capital distribution policy
As part of the Company’s strategy to generate
value for shareholders, within the Admission
Document published in September 2016,
the Company set out a shareholder distribution
policy. The ability for the Company to make
such distributions is dependent both upon
the availability of cash to distribute, as well
as completing a capital reorganisation in the
Irish Courts. The capital reorganisation was
completed in Q1 2019. As the first step in
capital distribution, in March 2019 the
Company announced and completed a tender
to repurchase €26.8 million (US$30.5million
at the time) of its own shares at a price of
46 pence per share (which was approximately
50% above the closing price before the tender
announcement). The tender was modestly
oversubscribed, and resulted in the repurchase
of 50,475,000 shares.
SEEK TO UNDERSTAND AND MEET
SHAREHOLDER NEEDS AND EXPECTATIONS
The Company’s Chief Executive Officer and
other executive directors are responsible for
shareholder liaison. They hold regular meetings
with major shareholders and analysts to discuss
the Company’s strategy and performance and
maintain a dialogue between the Company and
its investors.
Private investor events and investor roadshows
are organised by the Company’s brokers and
public relations consultants, where the Chief
Executive Officer and other executive directors
meet with current (and potential future)
institutional and retail shareholders and brokers
to update them on the Company’s progress.
The entire Board receives feedback following
these meetings and any issues raised are
discussed. Any significant reports from analysts
are also circulated to the Board.
The non-executive Chairman and independent
non-executive directors are available to meet
with shareholders if required.
Linda is a chartered accountant and has
extensive experience of advising groups with
African assets. On her appointment, she
assumed the role of Chair of the Audit Committee
and member of the Remuneration Committee.
Bill is a qualified geologist with extensive
expertise in all engineering and other technical
and commercial aspects of hydrocarbon
development and production. On his appointment,
he assumed the role of Chair of the Risk and
Safety Committee.
On 17 January 2019 the Board appointed
Alan Campbell, Director of Commercial &
Business Development, as Company Secretary
with immediate effect.
At the date this Annual Report is published, the
Board comprises four executive directors and
four independent non-executive directors.
The following paragraphs set out the Company’s
compliance with the ten principles of the
QCA Code.
ESTABLISH A STRATEGY AND BUSINESS
MODEL WHICH PROMOTE LONG-TERM
VALUE FOR SHAREHOLDERS
The Board establishes the Company's strategy
which is reviewed at regular Strategy meetings.
The executive directors led by the Chief
Executive Officer are responsible for executing
the strategy once agreed by the Board. All
developments in the Company’s business
are communicated to the shareholders via
regulatory news service (RNS) announcements,
Annual Report and Accounts, half yearly
announcements and in investor presentations
at the Company’s Annual General Meetings.
The Company’s overall strategic objective
is to secure and develop high-potential asset
opportunities in Africa and produce a near-
term operating cash flow, yielding value to
shareholders. The Company aims to achieve
this through our technical expertise, operational
capabilities and industry contacts, secured
by the close links we forge with governments
and the local communities in which we operate.
We have built our industry reputation as
a capable operator in various European and
African countries and our key asset is now the
indirect economic interest in OML 18 – a world
class asset onshore Nigeria. The Company
continues to seek to monetise or otherwise
dispose of its non-core assets.
22 | San Leon Energy plc Annual Report and Accounts 2018
The Annual General Meeting (AGM) is the main
forum for dialogue between the Board and the
shareholders. All directors aim to attend the
AGM. The non-executive Chairman, Mutiu
Sunmonu, leads the AGM and takes questions
from the floor. The Chairs of the Audit,
Remuneration, Nomination and Risk and Safety
Committees are on-hand to answer questions
that may arise at the meeting.
All directors receive regular industry and peer
updates, to enable them to keep current on
issues relevant to the Company and its
shareholders.
TAKE INTO ACCOUNT WIDER STAKEHOLDER
AND SOCIAL RESPONSIBILITIES AND THEIR
IMPLICATIONS FOR LONG-TERM SUCCESS
The Company’s ability to achieve its long-term
success is dependent on good relations across
a wide range of stakeholders both internally
(employees) and externally (partners, suppliers,
regulatory authorities, local governments and
communities in which we operate).
Our employees are one of the most important
stakeholder groups and the Board recognises
the need for two-way communication with the
workforce. The small size of the Company
means that the directors and senior managers
are relatively accessible to all employees to
provide and receive feedback. To retain our
highly skilled workforce and keep their
satisfaction high, the Company offers
competitive remuneration, employee share
option awards and health and critical illness
cover. We seek to ensure that all employees
are treated fairly and with dignity. The Company
has a zero tolerance policy towards any form
of discrimination or harassment.
We recognise our responsibilities to the
environment and community in the areas
in which we operate. The Company places
a high priority on operating to high standards
of integrity and ethics. We recognise that our
activities may have impact on the environment
and therefore aim to minimise that impact
by operating in a socially responsible manner,
engaging with local, regional and national
stakeholders where we are operator. Since
the Company is not the operator of OML 18,
it does not control these matters on OML 18.
The Company seeks to behave as a responsible
employer and make positive contributions
to the local economies in which we have an
interest. Engagement with local communities
in which we operate has assisted the Board in
implementing policies, such as local contracting
and inviting school groups to well sites, as well
as conducting social work such as on pages
44-45, and has helped them understand what
we are doing.
The Board is aware of its duty to act in good
faith in the interests of the Company and
complies with the obligations under section 228
of the Companies Act 2014. All the Company’s
stakeholders have access to contact information
for communication with the Company. Feedback
is respectfully acknowledged by the Company
and appropriately dealt with.
The Board believes that its investment in the
wider stakeholder network will assist the
Company’s management in achieving its
long-term goals by creating an environment
of trust and communication which will have
positive implications for the long term success
of the Company.
The Board believes holding the Company’s
responsibilities in high regard to be a
requirement for building its business and being
considered an operator or partner of choice.
Corporate Governance
| 23
EMBED EFFECTIVE RISK MANAGEMENT,
CONSIDERING BOTH OPPORTUNITIES AND
THREATS, THROUGHOUT THE ORGANISATION
The Board acknowledges its overall
responsibility for ensuring that the Company
has a robust framework of risk management
and an appropriate system of internal control.
However, any system can only provide
reasonable, not absolute, assurance against
material misstatement or loss and is designed
to manage (but cannot eliminate) the risk
of failure to achieve business objectives.
The key risk management procedures:
• preparation and review of cash flow
projections and expenditure monitoring,
and of financial statements;
The Board is specifically responsible for:
• approval of budgetary and business plans
• approval of significant investments and capital
expenditure;
• approval of annual and half-year results and
interim management statements, accounting
policies and the appointment and
remuneration of the external auditors;
• approval of interim, and recommendation
of final, dividends and buybacks;
• changes to the Group's capital structure
and the issue of any securities;
• agreeing the Group's risk appetite,
establishing and maintaining a system of
internal control, governance and approval
authorities;
• executive performance and succession
• establishment of appropriate policies for
planning;
the management of financial, industry and
country-specific risk;
• regular management meetings to review
operating and financial activities, and financial
staff requirements;
• consideration of industry and country-specific
risks as part of the Company’s review of
strategy;
• recruitment of appropriately qualified and
experienced staff to key financial and
management positions; and
• preparation of financial statements.
MAINTAIN THE BOARD AS A WELL-
FUNCTIONING, BALANCED TEAM LED
BY THE CHAIR
The Board is responsible for setting the overall
strategy of the business, reviewing management
performance and ensuring the Company has
sufficient financial and human resources to
meet its objectives. It directs the Company’s
activities in an effective manner through
regular Board meetings and monitors
performance through timely and relevant
reporting procedures.
• determining standards of ethics and policy
in relation to health, safety, environment,
social and community responsibilities;
• disclosure to the market and shareholders.
The Board comprises the non-executive
Chairman, four executive directors and
three non-executive directors. The Chairman,
Mutiu Sunmonu, is responsible for the
leadership of the Board, ensuring its
effectiveness and setting its agenda. He is not
involved in the day-to-day operation of the
Company. The Chairman is responsible for the
Company’s approach to corporate governance
and the application of the principles of the QCA
Code. The Company's independent directors,
Mutiu Sunmonu, Mark Phillips, Linda Beal
and Bill Higgs are independent of management
and any business or other relationships which
would interfere with the exercise of their
independent judgement.
The Chairman considers that the Company
has a balanced and diverse board with the
requisite skills to build a successful, sustainable
Nigerian-focussed oil and gas business.
To ensure that the directors can properly carry
out their roles, they are provided with relevant
information and financial details prior to all
Board meetings. All directors have access to the
advice and services of the Company Secretary,
whose duty is to ensure that the Board complies
with applicable rules and procedures.
24 | San Leon Energy plc Annual Report and Accounts 2018
The Board meets at least six times a year to
discuss and decide the Company’s business
and strategic decisions and additional board
calls are held as required. In addition, there is
a high degree of contact between the directors
outside of Board meetings to ensure all
directors are aware of the Company’s business.
If necessary, the non-executive directors may
take independent advice at the expense of
the Company.
Each board member commits sufficient time to
fulfil their duties and obligations to the Board
and the Company. They attend board meetings
and join ad hoc board calls and offer availability
for consultation when needed. The contractual
arrangements between the directors and
the Company specify the minimum time
commitments which are considered sufficient
for the proper discharge of their duties.
However, in exceptional circumstances all
board members understand the need to
commit additional time.
Board meetings attendance in 2018
Mutiu Sunmonu
Oisín Fanning
Joel Price
Ewen Ainsworth
Raymond King *
Alan Campbell
Linda Beal +
Mark Phillips
Bill Higgs ^
Maximum
possible
attendance
Meetings
attended
10
10
10
10
7
10
10
10
6
10
10
10
10
7
10
10
9
5
* Resigned 28 September 2018.
+ Appointed to the Board on 16 January 2018 and has attended
all Board meetings since her appointment.
^ Appointed to the Board on 22 May 2018.
THE BOARD COMMITTEES
The Board has established four separate
committees: The Remuneration Committee,
The Audit Committee, Nomination Committee,
and Risk and Safety Committee.
REMUNERATION COMMITTEE
The Remuneration Committee consists of the
Chairman, and two independent non-executive
directors and is chaired by Mark Phillips.
The Remuneration Committee monitors the
performance of the Company’s executive
directors and makes recommendations to the
Board on the remuneration packages for the
executives. The remuneration and terms and
conditions of appointment of the non-executive
directors are set by the Board as a whole.
Remuneration committee meetings
and attendance in 2018
Mutiu Sunmonu *
Mark Phillips (Chair)
Linda Beal
Number of
meetings
Number of
meetings
attended
3
3
3
3
3
3
* Chair of the Committee until 28 November 2018.
AUDIT COMMITTEE
The Audit Committee consists of the Chairman
and two independent non-executive directors
and is chaired by Linda Beal who has recent and
relevant financial experience. The duties of the
Audit Committee include the review of the
accounting principles, policies and practices
adopted in preparing the financial statements,
internal control processes and the review of
the Company’s financial results. The Audit
Committee considers the need for an internal
audit function, reviews the risk management
policies and procedures and is responsible for
ensuring that adequate insurance cover is in
place for identifiable risks.
The Audit Committee also considers how to
maintain an appropriate relationship with the
Company’s auditors. The Audit Committee
approves any fees in respect of non-audit
services provided by external auditors to
safeguard the external auditor’s independence
and objectivity.
Audit committee meetings
and attendance in 2018
Mutiu Sunmonu
Mark Phillips
Linda Beal (Chair)
Number of
meetings
Number of
meetings
attended
6
6
6
6
6
6
Corporate Governance
| 25
DEPARTURES FROM THE CODE
Non-executive directors’ participation
in Option Schemes
The Company encourages non-executive
directors to participate in the Company’s
option schemes, and believes such participation
enhances alignment between the non-executive
directors and shareholders. The Company does
not currently fully comply with the QCA Code
in this respect.
The Board believes that independence is
a matter of independence of mind, judgement
and integrity and that Mutiu Sunmonu,
Mark Phillips, Linda Beal and Bill Higgs are
independent of management. The Board
considers their ability to act independently
to be unaffected by participation in the
Company’s option scheme.
Nomination Committee
Oisín Fanning (Chief Executive Officer) sits
on the Nomination Committee along with
Mutiu Sunmonu (non-executive Chairman) and
Mark Phillips (non-executive director and Chair
of the Nomination Committee). The Nomination
Committee is responsible for reviewing the
structure, size and composition of the Board
and making recommendations to the Board
with regard to any changes required. It is
responsible for locating appropriate senior
candidates and conducting initial interviews
and submitting recommendations on any
appointment to the Board.
The Board accepts that it is unusual for the
Company’s Chief Executive Officer to be part
of this Committee. However, Mr Fanning has
almost 30 years' experience in structured
finance, stockbroking and corporate finance,
with 12 years specialising in the oil and gas
industry and as such has many useful and
relevant contacts. He recognises the importance
of finding and developing talented people to
help the Company achieve its objectives and
without his direct input, the Committee would
be denied his relevant opinion on suitable
candidates to join the Board.
NOMINATION COMMITTEE
The Nomination Committee consists of the
Chairman, the Chief Executive Officer and
an independent non-executive director
(Mark Phillips) who chairs the Nomination
Committee. The Nomination Committee is
responsible for reviewing the structure, size
and composition of the Board and making
recommendations to the Board regarding any
changes required.
It is responsible for locating appropriate senior
candidates and conducting initial interviews
and submitting recommendations on any
appointment to the Board.
Nomination committee meetings
and attendance in 2018
Mutiu Sunmonu
Mark Phillips (Chair)
Oisín Fanning
Number of
meetings
Number of
meetings
attended
3
3
3
3
3
2
RISK AND SAFETY COMMITTEE
The Risk and Safety Committee consists of the
Chairman, the Chief Operating Officer and an
independent non-executive director (Bill Higgs)
who chairs the Risk and Safety Committee.
The Risk and Safety Committee is responsible
for evaluating risks in Company operations
including property, personnel, security
and environmental risks and ensuring that
appropriate procedures are in place for
mitigating risk. The Risk and Safety Committee
is also responsible for ethics and corporate
social responsibility.
Risk and Safety committee meetings
and attendance in 2018
Mutiu Sunmonu *
Joel Price
Bill Higgs (Chair) ^
Number of
meetings
Number of
meetings
attended
1
1
1
0
1
1
* Chair of the Committee until 13 June 2018.
^ Appointed to the Board on 22 May 2018.
26 | San Leon Energy plc Annual Report and Accounts 2018
ENSURE THAT BETWEEN THEM THE
DIRECTORS HAVE THE NECESSARY
UP-TO-DATE EXPERIENCE, SKILLS
AND CAPABILITIES
The Board members bring extensive and
diverse experience encompassing operational,
financial, African, European, AIM and regulatory,
commercial expertise and large and developing
company experience.
The Chairman believes that the Board should
always have a suitable mix of skills and
competencies covering all essential disciplines
bringing a balanced and diverse perspective
that is beneficial both operationally and
strategically.
The executive directors bring significant listed
company, oil and gas operations and financial,
commercial and transactions experience. The
independent non-executive directors bring
significant African oil and gas, investor, AIM
and main board and financial expertise to
the Board.
The nature of the Company’s business requires
the directors to keep their skillset up to date.
The directors are kept informed on relevant
regulatory compliance and statutory matters
through briefings by external advisers and all
executive and non-executive directors have
access to the Company’s external advisers.
The Company changed its Nominated Advisor
(“Nomad”) in 2018, a process which included
the new Nomad making a presentation to
the board on ‘Directors’ Responsibilities &
Continuing Obligations under the AIM rules
for Companies’.
The directors receive regular briefing papers
on the operational and financial performance
of the Company from the executive and senior
management.
All Company non-executive directors also hold
director (non-executive or executive) roles in
other companies, helping to ensure broad and
current experience. Further training is available
at the Company’s expense.
Summary background and diversity of the Board
Directors
Mutiu Sunmonu
Oisín Fanning
Joel Price
Ewen Ainsworth
Alan Campbell
Ray King *
Linda Beal +
Mark Phillips
Bill Higgs ^
* Resigned 28 September 2018.
+ Appointed to the Board on 16 January 2018.
^ Appointed to the Board on 22 May 2018.
Background
Diversity
Oil & gas /
energy
Finance /
commercial
Investor
Female
Non-UK /
Irish
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Corporate Governance
| 27
EVALUATE BOARD PERFORMANCE BASED
ON CLEAR AND RELEVANT OBJECTIVES,
SEEKING CONTINUOUS IMPROVEMENT
The Board considers that the combination
of non-executive and executive directors is
of sufficient competence and experience to
support the strategy and development of the
Company. During 2018, the Nomination
Committee sought to add independent
technical and operational experience to the
Board, which resulted in Bill Higgs being
appointed in May 2018.
The Chairman and Nomination Committee
will continue to review and monitor the
strength and objectivity of the board and
seek improvement.
Succession planning
Succession planning is currently undertaken
on an informal basis by the CEO in consultation
with the Board. The Board is satisfied that this
is appropriate for this stage in the Company’s
development.
Formal evaluation of Board and directors
The Board engaged an external third party
consultant to observe and evaluate its Board
meetings from Q2 2018, with one of their
deliverables being to review directors’
and Board performance. Initial minor
recommendations to improve Board processes
and procedures have already been implemented.
PROMOTE A CORPORATE CULTURE
THAT IS BASED ON ETHICAL VALUES
AND BEHAVIOURS
Our ethics
The Company is committed to upholding high
ethical standards and principles, both in letter
and in spirit, throughout all of our operations.
The Company aspires to, and encourages
its staff to, operate in a socially responsible
manner, acting professionally at all times.
The Company is committed to a strong ethical
and values-driven culture encompassing the
high standards of quality, honesty, openness
and accountability, and understands that any
issues counter to this culture could have an
extremely negative impact on the business.
The Company, its management, employees,
contractors and partners have the responsibility
of applying the highest standard of ethical
business practices in all their relationships with
shareholders, suppliers, and the general public.
Creating a fair and inclusive culture
The Company promotes an inclusive,
transparent and respectful culture. Our people
are our greatest asset. Led by the values
of responsibility, excellence and continuous
improvement, integrity and trustworthiness,
cooperation and engagement, empathy and
fairness they apply their skills and expertise
every day to ensure we operate both
responsibly and successfully.
While the Chairman and the Nomination
Committee evaluate requirements for the
Board, an external third party was asked to
review certain matters. A formal evaluation
process for the Board as a whole, as well as of
its Committees and directors, was implemented
in December 2018. The review assessed the
Board’s role and responsibilities in connection
with the strategy, the effectiveness of all
aspects of the Board and its Committees,
including composition, experience, dynamics
and succession planning. The Chairman led the
process. The executive directors and other
non-executive directors reviewed the
Chairman’s leadership and performance.
The Company is an equal opportunity employer
and seeks to hire, endorse and retain highly
skilled people based on merit, competence,
performance, and business needs. The
Company is committed to employment policies
which follow best practice, based on equal
opportunities for all employees, irrespective of
ethnic origin, religion, political opinion, gender,
marital status, disability, age or sexual orientation.
The Company communicates its corporate
culture through staff presentations and
inductions. To embody and promote sound
ethical principles, the Board has endorsed the
following key policies:
• HR handbook (UK and Ireland);
• Share-dealing Code;
• Anti-Bribery and Corruption Policy;
• Whistle Blowing Policy; and
• Health and Safety and Environmental
Protection Policies.
28 | San Leon Energy plc Annual Report and Accounts 2018
Share-dealing Code
Anti-Bribery and Corruption Policy
The Company has adopted a share-dealing
code for directors and applicable employees
of the Company to ensure compliance with the
provisions of the AIM Rules (including relating
to the restrictions on dealings during closed
periods in accordance with MAR and with
Rule 21 of the AIM Rules for Companies). The
directors consider that this share dealing code
is appropriate for a company whose shares are
admitted to trading on AIM. The Company takes
all reasonable steps to ensure compliance with
the share-dealing code by the directors and
applicable employees with the terms of the
share-dealing code and the relevant provisions
of the AIM Rules (including Rule 21).
Health and Safety and Environmental Policy
The Company’s objectives include observing
the highest level of health and safety standards,
developing our staff to their highest potential
and being a good corporate citizen in our
chosen countries of operations.
The Company is committed to providing a safe
working environment for its employees and
anyone doing work on the Company’s behalf.
The Risk and Safety Committee reviews and
makes recommendations concerning risk,
health and safety issues. The HS&E
performance indicators and the safety of
our employees are principal elements of our
business and are fundamental to our culture
and engagement with our stakeholders.
HS&E is covered at board meetings during
discussion on operations.
Whistleblowing Policy
The Company has a Whistleblowing Policy
in place to assist employees, suppliers,
contractors and others with the reporting
of any malpractice or illegal act or omission
by others. The policy is reviewed at least every
two years or more often if necessary and is
communicated to all employees. It was last
reviewed in September 2018.
The Company’s Anti-Bribery and Corruption
Policy formalises the Company’s zero-tolerance
approach to bribery and corruption. The
Company expects all employees, suppliers,
contractors and consultants to conduct their
day-to-day business activities in a fair, honest
and ethical manner, and to be aware of and
refer to the Anti-Bribery & Corruption Policy
in all of their business activities worldwide
and to conduct all business in compliance
with it. The Company seeks to enforce effective
systems to counter bribery, such as secondary
authorisations for payments.
The Company intends to audit the conduct
of business activities regularly to ensure these
policies are strictly adhered to and the core
values are respected. We also expect and
require high standards of behaviour from
our partners. The Policy was last reviewed
in September 2018.
MAINTAIN GOVERNANCE STRUCTURES AND
PROCESSES THAT ARE FIT FOR PURPOSE
AND SUPPORT GOOD DECISION-MAKING
BY THE BOARD
The Board of Directors recognises the
importance of applying the highest standards
of corporate governance to enable effective
and efficient decision making, and to give a
structural aid for directors to discharge their
duty to promote the success of the company
for the benefit of its shareholders.
The Board reserves for itself a range of key
decisions to ensure that it retains proper
direction and control of the Company whilst
delegating authority to individual directors who
are responsible for the day to day management
of the business.
The following matters are reserved for the
Board:
• all matters which exceed the authority
delegated to the Group executives;
• mergers and acquisitions transactions;
• strategy, budgets and business plans;
• audit, financial and other reporting;
• changes in the capital structure of the
company and the issue of shares or other
securities by the company;
Corporate Governance
| 29
The Chief Executive Officer and other executive
directors are responsible for communicating
with major shareholders and other shareholders
who wish to be part of a dialogue. The Chairs
of the Audit, Remuneration, Nomination and
Risk and Safety Committees are also available
to answer questions at the AGM.
The Board discloses the result of general
meetings by way of announcement and
discloses the proxy voting numbers to those
attending the meetings. In order to improve
transparency, the Board has committed to
announcing proxy voting results in future and
disclosing them on the Company’s website.
In the event that a significant portion of voters
have voted against a resolution, an explanation
of what actions it intends to take to understand
the reasons behind the vote will be included.
Signed on behalf of the Board by:
Mutiu Sunmonu
Non-Executive Chairman
26 June 2019
• policies and guidelines;
• internal controls and governance;
• appointment or removal of directors and the
Group company secretary;
• establishment of sub-boards and committees;
• appointment, re-appointment or removal of
the auditors and any other corporate advisers;
• appointment and removal of trustees of the
Group's pension arrangements; and
• management development, remuneration
and employee benefits.
The Company conducts a review of the
Company’s governance framework each year
and takes into account audit recommendations.
The appropriateness of the Company’s
governance structures will continue to be
reviewed in light of further developments of
accepted best practice and the development
of the Company.
COMMUNICATE HOW THE COMPANY
IS GOVERNED AND IS PERFORMING
BY MAINTAINING A DIALOGUE WITH
SHAREHOLDERS AND OTHER RELEVANT
STAKEHOLDERS
San Leon Energy is committed to open
communication with all its stakeholders. The
Company believes it is important to explain
business development and financial results
to its stakeholders and to ensure that suitable
arrangements are in place so that the issues
and concerns of major stakeholders are heard
and understood.
The Company communicates with all stakeholders
through its website, Regulatory News Service
(“RNS”) announcements, Annual Report and
Accounts, half yearly announcements, AGMs
and private meetings.
Copies of the Annual Report and Financial
Statements are issued to all shareholders
who have requested them and copies are
available on the Group’s investor website
www.sanleonenergy.com. The Group’s
interim results are also made available on the
Company’s website. The Group makes full use
of its investor website to provide information
to shareholders and other interested parties.
30 | San Leon Energy plc Annual Report and Accounts 2018
Audit
Committee Report
The Audit Committee comprises 3 members,
all of whom are independent non-executive
directors including the chair, Linda Beal, who
is considered by the Board to have recent
and relevant financial experience. The Audit
Committee meets formally at least four times
a year and otherwise as required and also
meets with the Company’s external auditors
at least twice a year.
Roles and responsibilities
The main roles and responsibilities of the
Audit Committee are to:
• monitor the integrity of the financial
statements, including review of the accounting
policies, key judgements and estimates
adopted in preparing the financial statements,
and any formal announcements relating to
financial performance;
• review and monitor the Company’s financial
reporting, internal control and risk
management systems to ensure that effective
risk management and financial control
frameworks have been implemented;
• make recommendations to the Board in
relation to the appointment, reappointment or
removal of the external auditor and approve
engagement terms and fees of the auditor;
• review and monitor the scope of the annual
external audit;
• review and monitor the independence of
the external auditor; and
• consider the need for an internal auditor.
Internal control and risk management
San Leon has established terms of reference
for the Audit Committee. This includes overview
of the identification, categorisation and
prioritisation of critical risks within the business
and allocation of responsibility to its executives
and senior managers. The objectives of this risk
management policy are to:
• provide a structured risk management
framework that will provide senior
management and the Board with comfort
that the risks confronting the organisation
are identified and managed effectively;
• create an integrated risk management process
owned and managed by the Group’s
personnel that is both continuous and
effective;
• ensure that the management of risk is
integrated into the development of strategic
and business plans, and the achievement
of the Group’s vision and values; and
• ensure that the Board is regularly updated
with reports by the committee.
The Board also acknowledges its overall
responsibility for ensuring that the Company
has a system of internal control in place that
is appropriate. This includes ensuring the
implementation of policies and procedures that
address risk identification and control, training
and reporting. Management is responsible for
efficient and effective risk management across
the activities of the Group.
The Audit Committee reviews the effectiveness
of the implementation of the risk management
system and internal control system annually.
When reviewing risk management policies and
the internal control system the Board takes into
account the Company’s legal obligations and
also considers the reasonable expectations
of the Company’s stakeholders.
Corporate Governance
| 31
The key policies and procedures are:
• preparation of annual budgets for approval
by the board;
• ongoing review of expenditure and cash flow
versus approved budget;
• establishment of appropriate cash flow
management and treasury policies for the
management of liquidity, currency and credit
risk on financial assets and liabilities, along
with delegations of authority and bank
mandates;
• regular management, committee, and board
meetings, to review operating and financial
activities;
• recruitment of appropriately qualified and
experienced staff to key financial and
management positions;
• preparation of the annual report, related
financial statements and annual audit thereof;
and
• a risk register to assist with the identification
and management of risk.
The principal areas of risk for the Company
are set out in the Directors' report on page 38.
Management update the risk register regularly
and the Audit Committee reviews the risk
register at least twice annually.
The Audit Committee also ensures that
appropriate procedures, resources and controls
are in place to comply with the AIM rules and
monitors compliance thereof. The Company
has adopted a model code for directors’ share
dealings which is appropriate for an AIM listed
company. The directors comply with Rule 21
of the AIM Rules relating to directors’ dealings
and take all reasonable steps to ensure
compliance by the Company’s applicable
employees. There are also anti-bribery and
corruption, whistleblowing, and environmental
policies, as well as an annual review of
compliance with the Irish Companies Act 2014.
In order to ensure the independence and
objectivity of the external auditor, the Audit
Committee has a policy regarding the provision
of non-audit services by its external auditor
to ensure that such services do not impair the
independence or objectivity of the external
auditor.
Activities of the Audit Committee
During 2018 the Audit Committee undertook
a review of controls and procedures and with
management identified a number of important
areas for improvement and oversaw
implementation of the recommendations,
some of which were completed in the first half
of 2019:
• adoption of an upgraded accounting system
and improvements in resilience of the IT
system;
• implementation of a central filing system
for all major contracts and documents;
• improved annual report and accounts process;
• broadening of the Company’s banking
arrangements;
• implementation of a board performance
review; and
• commissioned an independent review
of insurance cover.
In addition, the Audit Committee considered
the need for internal audit and decided to
appoint an external firm as internal auditor.
The internal auditor is undertaking two internal
audit reviews in 2019.
2018 financial statements
The Audit Committee reviewed the interim
financial statements.
The Audit Committee reviewed the planning
of the 2018 audit and annual report.
32 | San Leon Energy plc Annual Report and Accounts 2018
With regard to the Group’s financial statements,
the Audit Committee considered:
Valuation of 4.5% NPI on the Barryroe
oil field
The carrying value of the 4.5% NPI on the
Barryroe oil field at 31 December 2018 was
€44.7 million (US$51.1 million). The Audit
Committee considered the assumptions in
valuation which included timing, oil price,
costs and risk, and considered them reasonable
and appropriate.
Going concern
The Audit Committee reviewed the detailed
cash flow forecast for the Group and the
Company for the period from 1 June 2019 to
31 December 2020, the principal assumptions
underlying the cash flow forecast and the
availability of finance to the Group. The Audit
Committee considered that whilst any quarterly
Loan Notes payment, if delayed or not received,
represents an uncertainty, the receipt of further
Loan Notes payments is not required given the
cash flow forecast assumptions including
expected income from the provision of drilling
technical and management services in order
for the Group to continue as a going concern.
Therefore the Audit Committee concluded that
it was appropriate to recommend adoption of
going concern as the basis of preparation of the
financial statements.
Signed on behalf of the Audit Committee by:
Linda Beal
Chair of the Audit Committee
26 June 2019
• the appropriateness of the Group’s key
accounting policies;
• the clarity and acceptability of accounting
policies and practices;
• the clarity of the disclosures and compliance
with financial reporting standards and
relevant financial and governance reporting
requirements;
• material areas in which significant judgements
have been applied or there has been
discussion with the external auditor; and
• whether the Annual Report and financial
statements taken as a whole present a fair,
balanced and understandable body of
information that provides the data necessary
for shareholders to assess the Company’s
performance, business model and strategy.
The Audit Committee received and considered
memoranda from management regarding these
matters and discussed these with the external
auditor.
The Audit Committee determined that the key
risks of misstatement of the Group’s financial
statements related to the carrying value of the
MLPL Loan Notes and equity interest and the
Net Profit Interest (NPI) on the Barryroe oil field
in addition to going concern. These matters were
discussed with management during the year
when the Committee considered the interim
financial statements and in 2019 when the
Committee reviewed the Annual report and
financial statements.
Valuation of MLPL Loan Notes and
equity interest
At 31 December 2018 there is €124.3 million
(US$142.4 million) in principal due on a cash
receipt basis under the MLPL loan notes.
The value of the equity interest in MLPL
at 31 December 2018 was €48.1 million
(US$55.1 million). The Audit Committee
considered the ability of the underlying parties
and assets to meet the obligation to the
Company and the value of the equity interest
both in the light of the performance to date and
expected future performance. This is explained
in detail in Note 17 of the financial statements.
REMUNERATION COMMITTEE REPORT
| 33
Remuneration
Committee Report
The Group’s policy on senior executive
remuneration is designed to attract and retain
individuals of the highest calibre who bring
relevant experience and independent views to
the development of policy, strategic decisions
and governance of the Group.
In determining remuneration levels,
the Remuneration Committee takes into
consideration the practices of other companies
of similar scope and size. A key philosophy is
that staff should be properly rewarded and
motivated to perform in the best interests
of the shareholders.
Director emoluments and pension
contributions, excluding share option
arrangements, during the year ended
31 December 2018 were as follows:
Mutiu Sunmonu >
Oisín Fanning #
Raymond King +^§
Joel Price
Alan Campbell
Ewen Ainsworth º†
Mark Phillips
Linda Beal ~*
Bill Higgs <
Salary &
emoluments
€'000
Bonus =
€'000
Pension
€'000
Fees &
services
€'000
Benefits
€'000
Shares to
be issued
€'000
–
424
–
396
396
339
–
–
–
440
–
157
157
–
–
–
–
–
–
30
30
24
–
–
–
137
50
365
53
53
53
58
88
30
–
29
–
–
–
–
–
–
–
–
660
–
–
–
–
–
–
–
2018
Total
€'000
137
1,603
365
636
636
416
58
88
30
# Oisín Fanning is also due 5,590,270 ordinary shares in lieu of 80% of his salary for the period of January 2016 through to 30 September
2018 inclusive. These shares were issued in February 2019.
1,555
754
84
887
29
660
3,969
+ Resigned 28 September 2018.
~ Appointed 16 January 2018.
< Appointed 22 May 2018.
> The Group has a consultancy agreement with Mutiu Sunmonu and Greenbay Energy Resources Limited. Please see Note 32 for further
details.
^ The Group has a consultancy agreement with Raymond King and Surplan Limited. Please see Note 32 for further details.
º The Group has a consultancy agreement with Ewen Ainsworth and Discovery Energy Limited. Please see Note 32 for further details.
* Linda Beal Consultancy LLP provides consultancy services to the group. Please see Note 32 for further details.
† See Note 34.
§ Raymond King was paid a termination payment of €186,000 which is included in fees and services.
= Bonuses not paid to directors at 31 December 2018. 50% of amounts due to Joel Price and Alan Campbell were paid in March 2019 and
the remaining 50% is due be paid by 30 June 2019. 50% of amounts due to Oisín Fanning were paid in March 2019 and the remaining 50%
was offset against the directors loan. Please see Note 32 for further details.
34 | San Leon Energy plc Annual Report and Accounts 2018
Director emoluments and pension contributions, excluding share option arrangements, during
the year ended 31 December 2017 were as follows:
2018
Total
€'000
139
1,462
186
622
625
421
58
44
Salary &
emoluments
€'000
Bonus =
€'000
Pension
€'000
Fees &
services
€'000
Benefits
€'000
Shares to
be issued
€'000
Mutiu Sunmonu >
Oisín Fanning #*
Raymond King +^
Joel Price
Alan Campbell
Ewen Ainsworth º
Mark Phillips
Nick Butler +
–
203
–
401
401
344
–
–
–
355
–
138
138
–
–
–
1,349
631
–
–
–
30
30
24
–
–
84
139
50
186
53
53
53
58
44
–
42
–
–
3
–
–
–
–
812
–
–
–
–
–
–
636
45
812
3,557
+ Resigned 6 September 2017.
# Oisín Fanning is due 2,542,432 ordinary shares in lieu of 80% of his salary for the year 1 January 2017 to 31 December 2017. He is also
due 510,510 ordinary shares in respect of 2016.
* In addition, Oisín Fanning is due €1,682,879 in respect of personal loan guarantees provided by him, on behalf of the Company.
~ Appointed 16 January 2018.
< Appointed 22 May 2018.
> The Group has a consultancy agreement with Mutiu Sunmonu and Greenbay Energy Resources Limited. Please see Note 32 for further
details.
^ The Group has a consultancy agreement with Raymond King and Surplan Limited. Please see Note 32 for further details.
º The Group has a consultancy agreement with Ewen Ainsworth and Discovery Energy Limited. Please see Note 32 for further details.
= Bonuses not paid to directors as at 31 December 2017 or at 28 June 2018. See Note 23, ‘Other creditors’.
In addition to the emoluments above, in
accordance with IFRS 2, share based payments,
a cost of €169,361 (2017: €Nil) has been
recognised in respect of share options granted
to directors. See Note 29 for further details
of share options.
Directors’ interests
The directors and Company Secretary who
held office at 31 December 2018, except where
indicated, had no interests other than those
shown below in the Ordinary Shares of the
Company. All interests are beneficially held
by the directors.
Director
Oisín Fanning
Ewen Ainsworth
Number of Ordinary Shares
26/06/19
31/12/18
01/01/18
9,225,864 3,635,594 3,635,594
66,666
66,666
66,666
Remuneration committee report
| 35
Share options
Details of share options granted to the directors are as follows:
Mutiu Sunmonu
Oisín Fanning ¬
Raymond King ~¬
Joel Price ¬
Alan Campbell ¬
Ewen Ainsworth
Mark Phillips
Linda Beal +
Bill Higgs #^
Options at
01/01/18
1,000,000
30,000
35,000 ^
55,000 *
35,000
55,000*
1,500,000
2,500
15,000
1,000,000
2,000,000
1,500,000
2,000,000
1,500,000
1,000,000
1,000,000
Granted
in year
Lapsed
in year
Options at
31/12/18
Exercise
price
Expiry
date
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,000,000
£0.45 20/09/23
(30,000)
(35,000)
(55,000)
–
–
–
–
–
35,000
55,000
£11.00
14/11/18
£35.00
13/02/18
€5.00
14/11/18
£13.00
20/03/19
€5.00
06/07/19
– 1,500,000
£0.45 20/09/23
(2,500)
–
£11.00
14/11/18
–
15,000
£13.00
20/03/19
– 1,000,000
£0.45 20/09/23
– 2,000,000
£0.60
10/01/22
– 1,500,000
£0.45 20/09/23
– 2,000,000
£0.60
10/01/22
– 1,500,000
£0.45 20/09/23
– 1,000,000
£0.45 20/09/23
– 1,000,000
£0.45 20/09/23
– 1,000,000
– 1,000,000
£0.45
16/01/25
–
–
–
–
–
–
* Options vest subject to achievement of a production target of over 501 barrels of oil equivalent per day within the life of the option.
All other options vest immediately on grant.
~ Resigned 28 September 2018.
+ Appointed 16 January 2018.
# Appointed 22 May 2018.
^ On his appointment on 22 May 2018, the Board approved the grant of 1,000,000 of share options at a strike price £0.45, however
as the Company was in a closed period at the date of award these options were not formally awarded until February 2019.
¬ All existing Company share options which had an exercise price above 45 pence per ordinary share, were repriced with an exercise price
of 45 pence on 20 February 2019. All other terms remain unchanged.
Transactions involving directors
Contracts and arrangements of significance
during the year in which directors of the
Company were interested are disclosed
in Note 32 to the financial statements.
Signed on behalf of the Remuneration
Committee by:
Mark Phillips
Remuneration Committee Chair
26 June 2019
36 | San Leon Energy plc Annual Report and Accounts 2018
Nomination
Committee Report
Risk and Safety
Committee Report
During 2018 the Nomination Committee
reviewed the terms of reference, a copy of
which is available on the Company’s website.
During 2018 the Risk and Safety Committee
reviewed the terms of reference, a copy of
which is available on the Company’s website.
A review was undertaken of the board
composition and capabilities, and it was
recommended strengthening the board with
the addition of Linda Beal and Bill Higgs as
non-executive directors.
In addition, the executive capabilities and
resources were reviewed. It was concluded that
there is no current or near term requirement
to augment the team but this will continue to
be reviewed as appropriate.
It was agreed that further consideration needs
to be given to succession planning even though
there is a well-resourced and capable team
in place currently.
It was decided that an updated health, safety,
environment and quality management system
was required for the provision of services under
the OML 18 Master Services Agreement and
for office based activity, inclusive of a journey
management policy.
The ethics and corporate social responsibility
policies are also to be reviewed.
These are currently work in progress and
are expected to be concluded during 2019.
Bill Higgs
Risk and Safety Committee Chair
26 June 2019
Mark Phillips
Nomination Committee Chair
26 June 2019
38 | San Leon Energy plc Annual Report and Accounts 2018
Directors’ Report
for the year ended 31 December 2018
The directors present their annual report
together with the audited financial statements
of San Leon Energy plc (“the Company”) and
its subsidiaries (collectively “the Group”) for
the year ended 31 December 2018.
Principal activity and future developments
The principal activities of the company are the
holding of an initial indirect 10.584% economic
interest in OML 18 Nigeria, through its
investment in Midwestern Leon Petroleum
Limited (“MLPL”), and the exploration and
production of oil and gas.
A detailed review of activities for the year and
future prospects of the Group is contained in
the Chairman’s Statement and CEO’s Statement.
“
To date payments totalling
€100.1 million (US$116.5 million)
have been made.”
Oisín Fanning
CEO
Results and dividends
The Group profit (loss) for the year after providing
for depreciation and taxation amounted to
€7.2 million (2017: loss of €73.5 million).
Net assets of the Group at 31 December 2018
amounted to €228 million (2017: €225.3 million).
Exploration & evaluation impairments / write off
totalled €2.7 million in 2018 (2017: €42.8 million).
No dividends are proposed by the directors.
Principal risks and uncertainties
There are a number of potential risks and
uncertainties that could have a material impact
on the Group’s long-term performance. The
Board has overall responsibility for managing risk.
The Group’s principal areas of oil and gas
exploration and production activity are in
Nigeria and a Net Profit Interest on the Barryroe
oil field (offshore Ireland). The Group has a
management structure and system of internal
controls in place designed to identify, evaluate,
manage and mitigate business risk, including
HSE risks. Risks are formally identified and
recorded in a risk register which is reviewed
by the Board and appropriate processes are
in place to implement and monitor mitigating
controls.
The executive directors are closely involved in
the day to day management of the business and
have oversight of all the controls the business
has in place, including financial, operational
(including HSE) and compliance controls, as well
as overseeing risk management. Each board
member commits sufficient time to fulfil their
duties and obligations to the Board and the
Company.
The Audit Committee, which is comprised of
certain independent non-executive directors,
monitors and promotes high standards of
integrity, financial reporting, risk management
and internal control. For details of the Audit
Committee's performance refer to the Audit
Committee Report on page 30. Risks and
uncertainties, which are not exhaustive, which
are particularly relevant to the Company and
the Group’s business activities are considered
to be the following:
DIRECTORS’ Report
| 39
Going concern and Loan Notes repayment
Risk Management
The directors have reviewed budgets, projected
cash flows and other relevant information, and
on the basis of this review, concluded that the
Group and the Company will have adequate
financial resources to continue in operational
existence for the foreseeable future which
covers a period of at least twelve months from
the date of approval of these financial
statements.
As set out in Note 1 to the financial statements,
there are a number of assumptions underlying
the Group’s cash flow projections. The principal
cash flows expected by the Group are interest
and capital repayments on the MLPL Loan
Notes and dividend income.
To date quarterly payments totalling
€100.1 million (US$116.5 million) have been
made on behalf of MLPL and received by the
Company. €14.7 million (US$16.5 million) was
due on 1 April 2019 under the terms of the
Loan Notes and is outstanding.
When the outstanding amount of the quarterly
Loan Notes payment is received there will be
more than sufficient cash funds for the Group
and Company to remain a going concern for
at least 12 months from the date of approval
of the financial statements. This projection
takes into account the repurchase of €26.8
million (US$30.5 million) of the Company’s
shares, completed in March 2019.
The directors have discussed the assumptions
and basis of preparation of the projections
and, having considered the financial resources
available, believe that it is appropriate to
prepare the financial statements on the going
concern basis.
Managing risks in an international oil and gas
company is essential to stability and long term
sustainability. The Company’s Board has overall
responsibility for risk identification and control
and has developed a risk management
structure to identify risks, evaluate the impact
of certain risks, assess the likelihood of risks
occurring and implementing risk mitigation
measures where possible to reduce each risk
to an acceptable level in accordance with the
Group’s appetite for risk.
Risks are formally identified and recorded in
a risk register which is reviewed by the Board.
The executive directors are closely involved in
the day to day management of the business and
have oversight of all the controls the business
has in place, including financial, operational
(including HSE) and compliance controls, as well
as overseeing risk management.
As part of our overall goal to reduce risk across
the organisation, the risk register was fully
reviewed in 2018, and a further internal review
started in 2019.
As part of our goal to seek continual
improvement of the risk management process,
the following tasks were completed in 2018:
• Each employee was updated and reminded of
their responsibility concerning all Anti-Bribery
and Corruption policies;
• The Audit Committee initiated a risk
evaluation scoring matrix for each risk with
the objective of seeking wider input from
across the organisation.
This assessment helped identify the impact of
high risks and mitigation progress can also be
evaluated through the register from review-to-
review
The Board recognises that risk cannot be fully
eliminated but it is their responsibility to ensure
that risk assessment and mitigation is as
thorough and vigorous as possible. The
following principal risks and uncertainties,
which are not exhaustive, with their mitigation
actions are particularly relevant to the
Company.
40 | San Leon Energy plc Annual Report and Accounts 2018
RISK
MITIGATION
MLPL Loan Notes
Repayments /
Going Concern
As set out in Note 1 to the financial statements, there are a number of assumptions
underlying the Group’s cash flow projections. The principal cash flows expected by the
Group are interest and capital repayments on the MLPL Loan Notes.
The directors have reviewed budgets, projected cash flows and other relevant information,
and on the basis of this review, concluded that the Group and the Company will have
adequate financial resources to continue in operational existence for the foreseeable future
which covers a period of at least twelve months from the date of approval of these financial
statements.
This projection takes into account the repurchase of €26.8 million ($30.5 million) of the
Company’s shares, completed in March 2019.
The directors, having discussed the assumptions and basis of preparation of the projections
and, having considered the financial resources available; believe that it is appropriate to
prepare the financial statements on the going concern basis.
Partnership Risk
The Group’s principal asset is its indirect interest in OML 18, held through an indirect
shareholding in Eroton, a Nigerian registered entity, and operator of OML 18.
Political
Instability / OML
18 Operational
Disruption
Partners may develop different strategic, operational or capital plans that may not agree
with Company preferences. Eroton manages operational and financial risk associated with
OML 18, and as mentioned in commodity risk section below, hedging is one mitigating action
which has been established to ensure ongoing repayment of Eroton RBL facility. Failure to
pay royalties and taxes or meet other regulatory obligations could result in the OML 18 lease
being rescinded.
The Company has board representation throughout the ownership structure, including two
board positions on the Eroton board, and remains in constant dialogue with its partners to
help design effective, coherent and transparent working relationships and structures that
are sufficient to meet all obligations.
OML 18 operations are exposed to the risk of delays and interruptions to production due to
various causes including political instability, sabotage, pipeline losses, operational downtime,
slow progress caused by unexpected downhole challenges, operational funding, and
procedural delays with JV partners and authorities.
Severe operational delays or disruption could lead to an inability to produce oil and repay
the Eroton RBL debt facility, which could lead to the loss of OML 18, or an inability to pay
dividends.
Eroton is a local experienced operator completely focussed on OML 18 regulatory
requirements and maintaining dialogue with local communities. San Leon Energy has
appointed a senior operations manager with downhole operational experience to work
with the Eroton team.
While cargo shipping delays and pipeline losses have been experienced on OML 18, Eroton
is also exploring an alternative oil evacuation route to mitigate against risk of such delay
and losses.
Bribery &
Corruption
The area in which the Company holds its material asset scores low relatively to many
countries with regard to bribery and corruption issues. The Company has a zero tolerance
policy on such matters. The Company has an Anti-Bribery & Corruption Policy in place
that is monitored and updated in accordance with UK standards. The Company also has
a Whistleblowing Policy in place to encourage confidential reporting of any issues that may
be illegal or suspicious.
DIRECTORS’ Report
| 41
RISK
MITIGATION
Geological and
Development Risk
The Company depends on maintaining successful development projects to achieve revenue
and success. However, the level of production and cash flow from OML 18 is an estimated
value and may not materialise as originally expected. This risk is specific to the geological and
engineering factors involved in estimation and projection of the expected capacity of new
or existing projects.
Exploration and development activities may be delayed or adversely affected by factors
outside the Group’s control, including, climatic conditions, performance of joint venture
partners or suppliers, availability of drilling and other equipment, delays or failures in
installing and commissioning plant and equipment, unknown geological, well and
equipment conditions, remoteness of location, actions of host governments or other
regulatory authorities (relating to, inter alia, the grant, maintenance or renewal of any
required authorisations, environmental regulations or changes in law).
The Group utilises its experience, external contractors and that of its partners, in particular
Eroton, to determine the resource and development assumptions to ensure the Board
maintains a realistic view of resources and development expectations.
Commodity Price
Risk
The demand for, and price of oil and gas is dependent on supply and demand, actions of
governments and general global economic and political developments. Eroton, as operator
of OML 18, has in place a put option at $50 per barrel for a portion of its production. In effect
this provides a price floor for that portion of production, while providing access to price
upside. It is designed to protect the ability of Eroton to service RBL debt facility repayments
at Eroton level. Further hedging instruments are expected to be put in place to mitigate risk.
Health, Safety &
Environmental
Risk
Financial &
Currency Risk
The Company has an impeccable record on health, safety and environmental matters.
However, the Board recognises that a company can never be complacent and the protection
of people, the environment and our assets is central to San Leon Energy's values and
principles. As such the Company has established a Risk & Safety Committee to ensure risks
are managed appropriately in accordance with international best practice and legislation.
Compliance with any changes to legislation may require stricter or additional standards
than those now in effect. These could result in heightened responsibilities and could cause
additional expense, capital expenditures, restrictions and delays in the activities, the extent
of which cannot be predicted.
The company is dependent on Eroton to impose and maintain required standards to OML 18
operations.
The Group’s multinational operations expose it to different financial risks that include
foreign exchange risk, fiscal and tax risk, credit risk, liquidity risk, interest rate risk, and
equity price risk. Details of the principal financial risks are set out in Note 33. Although the
reporting currency is Euro, significant transactions denominated in other currencies are
entered into by the Group including the MLPL Loan Notes, Loan Notes repayments and
interest, exploration expenditure, other costs, and equity funding, thus creating currency
exposures for the Group. The Group manages its exposure by matching receipts and
payments in the same currency and monitoring the residual net cash position and future
income profile. The Group has a risk management programme in place which seeks to limit
the impact of these risks on the performance of the Group and it is the policy to manage
these risks in a non-speculative manner.
Share Price Risk
The share price of the Company can increase or decrease. A fall with the share price could be
caused by many factors including negative changes in value of assets or profitability, general
market changes or regional or sector specific trends.
The share price movement in the year ranged from a low of Stg£0.21 to a high of Stg£0.32.
The share price at 31 December 2018 was Stg£0.26.
The Board, through its risk management and corporate governance, seeks to protect share
price value, but there are many external factors outside of its control.
42 | San Leon Energy plc Annual Report and Accounts 2018
DIRECTORS
The directors of San Leon Energy plc, all of
whom served for the full year, except where
indicated, are as follows:
• Mutiu Sunmonu, Non-Executive Chairman
• Oisín Fanning, Chief Executive Officer
• Joel Price, Chief Operating Officer
• Alan Campbell, Commercial and Business
Development Director (appointed Company
Secretary on January 17, 2019)
• Ewen Ainsworth, Finance Director
• Raymond King, Non-Executive Director
and Company Secretary (resigned as a director
28 September 2018)
• Mark Phillips, Non-Executive Director
• Linda Beal, Non-Executive Director
(appointed 16 January 2018)
• Bill Higgs, Non-Executive Director
(appointed 22 May 2018)
In accordance with the Articles of Association,
Joel Price and Alan Campbell retire from the
Board by rotation and, being eligible, offer
themselves for re-election.
SIGNIFICANT SHAREHOLDERS
The Company has been informed that, in
addition to the interests of the directors
at 31 December 2018 and at 26 June 2019
(see Remuneration Report), the following
shareholders owned 3% or more of the issued
share capital of the Company:
Funds managed by
Toscafund Asset
Management LLP
Midwestern Oil & Gas
Company Limited
The Capital Group
Companies Inc.
Total Investment
Solutions SA
Amara Equity Invest SA
OWG PLC
Percentage of issued
share capital
26/06/19
31/12/18
71.59%
62.33%
13.01%
9.44%
–
–
–
<3%
6.47%
7.94%
6.35%
3.91%
Note: Total Investment Solutions SA (“Total”) and Amara Equity
Invest SA (“Amara”) were issued 71,487,179 shares in total on behalf
of Suntrust in September 2016. The Company received a notice on
21 June 2019 from Midwestern Oil & Gas Company Limited that it
was now the registered holder of 59,298,723 of those shares. The
Company has requested Total and Amara to confirm whether they
still have a notifiable interest in the Company.
The directors are not aware of any other
holding of 3% or more of the share capital of
the Company.
ACCOUNTING RECORDS
The directors are responsible for ensuring
adequate accounting records, as outlined in
Section 281 to 285 of the Companies Act 2014,
are kept by the Company. The directors,
through the use of appropriate procedures and
systems and the employment of competent
persons, have ensured that measures are in
place to secure compliance with these
requirements. The books and accounting
records are maintained at 3300 Lake Drive,
Citywest Business Campus, Dublin 24.
Group transparency
Part 26 of the Companies (Accounting) Act 2014
came into force on the 1 January 2017. This
required companies operating in the extractive
sector to publicly disclose payments made to
National Governments. The Act implements
Chapter 10 of EU Accounting Directive
(2013/34/EU).
The payments disclosed are based on where
the obligation arose which in our case is Ireland
and Poland. Payments are disclosed by license
where the aggregate of the payment in the
year exceeds €100,000 otherwise they are
combined into a corporate level payment
which consolidated all the smaller payments.
All of the payments disclosed in accordance
with the law have been made to National
Governments, covering both direct and indirect
payments.
The payments type covered by this disclosure are:
• Licence fees: Licence fees cover the costs
associated with holding each of our licences.
Licence
2018
Corporate#
Total Poland
2017
Corporate#
Total Poland
Licence fees
€’000
35
35
248
248
# Corporate is the consolidated total of all our Polish licences where
the total of each licence payment in the year is less than €100,000.
Relevant audit information
The directors believe that they have taken
all necessary steps to make themselves aware
of any relevant audit information and have
established that the Company’s statutory
auditors are aware of this information. In so
far as they are aware there is no relevant audit
information of which the Company’s statutory
auditors are unaware.
EVENTS SINCE THE YEAR END
DIRECTORS’ Report
| 43
COMPLIANCE POLICY STATEMENT
OF SAN LEON ENERGY PLC
The directors, in accordance with Section 225(2)
of the Companies Act 2014, acknowledge that
they are responsible for securing the
Company’s compliance with certain obligations
specified in that section (‘relevant obligations’).
The directors confirm that:
• a compliance policy statement has been
drawn up setting out the Company’s policies
that in their opinion are appropriate with
regard to such compliance;
• appropriate arrangements and structures
have been put in place that, in their opinion,
are designed to provide reasonable assurance
of compliance in all material respects with
those relevant obligations; and
• a review has been conducted, during the
financial year, of those arrangements and
structures.
AUDITOR
The Auditor, KPMG, Chartered Accountants,
have indicated their willingness to continue
in office in accordance with the provisions
of Section 383(2) of the Companies Act 2014.
Oisín Fanning
Chief Executive Officer
Ewen Ainsworth
Finance Director
Details of significant events since the year
end are included in Note 34 to the financial
statements.
26 June 2019
GROUP UNDERTAKINGS
Details of the Company’s subsidiaries are
set out in Note 16 to the financial statements.
POLITICAL DONATIONS
There were no political donations made during
the current or prior year.
44 | San Leon Energy plc Annual Report and Accounts 2018
Corporate Social
Responsibility:
Water & School Projects
San Leon Energy takes its Corporate Social
Responsibility in countries in which we have an
interest very seriously, and contributes directly
to society when possible and where we trust our
contributions can have a direct impact on the
environment and communities we seek to assist.
As in many parts of the world, some areas
of Nigeria have experienced displacement of
people and natural disasters. San Leon has
helped by contributing food, shelter, clothing
and educational and medical support to certain
such areas. The Company also supported small
women-led enterprises. For example, women
were trained in tailoring and were donated
sewing machines, as making traditional African
clothing is a sustainable business locally.
At the end of 2018, the Company also donated
funding for the construction of two new schools
and one water supply station in Mbalom, Benue
State, and one water supply station in Igwo-
gwo, Ollah, Kogi State.
These were commissioned in 2019 and
seamstresses, newly trained through our
previous support, made the uniforms for the
children. In one junior secondary school in
Tse-Abayol, Benue State, it is expected fifty
young children will begin at the start of the
next term.
In another junior primary school in Tse-Achai
village, Benue State, more than seventy five
pupils left behind an open sided thatched hut,
bamboo sticks as seats and no desks and
started at a new school with classroom blocks,
school uniforms, desks, books and a standard
environment for learning.
San Leon has been told it has transformed
the lives of children and families impacted by
devastating tragedy. We hope, as part of our
Corporate Social Responsibility, that we are
positively benefitting society and giving
optimism, dignity and strength to people
trying to rebuild their lives and communities.
We also hope that the relative peace which has
returned to the communities will be sustained
into the future.
CORPORATE SOCIAL RESPONSIBILITY |
45
| 45
46 | San Leon Energy plc Annual Report and Accounts 2018
CORPORATE SOCIAL RESPONSIBILITY
| 47
Dear San Leon Energy,
Thank you so very much for your seed of love that has changed the lives of these
children and transformed this community. You have moved these school children
from a very uncomfortable and deplorable state, where they had bamboo sticks as their
seats, their laps as their desks and a thatched roof supported by roughly cut down
woods for their classroom to this most magnificent school.
As a matter of fact, only the “thatched space” as you can see was available for the
entire children within the age range of 2 to 11. They were all kept together and
whatever they could learn from what they were taught, they learnt.
Today, your kind gesture in providing befitting classroom blocks, school uniforms,
desks, books and a standard environment for learning by all standards has not just
transformed the lives of these Children but has also given this community a beautiful
new look. Thank you for transforming lives, thank you for bringing joy and hope to
this community.
The commissioning began with a procession from the "thatched space of learning"
down to the new school, San Leon Energy's gift to the community amidst celebration
and dancing.
May God bless San Leon Energy, Staff and investors for this great work of love.
Fr Emmanuel
48 | San Leon Energy plc Annual Report and Accounts 2018
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND THE FINANCIAL
STATEMENTS
The Directors are responsible for preparing the
annual report and the Group and Company
financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare
Group and Company financial statements for
each financial year. As required by the AIM /
ESM Rules, they are required to prepare the
Group financial statements in accordance with
IFRS as adopted by the EU. The Directors have
elected to prepare the Company financial
statements in accordance with IFRS as adopted
by the EU and as applied in accordance with the
Companies Act 2014.
Under company law, the Directors must not
approve the Group and Company financial
statements unless they are satisfied that they
give a true and fair view of the assets, liabilities
and financial position of the Group and
Company and of the Group’s profit or loss for
that year.
In preparing each of the Group and Company
financial statements, the Directors are
required to:
The Directors are responsible for keeping
adequate accounting records, which disclose
with reasonable accuracy at any time the
assets, liabilities, financial position and profit or
loss of the Company and which enable them to
ensure that the financial statements of the
Company comply with the provisions of the
Companies Act 2014. The Directors are also
responsible for taking all reasonable steps to
ensure such records are kept by its subsidiaries
which enable them to ensure that the financial
statements of the Group comply with the
provisions of the Companies Act 2014. They are
responsible for such internal controls as they
determine are necessary to enable the
preparation of financial statements that are
free from material misstatement, whether due
to fraud or error, and have a general
responsibility for safeguarding the assets of the
Company and the Group, and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities. The
Directors are also responsible for preparing a
Directors’ report that complies with the
requirements of the Companies Act 2014.
The Directors are responsible for the
maintenance and integrity of the corporate and
financial information included on the
Company’s website. Legislation in the Republic
of Ireland governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
• select suitable accounting policies and then
On behalf of the board
apply them consistently;
• make judgements and estimates that are
reasonable and prudent;
Oisín Fanning
Director
Ewen Ainsworth
Director
• state whether they have been prepared in
accordance with IFRS as adopted by the EU
and as regards the Company, as applied in
accordance with the Companies Act 2014;
• assess the Company’s ability to continue as
a going concern, disclosing, as applicable,
matters related to going concern; and
• use the going concern basis of accounting
unless they either intend to liquidate the
Company or cease operations, or have no
realistic alternative but to do so.
“
I look forward to updating
shareholders with news
of the planned continued
operational activity on OML 18,
its effect on production, and
how our various expected cash
flow streams are performing.”
Oisín Fanning
CEO
POSITIVE
PERSPECTIVES
San Leon Energy plc
Annual Report and Accounts
2018
52 | San Leon Energy plc Annual Report and Accounts 2018
Independent Auditor’s Report
TO THE MEMBERS OF SAN LEON ENERGY PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
We have audited the Group and Company financial statements of San Leon Energy plc (‘the Company’) for
the year ended 31 December 2018, which comprise the Consolidated Income Statement, the Consolidated
Statement of Other Comprehensive Income, the Consolidated and Company Statements of Changes in Equity,
the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements
of Cash Flows and related notes, including the summary of significant accounting policies set out in note 1.
The financial reporting framework that has been applied in their preparation is Irish Law and International
Financial Reporting Standards (IFRS) as adopted by the European Union and, as regards the Company financial
statements, as applied in accordance with the provisions of the Companies Act 2014.
In our opinion:
• the financial statements give a true and fair view of the assets, liabilities and financial position of the Group
and Company as at 31 December 2018 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRS as adopted by the
European Union;
• the Company financial statements have been properly prepared in accordance with IFRS as adopted by the
European Union, as applied in accordance with the provisions of the Companies Act 2014; and
• the Group and Company financial statements have been properly prepared in accordance with the
requirements of the Companies Act 2014.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and
applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities
for the audit of the financial statements section of our report. We have fulfilled our ethical responsibilities under,
and we remained independent of the Group in accordance with ethical requirements that are relevant to our
audit of financial statements in Ireland, including the Ethical Standard issued by the Irish Auditing and
Accounting Supervisory Authority (IAASA), as applied to listed entities.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Emphasis of matter – uncertainty relating to valuation of investment in Midwestern Leon Petroleum Limited
(“MLPL”)
We draw attention to notes 13 (ii) and 17 (i) to the financial statements concerning the uncertainty associated
with the assessment of the Group’s investment in and related Loan Notes due from MLPL. The Group’s
investment in and related Loan Notes due from MLPL are underpinned by the OML 18 oil field in Nigeria.
Notwithstanding the performance of the Loan Notes in the year, there remains significant uncertainty in
relation to the quantum and timing of future cashflows, and this uncertainty in turn impacts the value of
Group’s investment in MLPL and the recoverability of the Group and Company’s loans due from MLPL. The
consequences of the significant uncertainty in relation to the Group and Company’s Loan Notes due from MLPL,
impact on the Group and Company’s assessment of their ability to continue as a going concern.
financial statements
| 53
Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance
in the audit of the financial statements and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by us, including those which had the
greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
We continue to perform procedures over going concern including review of the cashflow forecast.
However, given the MLPL Loan Notes payments received in the period and the disclosed cash
position at year end, we have not assessed this as one of the most significant risks in our current
year audit and, therefore, it is not separately identified in our report this year.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit
significance, were as follows:
Key audit matter
How the matter was addressed in our audit
Valuation of Midwestern Leon Petroleum Limited (“MLPL”) Loan Notes and equity interest
(refer to pages 81-88 (accounting policy) and pages 96 to 97 and 102 to 105 (financial disclosures))
The OML 18 transaction (the
MLPL Loan Notes and equity
interest) accounts for San
Leon’s most significant asset.
In line with the relevant
accounting standards,
management have
ascertained fair values for
the Loan Notes €112.4
million (2017: €134.8 million)
and the equity interest €48.1
million (2017: €58.3 million)
at 31 December 2018.
There are significant
estimates and judgments
involved in determining the
fair value of both the Loan
Notes and equity interest in
MLPL.
This is both a Group and
Company audit matter.
Our audit procedures included, but were not limited to:
• Consideration of management’s fair value assessment models
and accounting papers highlighting the key assumptions
(forecast cash flows and discount rate) supporting the carrying
amount of the equity interest and Loan Notes investment in
MLPL.
• Consideration of the historical accuracy of the Group’s
cashflow forecast by comparing the prior period forecasted
cash receipts from the MLPL loan note to actual receipts in
2018 and to the date of signing the financial statements.
• Comparison of the Group’s forecasted income from the MLPL
loan note to MLPL’s own cashflow forecasts to ensure they
were consistent.
• Assessment of the arithmetic accuracy of the calculations
underpinning the valuation and accounting for the Loan Notes
and equity accounted interests.
• Recalculation of the fair value of the loan based on
management’s assumptions.
• Inspection of correspondence with the Group’s legal advisers
which considers the manner and classification of Loan Notes
payments and whether there was a breach of the instrument’s
terms.
54 | San Leon Energy plc Annual Report and Accounts 2018
Independent Auditor’s Report
TO THE MEMBERS OF SAN LEON ENERGY PLC
CONTINUED
Key audit matter
How the matter was addressed in our audit
Valuation of Midwestern Leon Petroleum Limited (“MLPL”) Loan Notes and equity interest
(continued)
• Discussion and inspection of supporting work papers of the
MLPL component auditor which supports the component
auditor’s opinion to us on the MLPL audited consolidated
financial statements.
• Assessment of impact of transition to IFRS 9 Financial
Instruments.
We found no material misstatements arising from our
procedures, however based on evidence obtained, we note that
the recoverability of the Group’s investment (Loan Notes and
equity investment) in MLPL is dependent on the ability of the
OML 18 operator, Eroton, to make distributions which remains
subject to a number of restrictions.
This is outside of the control of San Leon Energy plc and reflects
a material uncertainty for the Group and Company. Therefore
we have included an emphasis of matter in relation to the
carrying value of the Group’s investment in MLPL in our audit
opinion.
Valuation of 4.5% Net Profit Interest (NPI) on the Barryroe oil field (refer to pages 81-88
(accounting policy) and pages 102-106 (financial disclosures))
The risk relates to the
assessment of the carrying
value of the Barryroe NPI
financial asset of €44.7
million as at 31 December
2018 (2017: €42.6 million).
Assessing the fair value of
the Group’s NPI in Barryroe
continues to be subject to
complexity and significant
judgment.
This is both a Group and
Company audit matter.
Our audit procedures included, but were not limited to:
• Consideration of management’s and the Board’s accounting
papers setting out their assessment of the carrying value of
the financial asset.
• Assessment of the key management assumptions, oil prices,
discount rate and other external inputs which underpin their
valuation model against industry standards, current market
prices and publicly available information.
• Consideration of the most recent available third party and
independent information available to management, including
developments in relation to the farm out of the Barryroe field.
• Recalculation of management’s estimate of the fair value
of the asset.
• Assessment of the required accounting disclosures.
• Assessment of impact of transition to IFRS 9 Financial
Instruments.
The fair value of the Barryroe NPI asset is estimated by
management to be €44.7 million at 31 December 2018 (2017:
€42.6 million) based on a fair value model produced by
management. We consider the assumptions used in the model
to be supportive of the valuation. These assumptions are
appropriately disclosed.
financial statements
| 55
Our application of materiality and an overview of the scope of our audit
Materiality for the Group and Company financial statements as a whole was set at €1,265,000
(2017: €1,325,000). This has been calculated using a benchmark of Group and Company total
assets (of which it represents 0.5% (2017: 0.5%)), which we have determined, in our professional
judgement, to be one of the principal benchmarks within the financial statements relevant to the
members of the Company in assessing financial performance.
We report to the Audit Committee all corrected and uncorrected misstatements we identified
through our audit in excess of €60,000 (2017: €65,000), in addition to other audit misstatements
below that threshold that we believe warranted reporting on qualitative grounds. We evaluate any
uncorrected misstatements against both the quantitative measures of materiality discussed above
and in light of other relevant qualitative considerations in forming our opinion.
The accounting records of the Company and its subsidiaries are maintained in Ireland. The
accounting records of the equity accounted investment in MLPL are maintained in Nigeria. 100%
of total group revenue, 100% of the group’s loss before taxation and 100% of group total assets
were subject to audit for group reporting purposes.
For the two significant components in the scope of our audit, the parent Company San Leon
Energy plc (audited by the Group team) and the equity accounted investment MLPL (audited by the
component auditor), the Group audit team considered aggregation risk in setting component
materiality having regard to the size and risk profile of the components across the Group. The
Group audit team instructed the component auditor as to the significant areas to be covered
including the relevant risks detailed above and the information to be reported back.
The Group audit team met with and held telephone conference calls with the component auditors
of the MLPL component to assess the audit risk and strategy and work undertaken. We also
completed a review of the audit files of the MLPL component auditors. In our discussions, the
matters subject to audit and the findings reported to the Group audit team were discussed in
more detail and any further work required by the Group audit team was then performed by the
component auditors.
We have nothing to report on going concern
We are required to report to you if we have concluded that the use of the going concern basis
of accounting is inappropriate or there is an undisclosed material uncertainty that may cast
significant doubt over the use of that basis for a period of at least twelve months from the date
of approval of the financial statements. We have nothing to report in these respects.
56 | San Leon Energy plc Annual Report and Accounts 2018
Independent Auditor’s Report
TO THE MEMBERS OF SAN LEON ENERGY PLC
CONTINUED
Other information
The directors are responsible for the other information presented in the Annual Report together
with the financial statements. The other information comprises the information included in the
directors’ report, group overview report, strategic report and governance report. The financial
statements and our auditor’s report thereon do not comprise part of the other information. Our
opinion on the financial statements does not cover the other information and, accordingly, we do
not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on
our financial statements audit work, the information therein is materially misstated or inconsistent
with the financial statements or our audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Based solely on our work on the other information, we report that:
• we have not identified material misstatements in the directors’ report;
• in our opinion, the information given in the directors’ report is consistent with the financial
statements;
• in our opinion, the directors’ report has been prepared in accordance with the Companies Act 2014.
Our opinions on other matters prescribed the Companies Act 2014 are unmodified
We have obtained all the information and explanations which we consider necessary for the
purpose of our audit.
In our opinion, the accounting records of the Company were sufficient to permit the financial
statements to be readily and properly audited and the Company’s financial statements are in
agreement with the accounting records.
We have nothing to report on other matters on which we are required to report by exception
The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors’
remuneration and transactions required by Sections 305 to 312 of the Act are not made.
Respective responsibilities and restrictions on use
Directors’ responsibilities
As explained more fully in their statement set out on page 48, the directors are responsible for:
the preparation of the financial statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error; assessing
the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and using the going concern basis of accounting unless they
either intend to liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
financial statements
| 57
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
A fuller description of our responsibilities is provided on IAASA’s website at https://www.iaasa.ie/
getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsiblities_for_
audit.pdf.
The purpose of our audit work and to whom we owe our responsibilities
Our report is made solely to the Company’s members, as a body, in accordance with Section 391
of the Companies Act 2014. Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members, as a body, for our audit work, for
this report, or for the opinions we have formed.
Niall Savage
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Stokes Place
St. Stephen’s Green
Dublin 2
26 June 2019
58 | San Leon Energy plc Annual Report and Accounts 2018
Consolidated Income Statement
FOR THE YEAR ENDED 31 DECEMBER 2018
Continuing operations
Revenue from contracts with customers
Cost of sales
Gross profit
Notes
2
2018
€’000
2017
€’000
173
(83)
90
324
(146)
178
Share of loss of equity accounted investments
13
(12,441)
(7,079)
Administrative expenses
Profit on disposal of subsidiaries
Impairment / write off of exploration and evaluation assets
Impairment of assets held for sale
Decommissioning of wells
Arbitration award
Other income
Expected credit losses
Provision for bank guarantee
Loss from operating activities
Finance expense
Finance income
Expected credit losses
Fair value movements in financial assets
Impairment of financial assets
Profit / (loss) before income tax
4
12
22
26
26
3
8
20
6
7
8
17
17
(14,208)
(16,952)
379
28
(2,685)
(42,783)
–
424
–
–
(3,085)
–
(3,136)
235
(1,948)
95
(5,276)
(1,167)
(31,526)
(77,805)
(2,111)
(6,576)
38,499
16,224
3,679
1,993
–
–
–
(3,171)
10,534
(71,328)
Income tax
10
(3,299)
(2,199)
Profit / (loss) for the financial year
7,235
(73,527)
Profit / (loss) per share (cent) – total
Basic profit / (loss) per share
Diluted profit / (loss) per share
11
11
1.43
1.43
(16.18)
(16.15)
financial statements
| 59
Consolidated Statement of
Other Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2018
Profit / (loss) for the year
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences – subsidiaries
Foreign currency translation differences – joint venture
Recycling of currency translation reserve on disposal of subsidiaries
Fair value movements in financial assets
Deferred tax on fair value movements in financial assets
Total other comprehensive income
Total comprehensive profit / (loss) for the year
Notes
28
13 / 28
28
17
31
2018
€’000
2017
€’000
7,235
(73,527)
183
2,241
(34)
104
(35)
(627)
(9,007)
(28)
(5,896)
1,989
2,459
(13,569)
9,694
(87,096)
The accompanying notes on pages 71-134 form an integral part of these financial statements.
60 | San Leon Energy plc Annual Report and Accounts 2018
Consolidated Statement
of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2018
2017
Balance at 1 January 2017
Total comprehensive income
Loss for the year
Other comprehensive income
Foreign currency translation differences – subsidiaries
Foreign currency translation differences – joint venture (Note 13)
Recycling of currency translation reserve on disposal of subsidiaries
Fair value movements in financial assets
Deferred tax on fair value movements in financial assets
Total comprehensive income for year
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Issue of shares for cash (Note 27)
Issue of shares – debt for equity (Note 27)
Effect of share options exercised (Note 27)
Share based payment
Effect of share options cancelled
Total transactions with owners
Balance at 31 December 2017
Share
capital
reserve
€’000
Share
premium
reserve
€’000
130,957
401,503
–
–
–
–
–
–
–
–
–
–
–
–
–
–
439
12,008
63
70
–
–
2,217
2,321
–
–
572
16,546
131,529
418,049
Currency
Share based
translation
reserve
€’000
payment
reserve
€’000
Shares to
be issued
reserve
€’000
Fair value
reserve
€’000
Retained
earnings
€’000
Attributable to
equity holders
in Group
€’000
2017
19,424
1,269
4,017
(263,273)
293,937
(73,527)
(73,527)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,896)
1,989
(3,907)
(73,527)
(87,096)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,906
1,936
3,842
(627)
(9,007)
(28)
(5,896)
1,989
12,447
2,280
2,391
1,382
–
18,500
(1,906)
570
(1,936)
(3,272)
812
812
2,081
(9,622)
16,152
110
(332,958)
225,341
40
–
(627)
(9,007)
(28)
(9,662)
–
–
–
–
–
–
–
–
financial statements
| 61
2017
Balance at 1 January 2017
Total comprehensive income
Loss for the year
Other comprehensive income
Foreign currency translation differences – subsidiaries
Foreign currency translation differences – joint venture (Note 13)
Recycling of currency translation reserve on disposal of subsidiaries
Fair value movements in financial assets
Deferred tax on fair value movements in financial assets
Total comprehensive income for year
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Issue of shares for cash (Note 27)
Issue of shares – debt for equity (Note 27)
Effect of share options exercised (Note 27)
Share based payment
Effect of share options cancelled
Total transactions with owners
Balance at 31 December 2017
Share
capital
reserve
€’000
Share
premium
reserve
€’000
130,957
401,503
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
63
70
–
–
439
12,008
2,217
2,321
572
16,546
131,529
418,049
Currency
translation
reserve
€’000
Share based
payment
reserve
€’000
Shares to
be issued
reserve
€’000
Fair value
reserve
€’000
Retained
earnings
€’000
Attributable to
equity holders
in Group
€’000
2017
40
–
(627)
(9,007)
(28)
–
–
(9,662)
–
–
–
–
–
–
19,424
1,269
4,017
(263,273)
293,937
–
–
–
–
–
–
–
–
–
(1,906)
570
(1,936)
(3,272)
–
–
–
–
–
–
–
–
–
–
812
–
812
–
–
–
–
(5,896)
1,989
(73,527)
(73,527)
–
–
–
–
–
(627)
(9,007)
(28)
(5,896)
1,989
(3,907)
(73,527)
(87,096)
–
–
–
–
–
–
–
–
1,906
–
1,936
3,842
12,447
2,280
2,391
1,382
–
18,500
(9,622)
16,152
2,081
110
(332,958)
225,341
62 | San Leon Energy plc Annual Report and Accounts 2018
Consolidated Statement
of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2018 CONTINUED
2018
Balance as at 1 January 2018
Restatements:
IFRS 9: Expected credit loss provision1 (a)
IFRS 9: Reclassification1 (a)
Transfer to share based payment reserve from shares to be issued reserve1 (b)
Other share based payment reserve adjustment1 (c)
Balance as at 1 January 2018 (restated)1
Total comprehensive income for year
Profit for the year
Other comprehensive income
Foreign currency translation differences – subsidiaries
Foreign currency translation differences – joint venture (Note 13)
Recycling of currency translation reserve on disposal of subsidiaries
Fair value movements in financial assets
Deferred tax on fair value movements in financial assets
Total comprehensive income for year
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Share based payment
Effect of share options cancelled
Total transactions with owners
Balance at 31 December 2018
Share
capital
reserve
€’000
Share
premium
reserve
€’000
Currency
Share based
translation
reserve
€’000
payment
reserve
€’000
Shares to
be issued
reserve
€’000
Attributable to
Fair value
Retained
equity holders
reserve
€’000
earnings
€’000
in Group
€’000
131,529
418,049
(9,622)
16,152
2,081
110
(332,958)
225,341
–
–
–
–
–
–
–
–
131,529
418,049
(9,622)
17,272
(341,131)
217,270
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
131,529
418,049
(7,232)
13,079
1,833
69
(329,249)
228,078
993
127
(993)
85
1,173
(8,071)
(8,071)
(110)
110
–
(212)
–
–
–
7,235
7,235
–
–
–
–
–
–
–
–
–
–
183
2,241
(34)
2,390
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
454
(4,647)
(4,193)
660
–
660
–
–
–
–
–
–
–
–
–
–
–
104
(35)
69
–
–
–
–
–
–
4,647
4,647
183
2,241
(34)
104
(35)
1,114
–
1,114
7,235
9,694
1 The balance as at 1 January 2018 has been restated to account for the following items:
a)
On the adoption of IFRS 9 (Financial Instruments) on 1 January 2018 transitional adjustments were reflected in the opening equity
position of the Group. This includes €1.2m in respect of the reclassification of “available for sale” assets to assets held at “fair value
through profit and loss” reflecting cumulative historical changes in fair value that had been recorded in equity and is recorded as a credit
to opening retained earnings. In addition, an opening adjustment to retained earnings of €8.1m has been made reflecting the impact of
transition to IFRS 9 on the carrying values of financial assets and related credit loss provisions held.
There was also a €1.1m reclassification from the Fair value reserve to Retained earnings in respect of “available for sale” assets which the
Group deems to have a €nil value and is recorded as a debit to opening retained earnings.
b)
c)
An amount of €1.0m has been transferred from the Share based payment reserve to the Shares to be issued reserve in relation to the
value of shares issued in lieu of salaries. There is no balance sheet impact on assets or liabilities and therefore a restatement of the
balance sheet is not required.
An amount of €0.1m has been transferred from the Share based payment reserve to Retained earnings and an amount of €0.1m has
been transferred from the Shares to be issued reserve to Retained earnings. There is no balance sheet impact on assets or liabilities
and therefore a restatement of the balance sheet is not required.
The accompanying notes on pages 71-134 form an integral part of these financial statements.
financial statements
| 63
Share
capital
reserve
€’000
Share
premium
reserve
€’000
Currency
translation
reserve
€’000
Share based
payment
reserve
€’000
Shares to
be issued
reserve
€’000
Fair value
reserve
€’000
Retained
earnings
€’000
Attributable to
equity holders
in Group
€’000
131,529
418,049
(9,622)
16,152
2,081
110
(332,958)
225,341
131,529
418,049
(9,622)
17,272
–
–
–
–
–
–
993
127
–
183
2,241
(34)
–
–
2,390
–
–
–
–
–
–
–
–
–
(993)
85
1,173
–
–
–
–
–
–
–
–
–
–
454
(4,647)
(4,193)
660
–
660
–
(110)
–
–
–
–
–
–
–
104
(35)
69
–
–
–
(8,071)
(8,071)
110
–
(212)
–
–
–
(341,131)
217,270
7,235
7,235
–
–
–
–
–
183
2,241
(34)
104
(35)
7,235
9,694
–
4,647
4,647
1,114
–
1,114
131,529
418,049
(7,232)
13,079
1,833
69
(329,249)
228,078
2018
Balance as at 1 January 2018
Restatements:
IFRS 9: Expected credit loss provision1 (a)
IFRS 9: Reclassification1 (a)
Balance as at 1 January 2018 (restated)1
Total comprehensive income for year
Profit for the year
Other comprehensive income
Transfer to share based payment reserve from shares to be issued reserve1 (b)
Other share based payment reserve adjustment1 (c)
Foreign currency translation differences – subsidiaries
Foreign currency translation differences – joint venture (Note 13)
Recycling of currency translation reserve on disposal of subsidiaries
Fair value movements in financial assets
Deferred tax on fair value movements in financial assets
Total comprehensive income for year
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Share based payment
Effect of share options cancelled
Total transactions with owners
Balance at 31 December 2018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 The balance as at 1 January 2018 has been restated to account for the following items:
a)
On the adoption of IFRS 9 (Financial Instruments) on 1 January 2018 transitional adjustments were reflected in the opening equity
position of the Group. This includes €1.2m in respect of the reclassification of “available for sale” assets to assets held at “fair value
through profit and loss” reflecting cumulative historical changes in fair value that had been recorded in equity and is recorded as a credit
to opening retained earnings. In addition, an opening adjustment to retained earnings of €8.1m has been made reflecting the impact of
transition to IFRS 9 on the carrying values of financial assets and related credit loss provisions held.
There was also a €1.1m reclassification from the Fair value reserve to Retained earnings in respect of “available for sale” assets which the
Group deems to have a €nil value and is recorded as a debit to opening retained earnings.
b)
An amount of €1.0m has been transferred from the Share based payment reserve to the Shares to be issued reserve in relation to the
value of shares issued in lieu of salaries. There is no balance sheet impact on assets or liabilities and therefore a restatement of the
balance sheet is not required.
c)
An amount of €0.1m has been transferred from the Share based payment reserve to Retained earnings and an amount of €0.1m has
been transferred from the Shares to be issued reserve to Retained earnings. There is no balance sheet impact on assets or liabilities
and therefore a restatement of the balance sheet is not required.
The accompanying notes on pages 71-134 form an integral part of these financial statements.
64 | San Leon Energy plc Annual Report and Accounts 2018
Company Statement
of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2018
Share
capital
€’000
Share
premium
€’000
Share based
payment
reserve
€’000
Shares to
be issued
reserve
€’000
Fair
value
reserve
€’000
Retained
earnings
€’000
Total
equity
€’000
2017
Balance as at 1 January 2017
130,957
401,503
19,424
1,269
5,135
(333,965)
224,323
Total comprehensive income
Loss for the year
Fair value movement in
financial asset
Deferred tax on fair value
movements in financial assets
Total comprehensive income
for the year
Transactions with owners
recognised directly in equity
Contributions by and
distributions to owners
Issue of shares for cash
(Note 27)
Issue of shares – debt for
equity (Note 27)
Effect of share options
exercised
Share based payment
Effect of share options
cancelled
–
–
–
–
–
–
–
–
439
12,008
2,217
63
70
–
–
–
–
–
–
–
–
2,321
(1,906)
–
–
570
(1,936)
(3,272)
812
–
812
–
–
–
–
–
–
–
–
(51,940)
(51,940)
(5,896)
1,989
–
–
(5,896)
1,989
(3,907)
(51,940)
(55,847)
–
–
–
–
–
–
–
–
1,906
–
1,936
3,842
12,447
2,280
2,391
1,382
–
18,500
Total transactions with owners
572
16,546
Balance at 31 December
2017
131,529
418,049
16,152
2,081
1,228 (382,063)
186,976
financial statements
| 65
Share
capital
€’000
Share
premium
€’000
Share based
payment
reserve
€’000
Shares to
be issued
reserve
€’000
Fair
value
reserve
€’000
Retained
earnings
€’000
Total
equity
€’000
2018
Balance as at 1 January 2018
131,529
418,049
16,152
2,081
1,228 (382,063)
186,976
Restatements:
IFRS 9: Expected credit loss
provision1 (a)
IFRS 9: Reclassification1 (a)
Transfer to share based
payment reserve from shares
to be issued reserve1 (b)
Other share based payment
reserve adjustment1 (c)
Balance as at 1 January 2018
(restated)1
Total comprehensive income
Profit for the year
Fair value movements
in financial assets
Deferred tax on fair value
movements in financial assets
Total comprehensive income
for the year
Transactions with owners
recognised directly in equity
Contributions by and
distributions to owners
Share based payment
Effect of share options
cancelled
Total transactions with owners
Balance at 31 December
2018
–
–
–
–
–
–
–
–
–
–
993
127
–
–
(993)
85
131,529
418,049
17,272
1,173
–
(8,071)
(8,071)
(1,228)
1,228
–
–
–
–
–
–
–
–
(212)
(389,118)
178,905
21,049
21,049
104
(35)
–
–
104
(35)
69
21,049
21,118
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
454
(4,647)
(4,193)
660
–
660
–
–
–
–
1,114
4,647
4,647
–
1,114
131,529
418,049
13,079
1,833
69 (363,422)
201,137
1 The balance as at 1 January 2018 has been restated to account for the following items:
a)
On the adoption of IFRS 9 (Financial Instruments) on 1 January 2018 transitional adjustments were reflected in the opening equity
position of the company. This includes €2.3m in respect of the reclassification of “available for sale” assets to assets held at “fair value
through profit and loss” reflecting cumulative historical changes in fair value that had been recorded in equity and is recorded as a credit
to opening retained earnings. In addition, an opening adjustment to retained earnings of €8.1m has been made reflecting the impact of
transition to IFRS 9 on the carrying values of financial assets and related credit loss provisions held.
There was also a €1.1m reclassification from the Fair value reserve to Retained earnings in respect of “available for sale” assets which the
company deems to have a €nil value and is recorded as a debit to opening retained earnings.
b)
c)
An amount of €1.0m has been transferred from the Share based payment reserve to the Shares to be issued reserve in relation to the
value of shares issued in lieu of salaries. There is no balance sheet impact on assets or liabilities and therefore a restatement of the
balance sheet is not required.
An amount of €0.1m has been transferred from the Share based payment reserve to Retained earnings and an amount of €0.1m has
been transferred from the Shares to be issued reserve to Retained earnings. There is no balance sheet impact on assets or liabilities
and therefore a restatement of the balance sheet is not required.
The accompanying notes on pages 71-134 form an integral part of these financial statements.
66 | San Leon Energy plc Annual Report and Accounts 2018
Consolidated Statement
of Financial Position
AS AT 31 DECEMBER 2018
Assets
Non-current assets
Intangible assets
Equity accounted investments
Property, plant & equipment
Financial assets
Other non-current assets
Current assets
Inventory
Trade and other receivables
Other financial assets
Financial assets
Cash and cash equivalents
Assets classified as held for sale
Total assets
Equity and liabilities
Equity
Called up share capital
Share premium account
Share based payments reserve
Shares to be issued reserve
Currency translation reserve
Fair value reserve
Retained earnings
Total equity attributable to equity shareholders
Non-current liabilities
Derivative
Deferred tax liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Provisions
Liabilities classified as held for sale
Total liabilities
Total equity and liabilities
Notes
2018
€’000
2017
€’000
12
13
14
17
15
18
19
20
17
21
22
–
2,501
48,096
58,296
1,715
2,398
109,062
117,901
180
180
159,053
181,276
237
2,132
–
50,315
35,600
–
282
4,347
–
61,785
8,131
–
88,284
74,545
247,337
255,821
27
27
131,529
131,529
418,049
418,049
28 / 29
13,079
1,833
16,152
2,081
28
(7,232)
(9,622)
69
110
(329,249)
(332,958)
228,078
225,341
24
31
23
25
26
22
575
10,834
11,409
426
7,538
7,964
7,186
15,807
–
664
–
7,850
19,259
4,146
1,563
1,000
22,516
30,480
247,337
255,821
The accompanying notes on pages 71-134 form an integral part of these financial statements.
Oisín Fanning
Director
26 June 2019
Ewen Ainsworth
Director
financial statements
| 67
Company Statement
of Financial Position
AS AT 31 DECEMBER 2018
Assets
Property, plant & equipment
Intangible assets
Financial Assets
Financial assets – investment in subsidiaries
Current assets
Trade and other receivables
Financial assets
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Called up share capital
Share premium account
Share based payments reserve
Shares to be issued reserve
Fair value reserve
Retained earnings
Attributable to equity shareholders
Non-current liabilities
Derivative
Deferred tax liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Total liabilities
Total equity and liabilities
Notes
2018
€’000
2017
€’000
14
12
17
16
19
17
21
40
–
–
–
109,062
117,901
27,545
30,226
136,647
148,127
4,289
50,315
35,092
89,696
2,993
61,785
7,816
72,594
226,343
220,721
27
27
131,529
131,529
418,049
418,049
28 / 29
13,079
16,152
1,833
69
2,081
1,228
(363,422)
(382,063)
201,137
186,976
24
31
23
25
575
10,861
11,436
426
7,572
7,998
13,770
21,601
–
13,770
25,206
4,146
25,747
33,745
226,343
220,721
The accompanying notes on pages 71-134 form an integral part of these financial statements.
Oisín Fanning
Director
26 June 2019
Ewen Ainsworth
Director
68 | San Leon Energy plc Annual Report and Accounts 2018
Consolidated Statement
of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2018
Cash flows from operating activities
Profit / (loss) for the year – continuing operations
Adjustments for:
Depletion and depreciation
Finance expense
Finance income
Share based payments charge
Foreign exchange
Income tax
Impairment of exploration and evaluation assets – continuing operations
Impairment of financial assets
Impairment of assets held for sale
Provision for bank guarantee
Expected credit losses
Other income
Arbitration award
Profit on disposal of subsidiaries
Decommissioning costs
Decommissioning payments
Fair value movements in financial assets
Decrease / (increase) in inventory
Decrease / (increase) in trade and other receivables
Increase / (decrease) in trade and other payables
Movement in other non-current assets
Share of loss of equity-accounted investments
Tax paid
Net cash outflow from operating activities
Cash flows from investing activities
Expenditure on exploration and evaluation assets
Arbitration payment
Purchase of property, plant and equipment
Expenditure on held for sale asset
Proceeds on sale of held for sale assets
OML 18 Loan Notes repayments received
Proceeds of financial investments and investment income
Net cash inflow from investing activities
Notes
2018
€’000
2017
€’000
7,235
(73,527)
742
2,111
782
25,477
(38,499)
(35,125)
1,114
1,382
(547)
(1,540)
3,299
2,685
2,199
42,783
–
–
–
(594)
–
–
(384)
(424)
(433)
(1,993)
44
(115)
(7,631)
–
12,441
(47)
3,171
3,136
1,167
5,276
(95)
1,948
–
(235)
–
–
(29)
2,365
3,188
77
7,079
(4)
(20,996)
(10,525)
(184)
(485)
–
(23,906)
(66)
–
–
144
(583)
95
56,423
34,277
–
31
56,173
9,573
14
6
7
10
12
22
20
8
26
4
26
26
17
15
13
12
14
13
17
17
financial statements
| 69
Cash flows from financing activities
Proceeds from issue of shares
Loans advanced
Proceeds from drawdown of other loans
Repayment of other loans
Dissenting shareholder payment
Loans issued to Directors
Loans repaid to Directors
Loans issued by Directors
Interest on Directors loan
Interest and investment income received
Interest and arrangement fees paid
Net cash (outflow) / inflow from financing activities
Net increase in cash and cash equivalents
Effect of foreign exchange fluctuation on cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
Notes
2018
€’000
2017
€’000
–
14,840
400
–
–
20,228
(4,565)
(19,455)
(42)
(632)
(1,669)
–
2
88
(1,963)
(8,381)
26,796
673
8,131
(1,716)
–
(371)
1,692
–
9
(6,405)
8,822
7,870
84
177
35,600
8,131
25
25
26
32
32
7
7
6
21
21
The accompanying notes on pages 71-134 form an integral part of these financial statements.
70 | San Leon Energy plc Annual Report and Accounts 2018
Company Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2018
Cash flows from operating activities
Profit / (loss) for the year
Adjustments for:
Depletion and depreciation
Finance income
Finance expense
Share based payments charge
Impairment of investment in subsidiaries
and amounts due from group undertakings
Impairment of financial assets
Impairment of exploration and evaluation assets
Fair value movements in financial assets
Expected credit losses
Provision for other debtors
Foreign exchange
Income tax
Decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Tax (paid) / received
Notes
2018
€’000
2017
€’000
21,046
(51,940)
14
7
1
–
(38,499)
(34,619)
2,107
454
25,482
571
5,400
31,354
17
8
–
–
(1,993)
(3,679)
–
(631)
3,233
(107)
(3,883)
(36)
3,171
9,020
–
–
1,668
(576)
1,924
890
2,792
19
Net cash outflow from operating activities
(16,587)
(10,244)
Cash flows from investing activities
Advances to subsidiary companies
Decrease / (increase) in restricted cash
OML 18 Production Arrangement Loan Notes
Expenditure on exploration and evaluation assets
Purchase of property, plant and equipment
Proceeds of financial investments and investment income
Net cash inflow from investing activities
Cash flows from financing activities
Proceeds of issue of shares
Loans advanced
Proceeds from drawdown of other loans
Repayment of other loans
Loans issued to Directors
Loans repaid to Directors
Loans issued by Directors
Interest on Directors loan
Interest and arrangement fees paid
Interest and investment income received
Net cash (outflow) / inflow from financing activities
Net increase in cash and cash equivalents
Effect of foreign exchange fluctuation on cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
(4,836)
(26,718)
–
–
17
56,423
34,277
–
(41)
–
–
–
31
51,546
7,590
–
400
–
14,840
–
20,228
(4,565)
(19,455)
(632)
(1,669)
–
2
–
(371)
1,692
–
(1,959)
(6,410)
88
–
(8,335)
10,524
26,624
7,870
652
7,816
(55)
1
35,092
7,816
14
17
25
25
32
32
7
7
21
21
financial statements
| 71
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
1. ACCOUNTING POLICIES
San Leon Energy plc (“the Company”) is a company incorporated and domiciled in the Republic of
Ireland. The Company is listed on the Alternative Investments Market (“AIM”) of the London Stock
Exchange. The Group financial statements consolidate those of the Company and its subsidiaries
(together referred to as the “Group”). The registered office address is 1st Floor, Wilton Park House,
Wilton Place, Dublin 2.
The accounting policies set out below have been applied consistently to all periods presented in
these consolidated financial statements.
Statement of compliance
As required by AIM and ESM rules and permitted by Company Law, the Group financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as adopted by the EU. The individual financial statements of the Company (Company financial
statements) have been prepared in accordance with IFRS as adopted by the EU and as applied in
accordance with the Companies Act 2014 which permits a Company that publishes its Company
and Group financial statements together, to take advantage of the exemption in Section 304 of the
Companies Act 2014, from presenting to its members its Company statement of comprehensive
income and related notes that form part of the approved Company financial statements. The IFRS
adopted by the EU as applied by the Company and the Group in the preparation of these financial
statements are those that were effective for accounting periods commencing on or before
1 January 2018 or were early adopted as indicated below.
New standards required by EU companies for the year ended 31 December 2018
The following new standards and amendments were adopted by the Group and the Company for
the first time in the current financial reporting period.
New standards and interpretations effective that were adopted
Standard
IASB effective date
EU effective date
Annual Improvements to IFRS 2014-2016 Cycle
(Amendments to IFRS 1 First time Adoption of IFRSs
and IAS 28 Investments in Associates and Joint
Ventures) (issued on 8 December 2016)
IFRS 9 Financial Instruments (24 July 2014)
Amendments to IFRS 4: Applying IFRS 9 Financial
Instruments with IFRS 4 Insurance Contracts (issued
12 December 2016)
IFRS 15: Revenue from contracts with customers
(Note – including amendments to IFRS 15: Effective
date of IFRS 15 (11 September 2015) and clarifications
to IFRS 15 (12 April 2016))
Amendments to IFRS 2: Classification and
measurement of share-based payment transactions
(20 June 2016)
IFRIC Interpretation 22: Foreign Currency Transactions
and Advance Consideration (issued December 2016)
Amendments to IAS 40: Transfers of Investment
Property (issued December 2016)
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
72 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
The Group has initially applied IFRS 9 (see below) from 1 January 2018. The other standards listed
above, are also effective from 1 January 2018 but they do not have a material effect on the Group’s
financial statements.
Due to the transition methods chosen by the Group in applying IFRS 9, comparative information
throughout these financial statements has not been restated to reflect the requirements of the
new standard.
The effect of initially applying this standard is an increase in impairment losses recognised on
financial assets (see below). Also, a portion of reserves for available for sale assets, recognised in
previous periods, have been reclassified from the Fair value reserve to Retained earnings under IFRS 9.
IFRS 9 Financial Instruments
i. Impact on adoption of IFRS 9
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial
Instruments: Recognition and Measurement.
Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments:
Disclosures that are applied to disclosures about 2018 but have not been generally applied to
comparative information.
The following tables summarise the impact, net of tax, of transition to IFRS 9 on the opening
balance of reserves, retained earnings (for a description of the transition method, see (iv)).
Impact of adopting IFRS 9 on opening balances
Group & Company
Retained earnings
Recognition of expected credit losses under IFRS 9
Reclassification from available for sale
Impact at 1 January 2018
Reclassification
FVTPL
€’000
Expected credit
loss provision
€’000
–
110
110
(8,071)
–
(8,071)
financial statements
| 73
1. ACCOUNTING POLICIES CONTINUED
ii. Classification and measurement of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets: measured at amortised
cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit and
loss (“FVTPL”). The classification of financial assets under IFRS 9 is generally based on the business
model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9
eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available
for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the
scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is
assessed for classification.
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement
of financial liabilities.
The adoption of IFRS 9 has not had a significant effect on the Group’s accounting policies related
to financial liabilities and derivative financial instruments.
The following table and the accompanying notes below explain the original measurement
categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the
Group’s financial assets and financial liabilities as at 1 January 2018.
Original
classification
under IAS 39
New
classification
under IFRS 9
Original
carrying
amount
under
IAS 39
€’000
New
carrying
amount
under
IFRS 9
€’000
Loans and
receivables
Amortised cost
134,825
126,754
Note
(a)
(b)
Available-for-sale
FVTPL
42,643
42,643
Available-for-sale
Amortised cost
(c)
Available-for-sale
Available-for-sale
FVOCI
FVOCI
180
2,189
29
180
2,189
29
Group
Financial assets
OML 18
Barryroe 4.5% net profit
interest
Other non-current assets
Unquoted shares
Quoted shares
Current assets
Trade and other receivables
Cash and cash equivalents
Amortised cost
Amortised cost
Loans and
receivables
Amortised cost
4,347
8,131
4,347
8,131
Non-current liabilities
Derivative
Current liabilities
Trade and other payables
Loans and borrowings
FVTPL
FVTPL
426
426
Amortised cost
Amortised cost
15,807
15,807
Amortised cost
Amortised cost
4,146
4,146
74 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
Original
classification
under IAS 39
New
classification
under IFRS 9
Original
carrying
amount
under
IAS 39
€’000
New
carrying
amount
under
IFRS 9
€’000
Loans and
receivables
Available-for-sale
Available-for-sale
Available-for-sale
Amortised cost
134,825
126,754
FVTPL
FVOCI
FVOCI
42,643
42,643
2,189
29
2,189
29
Note
(a)
(b)
(c)
Company
Financial assets
OML 18
Barryroe 4.5% net profit
interest
Unquoted shares
Quoted shares
Current assets
Trade and other receivables
Cash and cash equivalents
Amortised cost
Amortised cost
Loans and
receivables
Amortised cost
2,993
7,816
2,993
7,816
Non-current liabilities
Derivative
Current liabilities
Trade and other payables
Loans and borrowings
FVTPL
FVTPL
426
426
Amortised cost
Amortised cost
21,601
21,601
Amortised cost
Amortised cost
4,146
4,146
(a) The OML 18 receivable that was classified as loans and receivables under IAS 39 is now
classified at amortised cost. An €8.1 million (US$9.7 million) allowance for impairment over
these receivables was recognised in opening retained earnings at 1 January 2018 on transition
to IFRS 9.
(b) Under IAS 39, this interest was classified as available-for-sale. The instrument is a debt
instrument on which payments determined by the profits of the borrower and are not solely
payment of principal and interest. Providence Resources plc has a contractual agreement to
pay a share of the profits (the Net Profit Interest or NPI) to the Company. The Company is not
required to make any appraisal or development cost cash contribution. This asset has been
classified as FVTPL under IFRS 9.
(c) These equity securities represent investments that the Group intends to hold for the long term
for strategic purposes. As permitted by IFRS 9, the Group has designated these investments at
the date of initial application as measured at FVOCI. Unlike IAS 39, the accumulated fair value
reserve related to these investments will never be reclassified to profit or loss.
There were no changes to the original measurement categories under IAS 39 and the new
measurement categories under IFRS 9 for financial liabilities as at 1 January 2018.
financial statements
| 75
1. ACCOUNTING POLICIES CONTINUED
iii. Impairment of financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The
new impairment model applies to financial assets measured at amortised cost but not to
investments in equity instruments.
Under IFRS 9, credit losses are recognised earlier than under IAS 39. For assets in the scope of the
IFRS 9 impairment model, impairment losses are generally expected to increase and become more
volatile.
The Group’s accounting policies in respect of impairments of financial assets is set out in policy for
financial assets and liabilities below.
The Group has determined that the application of IFRS 9’s impairment requirements at 1 January
2018 results in an additional allowance for impairment as follows.
Loss allowance at 31 December 2017 under IAS 39
Impairment recognised at 1 January 2018 on OML 18
Loss allowance at 1 January 2018 under IFRS 9
€’000
–
8,071
8,071
Further information on the determination of this provision is provided in Note 17.
iv. Transition
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied
prospectively, except as described below.
• The Group has used an exemption not to restate comparative information for prior periods with
respect to classification and measurement (including impairment) requirements. Differences in
the carrying amounts of financial assets and financial liabilities resulting from the adoption of
IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018. Accordingly, the
information presented for 2017 does not generally reflect the requirements of IFRS 9, but rather
those of IAS 39.
• The following assessments have been made on the basis of the facts and circumstances that
existed at the date of initial application:
• The determination of the business model within which a financial asset is held.
• The designation and revocation of previous designations of certain financial assets and
financial liabilities as measured at FVTPL.
• The designation of certain investments in equity instruments not held for trading as at
FVOCI.
• If an investment in a debt security had low credit risk at the date of initial application of IFRS 9,
then the Group has assumed that the credit risk on the asset had not increased significantly since
its initial recognition.
76 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
IFRS 15, Revenue from Contracts with Customers
IFRS 15, replaces IAS 18, Revenue and IAS 11, Construction Contracts and related interpretations.
IFRS 15 establishes a five-step model for reporting the nature, amount, timing and uncertainty
of revenue and cash flows arising from contracts with customers. IFRS15 specifies how and when
revenue should be recognised as well as requiring enhanced disclosures. The Group has adopted
IFRS15 from 1 January 2018, using the modified retrospective approach and has not restated
comparatives for 2017.
The Group used the five-step model to develop an impact assessment framework to assess the
impact of IFRS 15 on the Group’s revenue transactions. The results of our IFRS 15 assessment
framework and contract reviews indicated that the impact of applying IFRS 15 on our consolidated
financial statements was not material for the Group and there was no adjustment to retained
earnings or material impact on the timing of revenue recognition on application of the new rules
at 1 January 2018.
New standards and amendments issued by the IASB but not yet effective
There are a number of new standards, amendments to standards and interpretations that are
not yet effective and have not been applied in preparing these consolidated financial statements.
These new standards, amendments to standards and interpretations are either not expected to
have a material impact on the Group and the Company’s financial statements or are still under
assessment by the Group and the Company.
The principal new standards, amendments to standards and interpretations are as follows:
Standard
IASB effective date
EU effective date
IFRS 16: Leases (13 January 2016)
1 January 2019
1 January 2019
IFRIC 23 Uncertainty over Income Tax Treatments
(issued on 7 June 2017)
1 January 2019
1 January 2019
Amendments to IFRS 9 Prepayment Features
with Negative Compensation
Amendments to IAS 28: Long-term interests
in Associates and Joint Ventures
Amendments to IAS 19: Plan amendment,
Curtailment or Settlement (8 February 2018)
Annual improvements to IFRS Standards
2015-2017 Cycle (issued on 12 December 2017)
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
Amendments to IFRS 3: Business combinations
1 January 2020
Not endorsed but on track
Amendments to IAS 1 and IAS 8: Definitions of
material
Amendments to references to the Conceptual
Framework in IFRS Standards (29 March 2018)
IFRS 17 Insurance Contracts (issued on
18 May 2017)
1 January 2020
Not endorsed but on track
1 January 2020
1 January 2021
Not endorsed. No indicative
endorsement date provided.
Not endorsed. No indicative
endorsement date provided.
financial statements
| 77
1. ACCOUNTING POLICIES CONTINUED
New standards that came into effect on 1 January 2019 will be applied in the year ending 31
December 2019, first reporting to include these will be for the period ending 30 June 2019. The
Directors do not believe that any of these standards will have a significant impact on Group and
Company reporting with the exception of IFRS 16.
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure
of leases for both the lessee and the lessor. For lessees, IFRS 16 eliminates the classification of
leases as either operating leases or finance leases and introduces a single lessee accounting model
whereby all leases are accounted for as finance leases, with some exemptions for short-term
and low-value leases. It also includes an election which permits a lessee not to separate non-lease
components (e.g. maintenance) from lease components and instead capitalise both the lease cost
and associated non-lease cost. The lessee will recognise a right-of-use asset representing its right
to use the underlying asset and a lease liability representing its obligation to make lease payments.
All rights of use assets will be measured at the amount of the lease liability on adoption. IFRS 16 is
effective for annual periods beginning on or after 1 January 2019, and the Group will apply IFRS 16
from its effective date.
The standard will primarily affect the accounting for the Group and Company’s operating leases.
The application of IFRS 16 will result in the recognition of additional assets and liabilities in the
Group and Company’s statements of financial position, and in the Group and Company’s income
statements it will replace the straight-line operating lease expense with a depreciation charge for
the right-of-use asset and an interest expense on the lease liabilities.
The Group has completed an initial assessment of the potential impact of IFRS 16 on its
consolidated financial statements. The Group will adopt the new standard by applying the
modified retrospective approach and will avail of the recognition exemption for short-term and
low-value leases. The Group’s non-cancellable operating lease commitments on an undiscounted
basis at 31 December 2018 are detailed in Note 30 to the consolidated financial statements of the
Group’s 2018 annual report and provides an indication of the scale of leases held by the Group.
Based on this initial impact assessment, and the current and group profile, the standard is
expected to increase debt by €2.4m and charge against profit of €0.4m for both the Group and
Company.
Basis of preparation
The Group and Company financial statements are prepared on the historical cost basis, except
for financial assets (net profit interests, quoted shares and unquoted shares), which are carried at
fair value, and equity settled share option awards and warrants which are measured at grant date
fair value.
Going concern
The Directors have prepared a detailed cash flow forecast for the Group and Company for the
period from 1 June 2019 to 31 December 2020.
The principal assumptions underlying the cash flow forecast and the availability of finance to the
Group are as follows:
• Following completion of a transaction in 2016, the Company holds €156.6 million (US$174.5 million)
of Loan Notes in Midwestern Leon Petroleum Limited (MLPL), which are repayable by MLPL to San
Leon. It also holds a 40% shareholding in MLPL. The economic effect of this structure is that San
Leon has an initial indirect economic interest of 10.584%. in OML 18. Shareholders will note this is
0.864% higher than the percentage interest anticipated by San Leon at the time of the acquisition
in 2016. There have been no further purchases or payments by San Leon but this revised
percentage is based on a reassessment and recalculation of the various parties’ interests in OML
18 which has resulted in Martwestern’s economic interest in Eroton now standing at 98%. The
Group will receive cash flows from the Loan Notes in the form of interest and capital repayments.
This continued to be the case during 2018 and the basis of the forecast for 2019. To date Loan
Note payments totalling €100.1 million (US$116.5 million) have been made on behalf of MLPL.
€14.7 million (US$16.5 million) was due on 1 April 2019 under the terms of the Loan Notes and is
outstanding. The Group has assumed that it will continue to receive quarterly forecast cash flows
during 2019 and 2020 from the Loan Notes and for the purposes of managing the loan, cash flows
are allocated to interest or capital repayments in accordance with the terms of the Loan Notes.
78 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
• Income from the provision of drilling technical and management services of €5.3 million
(US$6.0 million) during 2019 and 2020.
• The successful Tender Offer by the Company for 50,475,000 Ordinary Shares which were acquired
for a total cost of €26.8 million ($US30.5 million) on 23 March 2019.
• Ongoing exploration and administrative expenditure from the Group’s existing activities are
in line with current expectations and commitments.
• The cash flow forecast reflects the on-going activity across the Group's exploration asset
portfolio which is now substantially reduced but does take into account licence commitments
and technical team costs where relevant, administrative overhead, other financial commitments
and its available financial resources from existing cash balances. The strategy of the Board is
to continue to mitigate risk on the Group’s exploration portfolio by monetising certain assets
through outright/partial disposal of interests or securing farm-in partners on certain projects.
The Directors are engaged in on-going discussions with third parties on the potential disposal of a
number of the Group’s assets which they expect will generate cash resources to assist in financing
the Group's activities. Although there is potential for further cash inflows from monetising certain
assets through outright/ partial disposal of interests or securing farm-in partners on certain
projects, the cash flow projections do not include these supplemental cash inflows.
Given the Group’s well understood cost base, the principal uncertainties relate to the quantum and
timing of receipt of interest and capital repayments on the Loan Notes with MLPL. It was originally
envisaged that the quarterly Loan Note payments due to the Group would be sourced by MLPL
from the receipt of dividends through its indirect interest in Eroton via Martwestern. These
dividends have not been received and consequently MLPL has entered into loan arrangements in
order to be able to make Loan Note payments to the Company. In the absence of the dividend
payments MLPL will be reliant on further advances under the loan arrangement and in turn being
able to make quarterly Loan Note payments to the Company. The Company has no obligation
arising from the loan arrangements entered into by MLPL.
The Directors have concluded, that whilst any quarterly Loan Note payment, if delayed or not
received, represents an uncertainty, the receipt of any further Loan Note payment(s) is not
required given a cash balance at 24 June 2019 of €11.5 million (US$13.0 million) and the other
cashflow forecast assumptions including the €5.3 million (US$6.0 million) from the provision of
drilling technical and management services.
Based on its consideration of Group cash flow projections and underlying assumptions outlined
above, the Directors have a reasonable expectation that the Group and Company will have
adequate resources to continue in operational existence and to discharge its debts as they fall due
for the foreseeable future and for a period of at least 12 months from the date of approval of the
financial statements.
Accordingly, the Directors continue to adopt the going concern basis of preparation of the financial
statements for the year ended 31 December 2018.
financial statements
| 79
1. ACCOUNTING POLICIES CONTINUED
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using
the currency of the primary economic environment in which the entity operates (the “functional
currency”). These consolidated financial statements are presented in Euro (€), which is the
Company’s functional currency and the Group’s presentational currency, rounded to the nearest
thousand.
Use of estimates and judgements
The preparation of financial statements, in conformity with EU IFRS requires management to
make judgements, estimates and assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. Actual results may differ from these
estimates. The estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis of making the judgements about carrying values of assets and liabilities that
are not readily apparent from other sources. Estimates and underlying assumptions are reviewed
on an on-going basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected. In particular, significant areas of estimation
uncertainty and critical judgements used in applying accounting policies that have the most
significant effect on the amounts recognised in the financial statements include:
• Going concern (Note 1)
• Classification of finance income (Note 7)
• Impairment of Investment in subsidiary (Note 16)
• Measurement and recoverability of equity accounted investments (Note 13)
• Measurement and recoverability of financial assets (Note 17)
• Measurement of share-based payments (Note 29)
• Recognition of deferred tax asset for tax losses (Note 31)
Basis of consolidation
The financial information incorporates the financial information of the Company and entities
controlled by the Group (its subsidiaries). Control is defined as when the Group is exposed to
or has the rights to variable returns from its investment with the entity and has the ability to
affect these returns through its power over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from the date control commences until the
date that control ceases. Where necessary, adjustments are made to the financial information of
subsidiaries to bring their accounting policies into line with those used by other members of the
Group. Intra-group balances and any unrealised gains and losses or income or expenses arising
from intragroup transactions are eliminated in preparing the Group financial statements.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the acquisition date,
which is the date on which control is transferred to the Group. Control is defined as when the
Group and Company have the rights to variable returns from its investment with the entity and
have the ability to affect these returns through its power over the entity. In assessing control, the
Group takes into consideration potential voting rights that currently are substantive.
80 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
Acquisitions
The Group and Company measures goodwill at the acquisition date as:
• the fair value of the consideration transferred; plus
• the recognised amount of any non-controlling interests in the acquiree; plus, if the business
combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less
• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities
assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity
securities, that the Group incurs in connection with a business combination are expensed as
incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the
contingent consideration is classified as equity, it is not re-measured and settlement is accounted
for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration
are recognised in profit or loss.
Intangible assets – exploration and evaluation assets
Expenditure incurred prior to obtaining the legal rights to explore an area is recognised in profit
or loss as incurred. All other expenditure relating to licence acquisition, exploration, evaluation and
appraisal of oil and gas interests, including an appropriate share of directly attributable overheads,
is capitalised on a licence by licence basis.
Exploration and evaluation assets are carried at cost until the exploration phase is complete or
commercial reserves have been discovered. The Group and Company regularly review the carrying
amount of exploration and evaluation assets for indicators of impairment and capitalised costs
are written off where the carrying amount of assets may not be recoverable. Where commercial
reserves have been established and development is approved by the Board, the relevant
expenditure is transferred to oil and gas properties following assessment of impairment.
Royalty
Royalty assets are carried at cost less accumulated amortisation. Amortisation is charged in
proportion to the current year production based on total estimated production over the life of
the field.
financial statements
| 81
1. ACCOUNTING POLICIES CONTINUED
Impairment of non-financial assets
The carrying amounts of the Group’s assets are reviewed at each reporting date and, if there is
any indication that an asset may be impaired, its recoverable amount is estimated. The recoverable
amount is the higher of its fair value less costs to sell and its value in use.
Estimates of impairment are limited to an assessment by the Directors of any events or changes
in circumstance that would indicate that the carrying amount of the asset may not be recoverable.
Any impairment loss arising from the review is recognised in profit or loss to the extent the
carrying amount of the asset exceeds its recoverable amount. An impairment loss is reversed only
to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is
provided at rates calculated to write off the cost less residual value of each asset over its expected
useful life. The residual value is the estimated amount that would currently be obtained from
disposal of the asset if the asset were already of the age and in the condition expected at the end
of its useful life. The annual rate of depreciation for each class of depreciable asset is:
Office equipment
25% Straight line
Motor vehicles
20% Reducing balance
Plant and equipment
20% – 33% Straight line
Jointly controlled operations or assets
The Group has entered into a number of joint arrangements on production and exploration assets
that result in jointly controlled assets. The Group accounts for only its share of assets, liabilities,
income and expenditure in relation to these jointly controlled assets.
Inventories
Inventories are valued at the lower of cost and net realisable value.
Joint arrangements
The Group has also entered into joint venture arrangements which are operated through joint
ventures. The Group accounts for its interest in these entities on an equity basis, with Group share
of profit or loss after tax recognised in the Income Statement and its share of Other Comprehensive
Income of the joint venture recognised in Other Comprehensive Income.
Financial fixed assets – investment in subsidiaries
Financial fixed assets in the Company Statement of Financial Position consist of investments in
subsidiary undertakings and are stated at cost less provision for impairment where applicable.
Financial assets and financial liabilities – Policy applicable from 1 January 2018
i. Recognition and initial measurement
Financial assets are classified at initial recognition and subsequently measured at amortised cost,
fair value through other comprehensive income or fair value through profit or loss. The
classification of financial assets is determined by the contractual cash flows and where applicable
the business model for managing the financial assets.
A financial asset or financial liability is initially measured at fair value plus, for an item not at FVTPL,
transaction costs that are directly attributable to its acquisition or issue.
82 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI – debt
investment; FVOCI – equity investment; or FVTPL. Financial assets are not reclassified subsequent
to their initial recognition unless the Group changes its business model for managing financial
assets.
A financial asset is measured at amortised cost if the objective of the business model is to hold the
financial asset in order to collect contractual cash flows and the contractual terms give rise to cash
flows that are solely payments of principal and interest. Subsequently the financial asset is
measured using the effective interest method less any impairment. The amortised cost is reduced
by impairment losses in accordance with Group policy set out below. Interest income, foreign
exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on
derecognition is recognised in profit or loss.
The business model in which a financial asset is held is assessed at an individual asset level for
assets that are individually material, and otherwise at a portfolio level. Financial assets that are
held as part of a long-term strategic investment are considered within a business model to collect
contractual cash flows.
In assessing whether the contractual cash flows are solely payments of principal and interest, the
Group considers the contractual terms of the instrument. This includes assessing whether the
financial asset contains a contractual term that could change the timing or amount of contractual
cash flows such that it would not meet this condition.
On initial recognition of an equity investment that is not held for trading, the Group may
irrevocably elect to present subsequent changes in the investment’s fair value in OCI (FVOCI –
equity investment). This election is made on an investment-by-investment basis. These assets are
subsequently measured at fair value. Dividends are recognised as income in profit or loss unless
the dividend clearly represents a recovery of part of the cost of the investment. Other net gains
and losses are recognised in OCI and are never reclassified to profit or loss.
All financial assets not classified as measured at amortised cost or FVOCI as described above are
measured at FVTPL. This includes all derivative financial assets. These assets are subsequently
measured at fair value. Net gains and losses, including any interest or dividend income, are
recognised in profit or loss.
On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets
the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates
or significantly reduces an accounting mismatch that would otherwise arise.
Financial liabilities
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is
classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such
on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and
losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method. Interest expense
and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in profit or loss.
financial statements
| 83
1. ACCOUNTING POLICIES CONTINUED
iii. Impairment
The Group recognises loss allowances for expected credit losses (“ECLs”) on financial assets
measured at amortised cost.
A provision for 12-month ECL is recognised in respect of low risk assets. A provision for the lifetime
ECL is recognised in respect of higher risk assets that are not credit impaired. If an asset is credit
impaired, the carrying amount of the asset is reduced by its lifetime ECL.
The 12-month ECL represents the weighted average of credit losses that result from default events
on a financial instrument that are possible within the 12 months after the reporting date. This
requires a number of outcomes to be considered, a probability assigned to each, and a resulting
credit loss applied to each. ECLs are discounted at the effective interest rate of the financial asset.
12-month ECL is determined using market data to benchmark expected credit losses of assets held
by the Group against default rates for borrowers with similar attributes. The Group also considers
financial forecasts and other forward-looking information of borrowers where is this available.
Lifetime ECL is extrapolated from the 12-month ECL methodology, assuming that the periodic risk
remains constant over the remaining lifetime unless there is objective evidence otherwise.
At each reporting date, the Group assesses whether financial assets carried at amortised cost and
debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more
events that have a detrimental impact on the estimated future cash flows of the financial asset
have occurred. The Group considers a financial asset to be in default and presumed credit
impaired when contractual payments are outstanding 90 days after their due date, unless there is
reasonable information that amounts will be recovered; or when the borrower is unlikely to pay its
credit obligations to the Group in full, without recourse by the Group to actions such as realising
security including guarantees (if any is held).
The Company has determined that the borrower is likely to meet its credit obligations as evidenced
by the preparation of a Competent Persons Report in relation to San Leon’s interest in OML 18 and
in addition there are no sums due for more than 90 days.
Write-off
The gross carrying amount of a financial asset is written off when the Group has no reasonable
expectations of recovering a financial asset in its entirety or a portion thereof. The Group expects
no significant recovery from the amount written off. However, financial assets that are written off
could still be subject to enforcement activities in order to comply with the Group’s procedures for
recovery of amounts due.
iv. Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the
financial asset expire.
The Group derecognises a financial liability when its contractual obligations are discharged or
cancelled or expire.
On derecognition of a financial asset or financial liability, the difference between the carrying
amount removed or extinguished and the consideration received or paid is recognised in profit or
loss.
84 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
Financial assets and financial liabilities – Policy applicable prior to 1 January 2018
i. Recognition and initial measurement
A financial asset or financial liability is initially measured at fair value plus, for an item not at FVTPL,
transaction costs that are directly attributable to its acquisition or issue.
ii. Classification and subsequent measurement
Financial assets
Financial assets are classified at initial recognition as either loans and receivables, available for
sale, or fair value through profit and loss.
Loans and receivables are held at amortised cost measured using the effective interest method
less any impairment. The amortised cost is reduced by impairment losses. Interest income, foreign
exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on
derecognition is recognised in profit or loss.
Available for sale assets are measured at fair value and changes therein, other than impairment
losses, interest income and foreign currency differences on debt instruments, are recognised in
OCI and accumulated in the fair value reserve. When these assets are derecognised, the gain or
loss accumulated in equity is reclassified to profit or loss.
Financial assets at FVTPL are measured at fair value and changes therein, including any interest or
dividend income, are recognised in profit or loss.
Financial liabilities
Financial liabilities other than derivatives are classified as measured at amortised cost and
subsequently measured at amortised cost using the effective interest method. Interest expense
and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in profit or loss.
Derivatives are classified as FVTPL and measured at fair value and net gains and losses, including
any interest expense, are recognised in profit or loss.
iii. Impairment
Financial assets not classified as at FVTPL are assessed at each reporting date to determine
whether there is objective evidence of impairment. An impairment loss is calculated as the
difference between an asset’s carrying amount and the present value of the estimated future cash
flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or
loss.
When the Group considered that there were no realistic prospects of recovery of the asset, the
relevant amounts were written off.
v. Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the
financial asset expire.
The Group derecognises a financial liability when its contractual obligations are discharged or
cancelled or expire.
financial statements
| 85
1. ACCOUNTING POLICIES CONTINUED
Decommissioning provision
A provision is made for decommissioning of oil and gas wells. The cost of decommissioning is
determined through discounting the amounts expected to be payable to their present value at the
date the provision is recognised and reassessed at each reporting date. This amount is regarded
as part of the total investment to gain access to economic benefits and consequently capitalised as
part of the cost of the asset and the liability is recognised in provisions. Such cost is depleted over
the life of the asset on the basis of proven and probable reserves and charged to the Income
Statement. The unwinding of the discount is reflected as a finance cost in the Income Statement
over the life of the field or well.
Taxation
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the
Consolidated Income Statement except to the extent that it relates to items recognised directly in
Other Comprehensive Income or equity, in which case it is recognised in Other Comprehensive
Income or equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognised using the liability method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Deferred tax is not recognised for the following temporary differences:
the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is
not a business combination and that affects neither accounting nor taxable profit, and differences
relating to investments in subsidiaries to the extent that they are controlled and probably will not
reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be
applied to the temporary differences when they reverse, based on the laws that have been enacted
or substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be
available against which the temporary differences can be utilised. Deferred tax assets are reviewed
at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
Foreign currencies
Transactions in foreign currencies are initially translated to the respective functional currencies
of Group entities at the exchange rates at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies are retranslated to the functional currency at the
exchange rates ruling at the reporting date with gains or losses recognised in profit or loss.
Non-monetary items are translated using the exchange rates ruling as at the date of the initial
transaction.
Foreign currency differences are generally recognised in profit or loss and presented within finance
costs. However, foreign currency differences arising from the translation of the following items are
recognised in OCI:
• an investment in equity securities designated as at FVOCI (2017: available-for-sale equity
investments (except on impairment, in which case foreign currency differences that have been
recognised in OCI are reclassified to profit or loss));
• a financial liability designated as a hedge of the net investment in a foreign operation to the
extent that the hedge is effective; and
• qualifying cash flow hedges to the extent that the hedges are effective.
86 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
Foreign operations
The assets and liabilities of foreign operations are translated into Euro at the exchange rate at the
reporting date and the income and expenses of foreign operations are translated at the actual
exchange rates at the date of the transaction or at average exchange rates for the year where this
approximates to the actual rate. Exchange differences arising on translation are recognised in
Other Comprehensive Income and presented in the foreign currency translation reserve in equity.
Details of exchange rates used are set out in Note 33.
Revenue recognition
For the year ended 31 December 2018 the Group used the five-step model as prescribed under
IFRS 15 on the Group’s revenue transactions. This included the identification of the contract,
identification of the performance obligations under same, determination of the transaction price,
allocation of the transaction price to performance obligations and recognition of revenue. The
point of recognition arises when the Group satisfies a performance obligation by transferring
control of a promised seismic processing service to the customer, which could occur over time.
Prior to 1 January 2018 the policy was as follows:
Revenue from the sale of seismic processing was recognised in proportion to the stage of
completion of the transaction at the reporting date. The stage of completion was assessed on work
in progress reports. Revenue was measured at the fair value of the consideration receivable net of
value added tax.
Finance income and expenses
Interest income is accrued on a time basis by reference to the principal on deposit and the effective
interest rate applicable.
The ‘effective interest rate’ is the rate that at initial recognition exactly discounts estimated future
cash payments or receipts through the expected life of the financial instrument to:
• the gross carrying amount of the financial asset; or
• the amortised cost of the financial liability.
In calculating interest income and expense, the effective interest rate is applied to the gross
carrying amount of the asset (when the asset is not credit-impaired) or to the amortised cost of
the liability. However, for financial assets that have become credit-impaired subsequent to initial
recognition, interest income is calculated by applying the effective interest rate to the amortised
cost of the financial asset net of impairment provision. If the asset is no longer credit-impaired,
then the calculation of interest income reverts to the gross basis.
Interest rate changes are not applied after initial recognition.
Finance expenses comprise interest or finance costs on borrowings and unwinding of any discount
on provisions using the effective interest rate.
Share capital
Incremental costs directly attributable to the issue of ordinary shares are recognised as a
deduction from equity.
financial statements
| 87
1. ACCOUNTING POLICIES CONTINUED
Share based payments
The Group has applied the requirements of IFRS 2 ‘share based payments’. The Group issues
share options as an incentive to certain key management and staff (including Directors), which are
classified as equity settled share based payment awards. The grant date fair value of share options
granted to Directors and employees under the Company’s share option scheme is recognised as an
expense over the vesting period with a corresponding credit to the share based payments reserve.
The fair value is measured at grant date and spread over the period during which the awards vest.
The options issued by the Group are subject to both market-based and non-market based vesting
conditions. Market conditions are included in the calculation of fair value at the date of the grant.
Non-market vesting conditions are not taken into account when estimating the fair value of awards
as at grant date; such conditions are taken into account through adjusting the number of the equity
instruments that are expected to vest.
The proceeds received will be credited to share capital (nominal value) and share premium when
options are converted into ordinary shares.
Where the terms of an equity-settled transaction are modified, an additional expense is recognised
for any modification that increases the total fair value of the share-based payment transaction,
or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of
cancellation, and any expense not yet recognised for the award is recognised immediately.
However, if a new award is substituted for the cancelled award, and designated as a replacement
award on the date that it is granted, the cancelled and new awards are treated as if they were
a modification of the original award, as described in the previous paragraph.
Earnings per share
The Group and the Company presents basic and diluted earnings per share (EPS) data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to equity
shareholders of the Company by the weighted average number of ordinary shares outstanding
during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding for the effects of
all dilutive potential ordinary shares, which comprise convertible notes, share options granted to
employees and warrants.
Cash and cash equivalents
Cash and cash equivalents comprise of cash at bank and in hand on demand.
Segmental reporting
A segment is a distinguishable component of the Group that is engaged in business activities from
which it may earn revenues and incur expenses which is subject to risks and rewards that are
different from those of other segments and for which discrete financial information is available.
All operating segments and results are regularly reviewed by the Board of Directors to make
decisions about resources to be allocated to each segment and to assess its performance.
Full details of the Group’s operating segments all of which are involved in oil and gas exploration
and production are set out in Note 2 to the financial statements.
Assets and liabilities held for sale
Non-current assets and liabilities that are expected to be recovered primarily through sale rather
than through continuing use are classified as held for sale. Immediately before classification as
held for sale, the assets are remeasured in accordance with the Group’s accounting policies.
Thereafter, the assets are measured at the lower of their carrying amount and fair value less cost
to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses
on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any
cumulative impairment loss.
88 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
1. ACCOUNTING POLICIES CONTINUED
Defined contribution pension scheme
The Group operates a defined contribution scheme. All contributions made are recognised in the
Income Statement in the period in which they fall due.
Fair value movement
The Group has an established process with respect to the measurement of fair values. The finance
team regularly reviews significant unobservable inputs and valuation adjustments. If third party
information, such as broker quotes or pricing services, is used to measure fair values, then the
valuation team assesses the evidence obtained from the third parties to support the conclusion
that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy
in which such valuations should be classified.
Significant valuation issues are reported to the Board.
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
For further detail on assumptions made in measuring level 3 fair values see the following notes:
• Note 17 Financial Assets
• Note 24 Derivative
Assets and liabilities measured at fair value (Note 33)
In accordance with IFRS 13, the group discloses its assets and liabilities held at fair value after initial
recognition in the following categories: FVOCI – equity instrument and FVTPL.
With the exception of shares held in quoted entities, which are classified as Level 1 items under the
fair value hierarchy, all assets and liabilities held at fair value are measured on the basis of inputs
classified as Level 3 under the fair value hierarchy on the basis that the inputs underpinning the
valuations are not based on observable market data as defined in IFRS 13.
Where derivatives are traded either on exchanges or liquid over-the-counter markets, the Group
uses the closing price at the reporting date. Normally, the derivatives entered into by the Group
are not traded in active markets. The fair values of these contracts are estimated using a valuation
technique that maximises the use of observable market inputs, e.g. market exchange and interest
rates. All derivatives entered into by the Group are included in Level 3 and consist of share
warrants issued.
financial statements
| 89
2. REVENUE AND SEGMENTAL INFORMATION
Operating segment information is presented on the basis of the geographical areas as detailed
below, which represent the financial basis by which the Group manages its operations. The Board
of Directors, which has been recognised as the Chief Operating Decision Maker (CODM), regularly
receive verbal or written reports at board meetings for each of the segments based on the below
criteria which management consider to be appropriate in evaluating segment performance relative
to other entities that operate in the industry.
Revenue and Segmental Information
2018
Total revenue
Segment profit / (loss) before
income tax
Intangible assets
Property, plant and
equipment
Impairment of exploration
and evaluation assets
Equity accounted
investments
Segment non-current assets
Capital expenditure ^
Segment liabilities
173
(396)
–
43
–
–
43
–
–
–
–
–
–
–
–
–
(796)
(577)
Poland
€’000
Morocco
€’000
Albania
€’000
Nigeria
€’000
Ireland
€’000
Unallocated#
€’000
–
–
–
–
Total
€’000
173
(2,717)
29,646
2,022
(18,021)
10,534
–
–
–
1,631
(2,685)
–
48,096
–
–
184
(713)
–
41
–
–
–
–
–
–
–
1,715
(2,685)
48,096
111,832
46,958
220
159,053
–
–
–
–
–
184
(17,173)
(19,259)
^ This is the net expenditure incurred by the Group excluding amounts incurred by partners on shared exploration interests. It includes
assets acquired through business combinations and equity accounted investments.
# Unallocated expenditure and liabilities include amounts of a corporate nature and not specifically attributable to a reportable segment.
2017
Total revenue
Segment (loss) / profit before
income tax
Intangible assets
Property, plant and
equipment
Impairment of exploration
and evaluation assets
Equity accounted investments
Segment non-current assets
Capital expenditure ^
Segment liabilities
Poland
€’000
324
Morocco
€’000
Albania
€’000
–
–
Nigeria
€’000
–
Ireland
€’000
–
Unallocated#
€’000
–
Total
€’000
324
(11,345)
(30,370)
(5,906)
8,639
(5,530)
(26,816)
(71,328)
–
223
–
–
2,501
–
–
2,175
(5,995)
(28,946)
(7,842)
–
–
219
300
–
–
5
(3,961)
(1,132)
–
58,296
2,501
133,509
44,860
180
(667)
–
–
–
–
–
–
–
–
–
–
–
–
187
–
2,501
2,398
(42,783)
58,296
181,276
485
(24,720)
(30,480)
^ This is the net expenditure incurred by the Group excluding amounts incurred by partners on shared exploration interests. It includes
assets acquired through business combinations and equity accounted investments.
# Unallocated expenditure and liabilities include amounts of a corporate nature and not specifically attributable to a reportable segment.
Revenue relates to the provision of seismic acquisition services in Poland in 2018 and 2017.
90 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
3. OTHER INCOME
Group
Advance from Horizon Petroleum Limited
2018
€’000
–
–
2017
€’000
95
95
During 2017, further to a Memorandum of Understanding (MoU) dated 25 April 2017 with a third
party, and subject to a Sale and Purchase Agreement, which had yet to be agreed at the time
for the potential sale of certain Polish assets, the Company received an advance of €178,779
(US$200,000) during June 2017 which was used to meet various payments in relation to the Polish
assets, of which €94,868 (US$100,000) is non-refundable in the event that the subsequently signed
Sale and Purchase Agreement is not concluded. The refundable amount has been accrued at year
end and in the previous financial year.
4. PROFIT ON DISPOSAL OF SUBSIDIARIES
Gora Energy Sp. z o.o. & Liesa Energy Sp. z o.o. to Gemini Resources Limited (i)
Island Oil & Gas Limited to Ardilaun Energy Limited (ii)
Other (iii)
2018
€’000
1,034
(655)
–
379
2017
€’000
–
–
28
28
(i) Gora Energy Sp. z o.o. & Liesa Energy Sp. z o.o. to Gemini Resources Limited
During the year, the Group recognised a profit on disposal of €1,034,178 in relation to the sale of
two wholly owned subsidiaries, Gora Energy Sp. z o.o. (‘Gora’) and Liesa Energy Sp. z o.o. (‘Liesa’),
to Gemini Resources Limited (‘Gemini’) that were held for sale as at 31 December 2017.
The profit related to the Group’s derecognition of decommissioning liabilities associated with
Gora and Liesa, which was already provided for as at 31 December 2017. This has resulted in
a €1.0 million gain in the Income Statement as at 31 December 2018 (Note 22).
The sale to Gemini has also resulted in the realisation of the cumulative foreign currency gains
of €34,178.
(ii) Island Oil & Gas Limited to Ardilaun Energy Limited
During the year, the Group recognised a further loss on disposal of €655,000 in relation to the sale
of Island Oil & Gas Limited to Ardilaun Energy Limited in 2014. The loss primarily related to the
Group’s contribution to the licence fees liability commitment associated with the exploration and
evaluation assets disposed of in 2014.
(iii) Other
In 2017 the Company disposed of non-core assets resulting in the realisation of the cumulative
foreign currency gains of €28,000.
financial statements
| 91
5. STATUTORY INFORMATION
(a) Group
The profit / (loss) for the financial year is stated after charging / (crediting):
Depreciation of property, plant, machinery and equipment
Gain on foreign currencies
Operating lease rentals
– Premises
Impairment of exploration and evaluation assets
Directors shares to be issued *
Share based payment charge
2018
€’000
2017
€’000
742
547
782
1,540
333
823
2,685
42,783
660
454
812
570
* Oisín Fanning was due 2,537,328 ordinary shares in lieu of 80% of his salary for the year 1 January 2018 to 30 September 2018 and this
was charged in 2018. These shares were issued on 25 February 2019.
* Oisín Fanning was due 2,542,432 ordinary shares in lieu of 80% of his salary for the year 1 January 2017 to 31 December 2017 and this
was charged in 2017. These shares were issued on 25 February 2019.
During the year, the Group (including its overseas subsidiaries) obtained the following services
from KPMG, the Group Auditor:
Auditor’s remuneration
Fees paid to lead audit firm:
Audit of the Group financial statements
Audit of the subsidiary financial statements
Other audit services
Other non-audit services
Total
Fees paid to other firms in the lead audit firm’s network:
Other non-audit services
Total
2018
€’000
2017
€’000
170
55
–
–
225
–
–
225
170
55
180
–
405
5
5
410
During the year, the Group (including its equity accounted investment) obtained the following audit
services, excluding the Group Auditor, KPMG:
Fees paid to other firms:
Audit of equity accounted investment
Total
(b) Company
The profit / (loss) for the financial year is stated after charging:
Depreciation of property, plant, machinery and equipment
Gain on foreign currencies
Operating lease rentals – premises
Auditor’s remuneration – audit services
2018
€’000
2017
€’000
159
159
–
–
2018
€’000
2017
€’000
1
631
300
170
–
576
300
170
As permitted by Section 304 of the Companies Act 2014, the Company Statement of Comprehensive
Income has not been separately disclosed in these financial statements. A profit of €21.0 million
(2017: a loss of €51.9 million) has been recorded in the parent company.
92 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
6. FINANCE EXPENSES
On loans and overdraft
Finance arrangement expenses
Fair value charge on issue of options and warrants (Note 24)
7. FINANCE INCOME
Total finance income on Loan Notes (Note 17)
Foreign exchange gain on Loan Notes, Valuation (Note 17)
Foreign exchange loss on Loan Notes, ECL (Note 17)
Deposit interest received
Interest on directors loan (Note 32)
Interest and fees receivable from NSP Investment Holdings Limited (Note 19)
All interest income is in respect of assets measured at amortised cost.
8. EXPECTED CREDIT LOSSES
Loan Notes gain (note 17)
Other debtors provision (Note 19)
2018
€’000
125
1,838
148
2,111
2017
€’000
4,162
2,243
171
6,576
2018
€’000
2017
€’000
32,850
34,619
5,942
(18,901)
(383)
88
2
–
–
9
–
497
38,499
16,224
2018
€’000
3,679
(3,085)
594
2017
€’000
–
(5,276)
(5,276)
financial statements
| 93
9. PERSONNEL EXPENSES
Number of employees
The average monthly number of employees (including the Directors) during the year was:
Directors
Administration
Technical
Seismic crew
Employment costs (including Directors)
Wages and salaries (excluding Directors)
Directors’ salaries
Director bonuses
Social welfare costs
Directors’ fees and consultancy costs
Termination payments
Shares to be issued in lieu of Director’s salary #
Share based payment charge for options issued to Directors
Employees’ pension
Benefits
Directors’ pension
2018
Number
2017
Number
9
11
5
6
31
2018
€’000
1,824
1,555
753
412
701
186
660
169
46
51
84
8
12
7
7
34
2017
€’000
1,736
1,349
631
355
636
–
812
–
43
–
84
6,441
5,646
# Oisín Fanning was due 2,537,328 ordinary shares in lieu of 80% of his salary for the period from 1 January 2018 to 30 September 2018
and €660,000 has been recognised in share-based payments in respect of this. These shares were issued on 25 February 2019.
# Oisín Fanning was due 2,542,432 ordinary shares in lieu of 80% of his salary for the period from 1 January 2017 to 31 December 2017
and €811,514 was been recognised in share-based payments in respect of this. These shares were issued on 25 February 2019.
Details of the Directors’ remuneration are set out in the Directors’ Report.
Details of consultancy arrangements with Directors are set out in Note 32.
During the year, €Nil (2017: €0.3 million) was capitalised in exploration and evaluation assets in
respect of Group employment costs above, €Nil (2017: €0.2 million) of which were subsequently
impaired/written. The Group contributes to a defined contribution pension scheme for certain
executive directors and employees. The scheme is administered by trustees and is independent
of the Group finances. Total contributions by the Group to the pension scheme, including
contributions for Directors amounted to €84,000 (2017: €0.1 million).
94 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
10. INCOME TAX EXPENSE
Current tax
Current year income tax
Deferred tax
2018
€’000
2017
€’000
3
4
Origination and reversal of temporary differences (Note 31)
2,726
2,195
Deferred tax movement in Barryroe NPI under IFRS 9
Deferred tax movement on fair value of other financial assets, Quoted shares
Deferred tax movement on fair value of other financial assets, Unquoted shares
Total income tax charge
667
(132)
35
–
–
–
3,299
2,199
The difference between the total tax shown above and the amount calculated by applying the
applicable standard rate of Irish corporation tax to the loss before tax is as follows:
Profit / (loss) before income tax
Tax on profit / (loss) at applicable Irish corporation tax rate of 25% (2017: 25%)
Effects of:
Deferred tax on fair value movement in financial assets
Prior Year adjustment
Losses utilised in year
Expenses not deductible for tax purposes
Income tax withheld
Polish tax liability
Excess losses carried forward
Tax charge for the year
11. EARNINGS PER SHARE
Basic earnings per share
2018
€’000
2017
€’000
10,534
(71,328)
2,634
(17,832)
162
(97)
–
–
(2,726)
(2,198)
2,095
19,789
3
–
1,228
3,299
3
1
2,436
2,199
Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company
by the weighted average number of ordinary shares in issue during the year as follows:
Profit / (loss) for the year
2018
€’000
2017
€’000
7,235
(73,527)
financial statements
| 95
11. EARNINGS PER SHARE CONTINUED
The weighted average number of shares in issue is calculated as follows:
In issue at start of year (Note 27)
Shares to be issued at start of year
Effect of shares issued and shares to be issued in the year
Weighted average number of ordinary shares in issue (basic)
Basic earnings / (loss) per ordinary share (cent)
2018
Number
of shares
2017
Number
of shares
500,256,857 443,025,720
3,052,942
–
1,451,304
11,446,333
504,761,103 454,472,053
1.43
(16.15)
Diluted earnings per share
Diluted earnings per share is calculated by dividing the loss attributable to equity holders of the
Company by the weighted average number of ordinary shares outstanding after adjustment for
effects of all dilutive potential ordinary shares as follows:
Profit / (loss) for the year
The diluted weighted average number of shares in issue is calculated as follows:
2018
€’000
7,235
2017
€’000
(73,527)
2018
Number
of shares
2017
Number
of shares
Basic weighted average number of shares in issue during the year
504,761,103 454,472,053
Effect of share options and warrants in issue
Diluted earnings / (loss) per ordinary share (cent)
–
890,511
504,761,103 455,362,564
1.43
(16.18)
The number of options which are anti-dilutive and have therefore not been included in the above
calculations is 39,304,060 (2017: 33,706,327).
12. INTANGIBLE ASSETS
Group
Cost and net book value
At 1 January 2017
Additions
Write off / impairment of exploration and evaluation assets
Currency translation adjustment
At 31 December 2017
Additions (ii)
Write off / impairment of exploration and evaluation assets
At 31 December 2018
Exploration
and
evaluation
assets
€ 000
44,621
485
(42,783)
178
2,501
184
(2,685)
–
96 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
12. INTANGIBLE ASSETS CONTINUED
Company
Cost and net book value
At 1 January 2017
Impairment of exploration assets in 2017
At 31 December 2017 and 31 December 2018
Exploration
and
evaluation
assets
€ 000
9,020
(9,020)
–
An analysis of intangible assets by geographical area is set out in Note 2.
(i) The following geographical exploration areas in the Group were impaired / written off during
the year:
Albania
Morocco
Poland
2018
€’000
2,685
–
–
2017
€’000
5,995
28,946
7,842
2,685
42,783
(ii) This is the net amount incurred by San Leon Energy and excludes amounts attributable to joint
operating partners of €Nil in 2018 (2017: €Nil).
The Directors have considered the carrying value at 31 December 2018 of capitalised costs in
respect of its exploration and evaluation assets. These assets have been assessed for impairment
indicators and in particular with regard to remaining licence terms, likelihood of licence renewal,
likelihood of further expenditures and on-going appraisals for each area, as described in the
Operating Review. Based on internal assessments from the latest information available, the
Directors have impaired the exploration and evaluation assets by €2.7 million (2017: €42.8 million).
13. EQUITY ACCOUNTED INVESTMENTS
Group
Cost and net book value
At 1 January
Share of loss of equity accounted investment
Exchange rate adjustment
At 31 December
2018
€’000
2017
€’000
58,296
74,382
(12,441)
2,241
(7,079)
(9,007)
48,096
58,296
The Group’s only joint venture entity at 31 December 2018 is as follows:
Name
Registered office
Midwestern Leon Petroleum Limited
5th Floor Barkly Wharf, Le Caudan Waterfront,
Port Louis, Republic of Mauritius
% held
40%
financial statements
| 97
13. EQUITY ACCOUNTED INVESTMENTS CONTINUED
2018
A summary of the financial information of the equity investments is detailed below.
Equity Interest
Revenue
(Loss) from continuing operations
Other comprehensive income
Total comprehensive loss
Non-current assets
Current assets (excluding cash)
Cash
Non-current liabilities
Current liabilities
Net assets
Group’s interest in net assets of investee at 1 January 2018
Share of loss
Group’s interest in net assets of investee at end of year
Foreign exchange
Carrying amount of interest in investee at 31 December 2018
2017
A summary of the financial information of the equity investments is detailed below.
Midwestern
Leon
Petroleum
Limited (ii)
40%
€ ‘000
–
(27,436)
–
(27,436)
177,985
212,008
–
(42,148)
(227,605)
120,240
58,296
(12,441)
45,855
2,241
48,096
Equity Interest
Revenue
(Loss) from continuing operations
Other comprehensive income
Total comprehensive loss
Non-current assets
Current assets (excluding cash)
Cash
Non-current liabilities
Current liabilities
Net assets
Group’s interest in net assets of investee at 1 January 2017
Share of loss
Group’s interest in net assets of investee at end of year
Foreign exchange
Carrying amount of interest in investee at 31 December 2017
South
Prabuty
LLP (i)
Midwestern
Leon
Petroleum
Limited (ii)
Olesnica
LLP (i)
75%
75%
40%
Total
€ ‘000
€ ‘000
€ ‘000
€ ‘000
–
–
–
–
–
1
–
–
(4)
(3)
–
–
–
–
–
–
–
–
–
–
1
2
–
–
–
(17,698)
(17,698)
–
–
(17,698)
(17,698)
167,780
167,780
189,752
189,754
–
2
(60,690)
(60,690)
(4)
(151,101)
(151,109)
(1)
145,741
145,737
–
–
–
–
–
74,382
74,382
(7,079)
(7,079)
67,303
67,303
(9,007)
(9,007)
58,296
58,296
98 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
13. EQUITY ACCOUNTED INVESTMENTS CONTINUED
(i) During December 2015, the Company made a decision to exit the South Prabuty and Olesnica
concessions. The Company’s investments in the South Prabuty and Olesnica and joint ventures
were fully impaired at that time. South Prabuty LLP and Olesnica LLP were dissolved on 5 June 2018
and 11 September 2018 respectively.
(ii) During 2016 the Company acquired a 40% non-controlling interest in MLPL as part of the
OML 18 transaction. Full details of the OML 18 transaction are set out in Note 17(i). The movement
during 2018 partly reflects an exchange rate gain of €2.6 million (2017: €9.0 million loss) as the
underlying investment is in US$’s which strengthened against the Euro. Further a share of the
loss of MLPL being administrative costs of €2.0 million (2017: €1.0 million), net finance costs of
€45.8 million (2017: €4.8 million), profit on investment of €0.1 million (2017: €0.8 million) and
a tax charge of €6.9 million (2017: €2.1 million).
The above interests are accounted for as equity accounted investments as San Leon does not have
control over the entities, which are governed under Joint Venture Agreements requiring the
approval of both parties to the Joint Venture Agreement in respect of all operating decisions.
The Directors recognise that the future realisation of the equity accounted investments is
dependent on future successful exploration and appraisal activities and subsequent production
of oil and gas reserves.
14. PROPERTY, PLANT AND EQUIPMENT – GROUP
Cost
At 1 January 2017
Disposals
Currency translation adjustment
At 31 December 2017
Additions / (disposals)
Currency translation adjustment
At 31 December 2018
Depreciation
At 1 January 2017
Disposals
Charge for the year
Currency translation adjustment
At 31 December 2017
Charge for the year
Currency translation adjustment
At 31 December 2018
Net book values
At 31 December 2018
At 31 December 2017
Plant &
equipment
€’000
Office
equipment
€’000
Motor
vehicles
€’000
7,893
1,055
(98)
289
(22)
12
8,084
1,045
–
(154)
66
(12)
392
(24)
15
383
–
(8)
Total
€’000
9,340
(144)
316
9,512
66
(174)
7,930
1,099
375
9,404
4,678
1,008
–
775
261
–
7
10
5,714
1,025
731
(150)
5
(9)
375
(14)
–
14
375
6
(8)
6,061
(14)
782
285
7,114
742
(167)
6,295
1,021
373
7,689
1,635
2,370
78
20
2
8
1,715
2,398
14. PROPERTY, PLANT AND EQUIPMENT – COMPANY
Cost
At 1 January 2017 and 31 December 2017
Additions
At 31 December 2018
Depreciation
At 1 January 2017 and 31 December 2017
Charge for the year
At 31 December 2018
Net book values
At 31 December 2018
At 31 December 2017
15. OTHER NON-CURRENT ASSETS
financial statements
| 99
Office
equipment
€’000
Total
€’000
437
41
478
437
1
438
40
–
437
41
478
437
1
438
40
–
Deposits on Spanish oil and gas concession applications (i)
Deposits on Spanish oil and gas concessions (i)
At 1 January
Deposits returned (i)
Expected credit losses
At 31 December
Group
2018
€’000
92
88
180
Group
2018
€’000
180
–
–
180
Group
2017
€’000
Company
2018
€’000
Company
2017
€’000
92
88
180
–
–
–
–
–
–
Group
2017
€’000
Company
2018
€’000
Company
2017
€’000
257
(77)
–
180
–
–
–
–
–
–
–
–
(i) The deposits paid are recoverable on completion of work programmes attached to each of the
concessions. During 2017 the Ministry returned €77,380 to the Company in relation to oil and gas
concession applications that were withdrawn by the Company.
16. FINANCIAL ASSETS – COMPANY
Investment in subsidiary undertakings at cost:
Balance at beginning of year
Impairment during the year (i)
Balance at end of year
2018
€’000
2017
€’000
30,226
47,038
(2,681)
(16,812)
27,545
30,226
(i) The impairments to the Company’s investment in subsidiary undertakings recorded in 2018 and
2017 reflect the write down in the carrying value of the Group’s exploration and evaluation assets
in each year.
100 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
16. FINANCIAL ASSETS – COMPANY CONTINUED
At 31 December 2018, the Company had the following principal subsidiaries, all of which are wholly
owned through holding all of the issued ordinary shares of the entities:
Name
Directly held:
San Leon Energy B.V.
San Leon (USA) Limited
San Leon (Morocco) Limited
San Leon (Netherlands) Limited
San Leon Energy Srl
San Leon Services Limited
0921642 B.C. Unlimited Liability Company
Aurelian Oil & Gas Limited
San Leon Energy Nigeria B.V.
San Leon Energy (Iraq) Limited
Indirectly held:
Baltic Oil and Gas Sp. Z o.o.
Vabush Energy Sp. z o.o.
Braniewo Energy Sp. Z o.o.
Novaseis Sp. z o.o.
Helland Energy Sp. z o.o.
San Leon Services Sp. z o.o.
San Leon Praszka Sp. z o.o.
Registered Office
de Ronge 16, 1852 XB Heiloo, The Netherlands
1st Floor, Wilton House, Wilton Place, Dublin 2
PO Box 146, Trident Chambers, Tortola, BVI
PO Box 146, Trident Chambers, Tortola, BVI
Piazza Vescovio, 700199 Rome, Italy
12 Castle Street, St. Helier, Jersey JE2 3RT
Suite 1700, Park Place, 666 Burrard Street,
Vancouver BC V6C 2X8, Canada
7 Cavendish Court Mayfare, Croxley Green,
Rickmansworth, WD3 3DJ, United Kingdom
de Ronge 16, 1852 XB Heiloo, The Netherlands
1st Floor, Wilton House, Wilton Place, Dublin 2
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
Aurelian Oil and Gas Poland Sp. z o.o.
ul. Zelazna 59, 00-848, Warsaw, Poland
Energia Cybinka Sp. z o.o. #
Energia Torzym Sp. z o.o. #
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
Energia Karpaty Zachodnie Sp. z o.o.
ul. Zelazna 59, 00-848, Warsaw, Poland
Energia Karpaty Zachodnie Sp. z o.o. Spk.
ul. Zelazna 59, 00-848, Warsaw, Poland
T.K. Exploration Sp. z o.o.
Gdansk Energy Sp. z o.o.
Szczawno Energy Sp. z o.o.
Prusice Energy Sp. z o.o.
Kotlarka Energy Sp. z o.o.
San Leon Durresi B.V.
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
ul. Zelazna 59, 00-848, Warsaw, Poland
de Ronge 16, 1852 XB Heiloo, The Netherlands
financial statements
| 101
16. FINANCIAL ASSETS – COMPANY CONTINUED
Name
San Leon Morocco B.V.
Registered Office
de Ronge 16, 1852 XB Heiloo, The Netherlands
San Leon Offshore Morocco B.V.
de Ronge 16, 1852 XB Heiloo, The Netherlands
San Leon Tarfaya Shale B.V.
de Ronge 16, 1852 XB Heiloo, The Netherlands
Seisquest B.V.
Braniewo B.V.
de Ronge 16, 1852 XB Heiloo, The Netherlands
de Ronge 16, 1852 XB Heiloo, The Netherlands.
San Leon Canada Limited (formerly Realm Energy
International Corporation)
Suite 1700, Park Place, 666 Burrard Street,
Vancouver, BC V6C 2X8, Canada
Realm Energy Operations Corporation
Realm Energy (BVI) Corporation
Suite 1700, Park Place, 666 Burrard Street,
Vancouver BC V6C 2X8, Canada
Walkers Chambers, 171 Main Street,
Road Town, Tortola, BVI
Realm Energy International Coopteratief U.A.
de Ronge 16, 1852 XB Heiloo, The Netherlands
Realm Energy International Holding B.V.
de Ronge 16, 1852 XB Heiloo, The Netherlands
Realm Energy European Investments B.V.
de Ronge 16, 1852 XB Heiloo, The Netherlands
Frontera Energy Corporation S.L.
San Leon Wielun B.V.
San Leon Olesnica B.V.
San Leon South Prabuty B.V.
San Leon Energy (UK) Limited
AOG Finance Limited
Balkan Explorers (Bulgaria) Limited
Paseo Maria Agustin, 4-6, Esc 3. Piso 4, Zaragoza,
5004, Spain
de Ronge 16, 1852 XB Heiloo, The Netherlands
de Ronge 16, 1852 XB Heiloo, The Netherlands
de Ronge 16, 1852 XB Heiloo, The Netherlands
7 Cavendish Court Mayfare, Croxley Green,
Rickmansworth, WD3 3DJ, United Kingdom
7 Cavendish Court Mayfare, Croxley Green,
Rickmansworth, WD3 3DJ, United Kingdom
7 Cavendish Court Mayfare, Croxley Green,
Rickmansworth, WD3 3DJ, United Kingdom
# During 2017 the Company acquired the remaining 30% of its equity accounted investments Energia Cybinka Sp. z o.o. Spk. and Energia
Torzym Sp. z o.o. SPK, and continues to consolidated its decommissioning liabilities in full. In 2018 the equity accounted investments were
merged into their respective limited companies, Energia Cybinka Sp. z o.o. and Energia Torzym Sp. z o.o
The Company is currently in the process of liquidating and or selling many of the above companies
in line with its strategy to relinquish non-core interests.
102 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
17. FINANCIAL ASSETS
Group & Company
New classification under IFRS 9
Cost / Valuation
At 1 January 2017
Finance income
Loan Notes receipts
Disposals
Exchange rate adjustment
Fair value movement
Impairment of unquoted shares
At 31 December 2017
Finance income
Loan Notes receipts
Exchange rate adjustment
Barryroe 4.5%
net profit
interest (ii)
€’000
FVTPL
48,517
–
–
–
–
(5,874)
–
42,643
–
–
–
OML 18 (i)
€’000
Amortised
cost
153,384
34,619
(34,277)
–
(18,901)
–
–
134,825
32,850
(56,423)
5,942
Fair value movement, Income statement
Fair value movement,
Other comprehensive income
–
–
2,022
–
At 31 December 2018
117,194
44,665
Expected Credit Loss Provision
At 31 December 2017
Recognised on transition to IFRS 9
Released in the year
Exchange rate adjustment
At 31 December 2018
–
(8,071)
3,679
(383)
(4,775)
–
–
–
–
–
Book value at 31 December 2018
112,419
44,665
Current
Non-current
50,315
62,104
–
44,665
Book value at 31 December 2017
134,825
42,643
Current
Non-current
61,785
73,040
–
42,643
Quoted
shares (iii)
€’000
Unquoted
shares (iv)
€’000
FVOCI –
equity
instrument
FVOCI –
equity
instrument
Total
€’000
82
–
–
(31)
–
(22)
–
29
–
–
–
(29)
–
–
–
–
–
–
–
–
–
–
29
–
29
5,360
207,343
–
–
–
–
–
(3,171)
2,189
–
–
–
–
104
34,619
(34,277)
(31)
(18,901)
(5,896)
(3,171)
179,686
32,850
(56,423)
5,942
1,993
104
2,293
164,152
–
–
–
–
–
–
(8,071)
3,679
(383)
(4,775)
2,293
159,377
–
50,315
2,293
109,062
2,189
179,686
–
2,189
61,785
117,901
Net Profit Interests (v) (vi) (vii): These NPIs have a nil value from acquisition.
financial statements
| 103
17. FINANCIAL ASSETS CONTINUED
(i) OML 18
In September 2016, the Company secured an indirect economic interest in Oil Mining Lease 18
(“OML 18”), onshore Nigeria.
The Company undertook a number of steps to effect this purchase. Midwestern Leon Petroleum
Limited ("MLPL"), a company incorporated in Mauritius of which San Leon Nigeria B.V. has a 40%.
shareholding, was established as a special purpose vehicle to complete the transaction by
purchasing all of the shares in Martwestern Energy Limited (“Martwestern”), a company
incorporated in Nigeria. Martwestern holds a 50%. shareholding in Eroton Exploration and
Production Company Limited (“Eroton”), a company incorporated in Nigeria and the operator
of OML 18, and Martwestern also holds an initial 98%. economic interest in Eroton. The economic
effect of this structure is that San Leon has an initial indirect economic interest of 10.584% in
OML 18. Shareholders will note this is higher than the percentage interest anticipated by San Leon
at the time of the acquisition in 2016. There have been no further purchases or payments by
San Leon but this revised percentage is based on a reassessment and recalculation of the various
parties’ interests in OML 18.
To partly fund the purchase of 100% of the shares of Martwestern, MLPL borrowed €156.6 million
(US$174.5 million) in incremental amounts by issuing loan notes with an annual coupon of 17%.
(“Loan Notes”). Midwestern Oil and Gas Company Limited is the 60%. shareholder of MLPL and
transferred its shares in Martwestern to MLPL as part of the full transaction. Following its placing
in September 2016, San Leon became beneficiary and holder of all Loan Notes issued by MLPL.
San Leon is due to be repaid the full amount of the €156.6 million (US$174.5 million) plus the 17%
coupon once certain conditions have been met and using an agreed distribution mechanism.
Through its wholly owned subsidiary, San Leon Nigeria B.V., the Company is also a beneficiary
of any dividends that will be paid by MLPL as a 40%. shareholder in MLPL but the Loan Notes
repayments must take priority over any dividend payments made to the MLPL shareholders.
The fair value assessment of the Loan Notes on acquisition was calculated as follows:
Total consideration (US$188.4 million)
Fair value of Loan Notes attributable to equity investment (US$30.9 million) #
Net fair value of Loan Notes (US$157.5 million)
Arrangement fees (US$5.5 million)
Additions to Financial Assets in 2016 including accrued interest
at date of acquisition (US$152.0 million)
Total
€’000
169,032
(27,545)
141,487
(4,904)
136,583
# The fair value of Loan Notes attributable to the equity investment is calculated using a discount factor of management’s estimate of
a market rate of interest of 8% above the coupon rate of 17% over the term of the Loan Notes.
104 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
17. FINANCIAL ASSETS CONTINUED
The key information relevant to the fair value of the Loan Notes on the date they were initially
recognised is as follows:
Valuation technique
Significant unobservable inputs*
Discounted cash flows
• Discount rate 25% based on a
market rate of interest of 8% above
the coupon rate of 17%
• MLPL ability to generate cash flows
for timely repayment
• Loan Notes are repayable in full
by 30 September 2020.
Inter-relationships between the
unobservable inputs and fair value
measurements
The estimated value would
increase / (decrease) if:
US Dollar exchange rate increased
/ (decreased)
* Day 1 and considered appropriate going forward.
The business model for the MLPL loan is to hold to collect. During the year management chose
to take the opportunity of the adoption of IFRS 9 to build a new financial model to improve
estimation of amounts in respect of the MLPL loan on an IFRS 9 basis. Although the basis of
accounting under IFRS 9 should be consistent with IAS 39, the revised calculation provides a better
estimate of the effect of small timing differences on the amounts contractually recoverable under
the loan agreement, and the amortisation of the discount to the principal amount paid on initial
recognition.
The credit risk is managed via various undertakings, guarantees, a pledge over shares and the
mechanism whereby MLPL prioritises payment of sums due under the Loan Notes. Given the
size and quality of the OML 18 oil and gas asset the main credit risk is regarded as the timing of
payments by MLPL which is dependent on dividend distributions by Eroton rather than being
unable to pay the total quantum due under the Loan Notes. To date Eroton have been unable
to make a dividend distribution. Consequently, MLPL had to enter into a loan in 2017 and
subsequently, in order to be able to meet its obligations under the Loan Notes and make payments
to San Leon.
During 2018 San Leon received total payments under the Loan Notes of €56.4 million
(US$66.2 million) (2017: €34.3 million (US$39.6 million)). The payments received during 2018
represent principal of €27.8 million (US$32.2) (2017: €Nil (US$Nil)) and interest of €28.6 million
($US34.0 million) (2017: €34.3 million (US$39.6 million)) on the Loan Notes repaid. As at 31
December 2018 there was €117.2 million (US$134.2 million) (2017: €134.8 million (US$161.7 million)),
due under the Loan Notes.
In 2019 the Company has received total payments under the Loan Notes of €9.4 million
(US$10.7 million). €14.7 million (US$16.5 million) was due on 1 April 2019 under the terms of the
Loan Notes and is outstanding.
The Directors of San Leon have considered the credit risk of the Loan Notes at 31 December 2017
and 31 December 2018. Due to the inability of Eroton to make dividend distributions, the directors
consider that the credit risk has significantly increased since initial recognition, and a provision for
the lifetime expected credit loss of the Loan Notes has been recognised. The Loan Note is not
considered credit impaired on the basis of operational reports and forward-looking management
information of OML 18 which are consistent with successful exploitation of the field over its life,
and the funding facilities expected to be available to MLPL over the short to medium term.
financial statements
| 105
17. FINANCIAL ASSETS CONTINUED
The Loan Notes are unique assets for which there is no directly comparable market data. The
lifetime expected credit loss of the Loan Notes has been determined based on publicly available
macroeconomic data of 12-month default rates by geography, industry and rating, and considering
forward-looking information with regard to oil prices and operational and financial reports of the
borrower to determine whether any adjustment to the historical trends is appropriate at 1 January
2018 or 31 December 2018. An annual expected credit loss of 3.11% was considered to be an
appropriate rate from which to extrapolate a lifetime expected credit loss as at 1 January 2018 and
31 December 2018. In management’s view the outlook for oil pricing and the OML 18 oil reserves is
broadly stable over the term of the loan and does not provide evidence of a change in future risk
from the historical trend.
The loss on default has been assumed to be 100% due to the holding and financial structure of the
underlying asset which supports the loan notes. Default events are those which will give rise to
an economic loss for the Company, rather than just a timing issue of when cash is received, At that
point the underlying asset would need to have been substantially underperforming and it is likely
that this would precipitate a restructuring between the parties that would be time-consuming,
incur additional cost, and from which any ultimate recovery by the Company cannot be reliably
assessed.
The Company determined that the expected credit loss provision of €8.1 million (US$9.7 million),
being 5.8% of the balance at 1 January 2018 was appropriate. This declined to €4.8 million (US$5.5
million) due to the lifetime of the Loan Notes reducing by 12 months, reducing the expected
probability of default over the remaining loan term to 4.1%, and the repayments made in 2018
reducing the balance at that date, resulting in a gain of €3.7 million (US$4.2 million) to the income
statement for 2018.
(ii) Barryroe – 4.5% Net Profit Interest
SLE holds a 4.5% Net Profit Interest in the Barryroe oil field at fair value through profit and loss
under IFRS 9 (previously held as an “available for sale” financial asset at fair value under IAS 39).
In previous years the valuation approach has been based upon a financial model with updated
assumptions. For year ended 31st December 2018 the Board have considered detailed
assumptions, public information and modelling contained within a recent broker report (dated
12 December 2018. The directors believe that this report provides up-to-date and relevant
assumptions to base their valuation (it will most likely have the benefit of discussions with the
Barryroe operator), and is therefore appropriate to use to update their valuation.
The 2018 announcements by Providence provide further reinforcement of the increased
confidence in the project. The previous uncertainty in drilling has now significantly decreased
(we do not believe this is materially modified by the short delay in payment receipt indicated in
Providence’s June 2019 announcements).
The directors have reviewed the modelling assumptions regarding timing, oil price, costs and risk,
and consider them reasonable and appropriate. In the opinion of the directors their assessment
of the modelling at December 2018 is that there is a modest increase in the carrying value of the
asset, largely driven by de-risking, notwithstanding the delays in farm-out payment receipt. The
directors have decided to maintain the carrying value of the Barryroe 4.5% NPI at US$51 million.
106 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
17. FINANCIAL ASSETS CONTINUED
The key information relevant to the fair value of the Barryroe 4.5% net profit interest is as follows:
Valuation technique
Significant unobservable inputs
Internal management model
First oil 2024 (2017: 2019)
(2017: Third party evaluation report
prepared by NSAI in July 2013 as
released by Providence Resources
Plc and internal management
assumptions/amendments based
on a net present value of future
cash flows model.)
Oil price over the period is to be
US$60/BBL (2017: US$55/BBL)
Risking applied is 64% (2017: n/a)
Discount rate 10% (2017: 15%)
Capex and opex based upon
current and expected market rates
(2017: no change)
Life of field expected to be 17 years
(2017: 25 years)
Oil production of 311MM BBL over
the life of the field on a successful
development of the 2C contingent
resources case (2017: 261MM BBL)
Inter-relationships between
the unobservable inputs and
fair value measurement
The estimated fair value would
increase / (decrease) if:
The oil price per barrel increased /
(decreased)
The resource estimates increased /
(decreased) or the life of the field
increased / (decreased)
US Dollar exchange rate increased
/ (decreased)
(iii) Amedeo Resources plc
During 2017, the Company sold 100,000 of its ordinary shares in Amedeo Resources plc for value of
€30,998. At 31 December 2018, the Company held 213,512 ordinary shares at a market value of €Nil
(2017: €28,878).
(iv) Ardilaun Energy Limited
As part of the consideration for the sale of Island Oil & Gas Limited to Ardilaun Energy Limited
(“Ardilaun”) in 2014 Ardilaun agreed to issue shares equivalent to 15% of the issued share capital of
Ardilaun to San Leon. The original fair value of the 15% interest in Ardilaun was based on a market
transaction in Ardilaun shares. In 2017 the Directors considered the carrying value of this interest
at 31 December 2017 and given the length of time to obtain Irish government approval for the
transaction. The Directors felt it is prudent to carry 15% of Ardilaun shares still to be issued to
San Leon at a lower value of €2.2 million (US$2.6 million). Consequently, €3.2 million
(US$3.3 million) was charged to the Income Statement in 2017.
financial statements
| 107
17. FINANCIAL ASSETS CONTINUED
At 31 December 2018 the Directors are satisfied that there are no further impairment indicators to
the carrying value. There is, however, a positive adjustment for foreign exchange between the two
reporting periods of €104,000 due to the strengthening of the US Dollar in the year.
Valuation technique
Analyst reports
Inter-relationships between
the unobservable inputs and
fair value measurements
The estimated fair value would
increase / (decrease) if:
The oil price per barrel increased /
(decreased)
The resource estimates increased /
(decreased) or the life of the field
increased / (decreased)
US Dollar exchange rate increased
/ (decreased)
Regional exploration success
increased / (decreased)
Significant unobservable inputs
• NPV / bbl of $10.30
• Total capex of over $600m,
equating to $12 / bbl, and life-of-
field opex of $1bn, equating to
roughly $20 / bbl (including FPSO
lease costs).
• Undiscounted, full field NPV at 10%
of $517m, which given an assumed
recovery of roughly 50mmbbls,
equates to a NPV / bbl of $10.30
• 20% chance of successful
development
• Life of field expected to be 18 years
• Oil price over the period is
assumed to be US$60/bbl
• Discount rate 50% to apply risk
(v) Poznan 10% Net Profit Interest
In 2016, San Leon sold its 35% interest in the Poznan assets for a consideration of €1 plus a 10%
NPI. Until active development commences a nil value has been placed on the NPI.
(vi) Gora 5% Net Profit Interest
In 2018, San Leon sold its interest in the Gora assets for a consideration of €1 plus a 5% NPI. Until
active development commences a nil value has been placed on the NPI. (Notes 4 & 22).
(vii) Liesa 5% Net Profit Interest
In 2018, San Leon sold its interest in the Liesa assets for a consideration of €1 plus a 5% Net Profit
Interest (“NPI”). Until active development commences a nil value has been placed on the NPI.
(Notes 4 & 22).
18. INVENTORY
Spare parts and consumables
Group
2018
€’000
237
Group
2017
€’000
Company
2018
€’000
Company
2017
€’000
282
–
–
Spare parts include drilling equipment and consumables utilised by the Group’s seismic services
company.
108 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
19. TRADE AND OTHER RECEIVABLES
Amounts falling due within one year:
Amounts owed by group undertakings (i)
Expected credit loss on amounts owed by group undertakings (i)
Net amounts owed by group undertakings
Trade receivables from joint operating partners
Corporation tax refundable
VAT and other taxes refundable (iv)
Other debtors (ii) (iii)
Expected credit loss on other debtors (ii) (iii) (iv)
Prepayments
Director’s Loan (Note 32)
Group
2018
€’000
Group
2017
€’000
Company
2018
€’000
Company
2017
€’000
–
–
–
33
33
414
–
–
–
219
–
160
4,043
9,054
(3,085)
(5,276)
59
635
190
–
133,285
133,177
(130,510)
(130,914)
2,775
2,263
14
33
62
751
–
19
635
12
–
36
2,266
(1,668)
84
–
2,132
4,347
4,289
2,993
(i) Amounts owed by Group undertakings are interest free and repayable on demand with the
exception of amounts due from the Polish subsidiaries of €6.7 million (2017: €6.5 million) which are
repayable on demand and subject to a market rate of interest from the date the loan was advanced
(Note 32).
At 31 December 2018, the Company is owed €133.3 million (2017: €133.2 million) by its subsidiaries
in respect of funds advanced to them and expenses discharged by the Company on their behalf.
An impairment provision of €130.5 million (2017: €130.9 million) against these debts has been
provided as at the year end. The credit-impaired balances relate to the funding of historical
investments in subsidiaries to hold assets and businesses which have been abandoned or
discontinued in prior periods and from which no economic value is expected. The expected credit
loss on remaining loans to subsidiaries is not considered material.
(ii) In 2017, other debtors included €2.9 million (US$3.6 million) due from NSP Investments Holdings
Ltd for the disposal of equity accounted investments. During 2018, the Directors fully provided for
the amount (€2.9 million) due plus interest accrued in 2018 (€0.2 million). Other material amounts
are disclosed in Note 33 (b).
(iii) During 2017, the Directors fully provided against €4.6 million (US$5.5 million), due to the
protracted nature of government approval with regard to the Ardilaun transaction and the length
of time to receive a related payment being 36 months, in the event of approval, and a debtor which
is in dispute.
(iv) During 2017, a provision was made for €0.7 million in relation to VAT in an overseas jurisdiction
deemed likely to be irrecoverable.
20. OTHER FINANCIAL ASSETS
Restricted cash at bank
At 1 January
Cash return
Foreign exchange differences
Provision
At 31 December
financial statements
| 109
Group
2018
€’000
–
Group
2018
€’000
–
–
–
–
–
Group
2017
€’000
Company
2018
€’000
Company
2017
€’000
–
–
–
Group
2017
€’000
1,328
–
(161)
(1,167)
–
Company
2018
€’000
Company
2017
€’000
–
–
–
–
–
–
–
–
–
–
Restricted cash at bank at 31 December 2017 and 2018 comprises a deposit account held in
support of bank guarantees required under the Moroccan exploration licence, Zag, held by the
Group.
In April 2017, the Company announced that the Office National des Hydrocarbures et des Mines
(“ONHYM”) had written to the Company regarding the non-performance of the work programme
on its Zag Licence, onshore Morocco. ONHYM has assumed control of the existing bank guarantee
(listed above as restricted cash), and has requested a penalty of the same amount again to be paid.
The Zag licence is in a geographical area which the Company believes justifies a declaration of force
majeure due to the regional security situation. San Leon has fully provided for the loss of monies
(held in support of the bank guarantee) in the 2017 accounts. The Company is still in negotiations
with ONHYM regarding the licence including the work programme, the force majeure status and
the recoverability of the bank guarantee and appropriateness of the penalty. The directors believe
that San Leon’s claim is valid and that a penalty is unlikely and have therefore not provided for this
in the accounts.
21. CASH AND CASH EQUIVALENTS
Cash and cash equivalents
Solicitor client account (i)
Group
2018
€’000
35,600
–
35,600
Group
2017
€’000
6,474
1,657
8,131
Company
2018
€’000
35,092
–
35,092
Company
2017
€’000
6,159
1,657
7,816
(i) Solicitor client account at 31 December 2017 represents monies held on behalf of the Company
by David M. Turner & Company Solicitors.
110 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
22. HELD FOR SALE ASSETS AND LIABILITIES
(i) Gemini Resources Limited
In December 2018, the Group completed the sale of two wholly owned subsidiaries, Gora Energy
Sp. z o.o. (‘Gora’) and Liesa Energy Sp. z o.o. (‘Liesa’), to Gemini Resources Limited (‘Gemini’) that
were held for sale as at 31 December 2017.
Gemini paid a nominal cash consideration of €1 plus a 5% net profits interest in each of two
concessions, namely the Gora Concession in Gora and Nowa Sol Concession in Liesa.
Following completion, the Group no longer has decommissioning liabilities associated with
Gora and Liesa, which has been already provided for as at 31 December 2017. This has resulted in
a €1.0 million gain and is included in Profit on sale of subsidiaries in the Income Statement as
at 31 December 2018 (Note 4).
Gemini also agreed to pay reimbursable back costs of €169,250 which is included in other debtors
(Note 19).
(ii) Horizon Petroleum Limited
Sale and purchase agreements for a 100% interest in two oil & gas concessions in Poland, known
as Cieszyn and Bielsko-Biala, (the "Primary Concessions"), plus a 100% working interest in
two additional oil & gas concessions in Poland, known as Prusice and Kotlarka, and a further
concession, which is under application (together the "Secondary Concessions") were also signed
with Horizon Petroleum Limited (‘Horizon’) (TSXV: HPL) in 2017. Completion of the agreements
requires various formalities to be concluded, including governmental authorities and were
therefore held for sale as at 31 December 2018 and in the prior year.
Horizon previously paid a non-refundable deposit of €94,868 (US$100,000) (Note 3) and advanced
a loan of €94,868 (US$100,000), as part of this transaction. The loan which is refundable in case of
sale not completing, is included in accruals within trade and other payables (Note 23).
The consideration for the acquisition of the Primary Concessions is:
1. €948,680 (US$1,000,000) in cash, less the €94,868 (US$100,000) loan, for a net cash payment
of €853,812 (US$900,000) on completion.
2. €640,820 (CAD$1,000,000) worth of common shares in the capital of Horizon ("Horizon Shares")
based on Horizon meeting specific issuance terms on completion.
3. A 6% net profits interest on each of the Primary Concessions on completion.
Closing of this transaction is subject to a number of conditions, including certain approvals by the
government in Poland, as well as the approval of the TSX Venture Exchange.
The consideration for the acquisition of the Secondary Concessions is €10,000 per concession,
plus a 6% net profits interest on each of the Secondary Concessions on completion. Closing of the
Secondary Concessions transaction is also subject to a number of conditions including the closing
of the acquisition of the Primary Concessions.
financial statements
| 111
22. HELD FOR SALE ASSETS AND LIABILITIES CONTINUED
The assets and liabilities that are up for sale in Poland are as follows:
Assets:
Exploration and evaluation assets (Note 12)
Liabilities:
Decommissioning provision
Group
2018
€’000
Group
2017
€’000
–
–
–
1,000
Held for sale assets and liabilities are reported under the operating segment ‘Poland’ in Note 2.
During 2017, due to the protracted nature of approval from the Polish authorities, the Directors
decided to fully write off the Polish assets held for sale. However, based on recent information, the
Directors believe the Horizon agreements will complete.
During 2017 the held for sale exploration and evaluation assets were impaired by €3,135,621,
in order to reduce their carrying value to fair value less costs to sell with the recoverable amount
considered to be nil. In the event that the sales do not complete the impairment will not be
reversed.
There are no other material income or expenses related to the held for sale assets.
23. TRADE AND OTHER PAYABLES
Current
Trade payables
Amounts owed to group undertakings (i)
PAYE / PRSI
Other creditors
Accruals
Director’s Loan (Note 32)
Group
2018
€’000
Group
2017
€’000
Company
2018
€’000
Company
2017
€’000
3,978
6,505
1,192
2,299
–
199
847
2,162
–
–
10,048
12,299
348
2,426
4,859
1,669
109
840
1,581
–
150
2,370
2,814
1,669
7,186
15,807
13,770
21,601
(i) Amounts owed to Group undertakings are interest free and repayable on demand (Note 32).
112 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
24. DERIVATIVE
Non-current
Derivative
Group
2018
€’000
Group
2017
€’000
Company
2018
€’000
Company
2017
€’000
575
575
426
426
575
575
426
426
During 2018, San Leon issued 2,222,222 options to LPL Finance Limited with an exercise price of
£0.45 for a period of 4 years. The fair value of the warrants issued of €149,000 has been calculated
using the Black-Scholes model. The warrants were issued in connection with financing provided to
the Company.
During 2017 San Leon issued 100,000 warrants to Sorena Holdings Limited and 219,298 warrants
to 21st Luxury Luxtech Fund Limited with an exercise price of £0.60 for a period of 3 years.
San Leon also issued 300,000 warrants to 21st Luxury Luxtech Fund Limited with an exercise price
of £0.30 for a period of 4 years. The fair value of the warrants issued has been calculated using the
Black-Scholes model.
The key inputs into the valuation model are as follows:
Valuation technique
Black-Scholes model
Significant unobservable inputs
Inter-relationships between
the unobservable inputs and
fair value measurement
Option strike price of £0.30 to £0.60
(2017: £0.40 to £0.55)
The estimated fair value would
increase / (decrease) if:
Average maturity of 3 to 5 years
(2017: 3 to 4 years)
The share price increased /
(decreased)
Risk-free interest rate of 0.1%
(2017: 0.1%)
Sterling exchange rate increased /
(decreased)
Share price volatility of 70%
(2017: 70%)
The risk free interest rate
increased / (decreased)
25. LOANS AND BORROWINGS
Group and Company 2018
Changes in financing
Borrowings – Current
Group and Company 2017
Changes in financing
Borrowings – Current
Opening
€’000
Cash
inflows
€’000
Cash
outflows
€’000
Non-cash
€’000
Closing
€’000
4,146
400
(4,565)
19
–
Opening
€’000
Cash
inflows
€’000
Cash
outflows
€’000
Non-cash
€’000
Closing
€’000
6,283
20,228
(19,455)
(2,910)
4,146
financial statements
| 113
25. LOANS AND BORROWINGS CONTINUED
During 2018 the movement with regard to loans and borrowings is detailed below.
YA Global Masters SPV Limited
As at the end of 2017 San Leon owed YA Global Masters SPV Limited €2,707,193 (US$3,246,737)
in principal, interest, and fees.
Interest charged for the year was €124,720 (US$145,398).
In July 2018 the loan was repaid in full.
Ken Fetherston
In late 2017 the Company received a loan of €1,000,000 from Ken Fetherston with interest and
a fee of €261,178. This loan was fully repaid in January 2018.
Brandon Hill Capital Limited
In 2017, the Company received a number of loans from Brandon Hill Capital Limited totalling
€1,240,325 (£1,087,330) inclusive of interest and foreign exchange movement. At 31 December
2017 the amount outstanding to Brandon Hill Capital Limited was €177,380 (£153,177). This was
repaid in January 2018.
In 2018, the Company advanced a short-term loan interest free to Brandon Hill Capital Limited
of €400,000 (£350,000). This loan was offset against the loan arrangement fees below.
In 2018 the Company was notified of loan arrangement fees totalling €1,173,801 (£1,050,000)
relating to finance received in 2016 and 2017 via one of Brandon Hill’s clients, LPL Finance Limited.
These amounts are included in Trade payables and were paid in 2019.
21st Luxury Luxtech
21st Luxury Luxtech provided two loans during 2017 €1,762,674 (£1,500,000) and €1,339,100
(£1,131,580) and a fee of 10% was charged (5% of which were in warrants) along with interest
at 10% per annum (with additional interest due for late payment).
During 2017 €3,742,752 (£3,192,610) was repaid inclusive of fees, interest and foreign exchange
movement to fully settle the loan.
Warrants, each representing 1 share in San Leon, were issued as follows: 219,298 at £0.60 and
expire 28 February 2020, 300,000 at £0.30 and expire 17 May 2021, and 100,000 at £0.60 and
expire 28 February 2020.
LPL Finance Limited
The loan outstanding at the end of 2016 was repaid at the end of March 2017 inclusive of interest
and foreign exchange movement totalling €2,797,975 (£2,400,000).
A further loan was taken out in July 2017 for €2,800,336 (£2,500,000) and inclusive of interest and
foreign exchange movement €4,661,438 (£4,138,000) was repaid in December 2017.
114 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
26. PROVISIONS FOR LIABILITIES
Group
At 1 January 2017
Decommissioning
€’000
Arbitration
€’000
Dissenting
Shareholders
€’000
Total
€’000
1,756
21,958
1,864
25,578
Increase / (decrease) in provision during the year
(235)
1,948
–
1,713
Paid during the year
Exchange rate adjustment
At 31 December 2017
Decrease in provision during the year
Paid during the year
At 31 December 2018
Current
Non-current
Decommissioning
–
–
1,521
(424)
(433)
664
664
–
(23,906)
(1,716)
(25,622)
–
–
–
–
–
–
–
(106)
42
–
(42)
–
–
–
(106)
1,563
(424)
(475)
664
664
–
The provision for decommissioning costs is recorded at the value of the expenditures expected to
be required to settle the Group’s future obligations on decommissioning of previously drilled wells.
Arbitration
On 7 November 2016, Avobone N.V. and Avobone Poland B.V. (“Avobone”) (together, “Avobone”)
and the Company settled a number of ongoing disputes between them and between Avobone and
certain of San Leon’s subsidiaries, including Aurelian Oil & Gas Limited, Aurelian Oil & Gas Poland
Sp. z.o.o, Energia Zachod Holdings Sp. z.o.o and AOG Finance Limited, in Poland, Netherlands,
Ireland, England & Wales in respect of various matters including a final award in an ICC arbitration
dated 21 May 2015. The arbitration award was in relation to the purchase by Aurelian Oil & Gas
Limited, San Leon’s subsidiary, of Avobone’s 10% shares in Energia Zachod Sp z.o.o – the titleholder
of the Sierkierki asset.
A total of €23.9 million was paid to Avobone during 2017 (inclusive of extension fees incurred
arising from a delay in payments when due, interest, and further legal costs) representing a full
discharge of amounts owed.
Dissenting shareholders
Certain Realm Energy International Corporation shareholders exercised rights of dissent under
Canadian law not to accept the terms of acquisition in 2011. Under Canadian law, these dissenting
shareholders are eligible to receive a cash payment equal to the fair value of their shareholding
at acquisition. The provision at 31 December 2017 represented the Directors’ estimate of the cash
consideration to be paid to those shareholders taking account of the market price of the Realm
shares at acquisition.
In 2018 the amount provided at 31 December 2017 was fully paid in cash to the shareholders.
financial statements
| 115
27. SHARE CAPITAL – GROUP AND COMPANY
Rights and obligations attaching to the Ordinary Shares
The Company has no securities in issue conferring special rights with regards control of the
Company. All Ordinary Shares rank pari passu, and the rights attaching to the Ordinary Shares
(including as to voting and transfer) are as set out in the Company’s Articles of Association
(“Articles”).
Number of
New Ordinary
shares
€0.01 each
Number of
Deferred
Ordinary shares
€0.0001 each
Authorised
Equity
€’000
Authorised equity
At 1 January 2018 and 31 December 2018
2,847,406,025
1,265,259,397,525
155,000
2,847,406,025 1,265,259,397,525
155,000
Issued, called up and fully paid:
At 1 January 2017
Issue of shares for cash
Issue of shares – debt for equity
Exercise of share options
Number of
New Ordinary
shares
€0.01 each
Number of
Deferred
Ordinary shares
€0.0001 each
Share
capital
€’000
Share
premium
€’000
443,025,720
1,265,259,397,525
130,957
401,503
43,976,232
6,254,905
7,000,000
–
–
–
439
12,008
63
70
2,217
2,321
At 1 January 2018 and 31 December 2018
500,256,857 1,265,259,397,525
131,529
418,049
On 16 January 2017, the Company issued and allotted 3,000,000 New Ordinary Shares of €0.01
each to Robin Management Services and 4,000,000 New Ordinary Shares to DSA Investments Inc.
in respect of options exercised relating to the OML 18 transaction. The options were exercised at
a price of £0.30 (€0.34) per share.
On 21 June 2017, the Company issued 6,254,905 New Ordinary Shares of €0.01 each to YA II PN Ltd
(formerly known as YA Global Master SPV Ltd), an investment fund managed by Yorkville Advisors
Global LP (“Yorkville”), pursuant to a SEDA-Backed Loan Agreement, as amended (“SEDA”), which
SEDA was entered into and initially announced on 18 April 2013. San Leon and Yorkville agreed to
vary the SEDA as follows (the “Settlement”). Under the Settlement, San Leon issued the shares in
the Company to Yorkville at a price per share of £0.32 (€0.36) for a reduction in debt of €2,279,432.
On 19 December 2017, the Company issued 43,976,232 New Ordinary Shares of €0.01 each to
Toscafund Asset Management LLP, Toscafund GP Limited and related entities in order to repay
amounts drawn down by San Leon pursuant to a convertible loan facility of €12,447,982
(£11,000,000). The conversion price per New Ordinary Share was £0.25 (€0.28) each.
116 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
28. RESERVES
The Statement of Changes in Equity outlines the movement in reserves during the year. Further
details of these reserves are set out below:
Currency translation reserve
The currency translation reserve comprises all foreign currency differences arising from the
translation of the financial statements of foreign operations.
The recycling of the currency translation reserve of €39,207 (2017: €28,478) relates to the
realisation of the cumulative foreign currency gains on the disposal of non-core assets.
Share based payments reserve
The share-based payments reserve comprises the fair value of all share options which have been
charged over the vesting period, net of the amount relating to share options which have expired,
been cancelled and have vested.
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value of financial assets
measured at Fair Value through Other Comprehensive Income until the assets are derecognised.
29. SHARE BASED PAYMENTS
Prior to 31 December 2012, the Group had one share-based payment scheme for executives and
senior employees of the Group. In accordance with the provisions of the plan, as approved by
shareholders at a previous general meeting, executives and senior employees may be granted
options to purchase ordinary shares.
Each share option converts into one ordinary share of San Leon Energy plc on exercise and options
do not carry rights to dividends nor voting rights. Options may be exercised at any time from the
date of vesting to the date of their expiry. The options vest in tranches subject to the achievement
of certain service and non-market performance conditions. Market conditions in relation to the
achievement of share price trading levels also apply in the case of certain options granted to the
Directors, further details of which are set out in the Directors’ Report.
During the first quarter of 2013, this scheme was replaced by a more formal Share Option Plan,
which governs all future awards of share options made by San Leon. All employees, and certain
Directors and consultants, may from time to time be eligible to receive a discretionary bonus to
be awarded in the form of options over San Leon Ordinary shares. Historic options in respect of
San Leon shares will continue to be governed by the terms and conditions set out in the historic
share-based payments scheme.
The Group’s equity share options are equity settled share-based payments as defined in IFRS 2:
Share Based Payments. The total share-based payment charge for the year has been calculated
based on grant date fair value obtained using an option pricing model with a discount for market
conditions applied based on a Monte Carlo simulator analysis where appropriate. The charge for
the year is €1,113,692 (€1,382,000) includes the charge for options issued to the Directors of
€169,361 (2017: €Nil) and shares to be issued to Directors of €660,000 (2017: €811,514).
financial statements
| 117
29. SHARE BASED PAYMENTS CONTINUED
The movement on outstanding share options and warrants during the year was as follows:
Balance at beginning of the financial year
Granted during the year
Expired during the financial year
Effect of modification during the financial year
Exercised during the financial year
Balance at end of the financial year
Exercisable at end of the financial year
2018
2017
Number
of options /
warrants
Weighted
average
exercise
price
Number
of options /
warrants
36,415,932
£0.767 41,710,972
5,222,222
£0.450
2,119,298
Weighted
average
exercise
price
£0.873
£0.410
(2,603,130)
£3.730
(175,950)
£27.530
–
–
–
(238,388)
£10.690
– (7,000,000)
39,035,024
£0.620 36,415,932
39,035,024
£0.620 35,987,733
£0.300
£0.767
£0.686
The range of exercise prices of outstanding options/warrants at year end is £0.30 to £25.00 (2017:
£0.30 to £35.00).
In March 2019 the Company repriced all outstanding options with an exercise price above £0.45
to £0.45.
The weighted average remaining contractual life for options / warrants outstanding at
31 December 2018 is 3.41 years (2017: 2.57 years).
No options were exercised in the current year (2017: 7,000,000).
The following table lists the fair value of options granted and the inputs to the models used to
calculate the grant date fair values of awards granted in 2018 and 2017:
Weighted average fair value of options granted during year
Weighted average share price of options at date of grant
Dividend yield
Exercise price
Expected volatility
Risk-free interest rate
Expected option life
Expected early exercise %
Model used
2018
£0.45
£0.35
0%
£0.45
70%
2017
£0.29
£0.41
0%
£0.45
70%
1.0% – 1.7%
1.0% – 1.7%
7 years
0%
7 years
0%
Black-Scholes
model
Black-Scholes
model
The expected life used in the model is based on the expectation of management attaching to the
option and behavioural considerations and is not necessarily indicative of exercise patterns that
may occur. Expected volatility is based on an analysis of the historical volatility of San Leon Energy
plc shares and comparable listed entities. The fair value is measured at the date of grant. There are
no conditions attaching to the options.
118 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
30. COMMITMENTS AND CONTINGENCIES
(a) Operating leases
Commitments under operating leases are as follows:
Group
Payable:
Within one year
Between one and five years
Over five years
Company
Payable:
Within one year
Between one and five years
Over five years
Leasehold
Property
2018
€’000
Total
2018
€’000
Total
2017
€’000
333
1,200
2,000
3,533
333
1,200
2,000
3,533
823
1,200
2,325
4,348
Leasehold
Property
2018
€’000
Total
2018
€’000
Total
2017
€’000
300
1,200
2,000
3,500
300
1,200
2,000
3,500
300
1,200
2,325
3,825
(b) Exploration, evaluation and development activities
The Group has commitments of €Nil (2017: €Nil) in the year ended 31 December 2018 to contribute
to its share of exploration and evaluation expenditure in respect of exploration licences and
concessions held.
(c) Litigations
The Directors believe that ongoing litigations regarding non-performance on licences, which could
result in penalties, will be successfully defended and will not have significant impact on the
financial position of the Group.
financial statements
| 119
31. DEFERRED TAX
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Group
Financial assets – IFRS 9
Financial assets – other
Tax losses recognised
Assets
Liabilities
Net
2018
€’000
–
97
3,163
3,260
2017
€’000
2018
€’000
2017
€’000
2018
€’000
2017
€’000
–
–
5,889
5,889
(14,094)
(13,427)
(14,094)
(13,427)
–
–
–
–
97
–
3,163
5,889
(14,094)
(13,427)
(10,834)
(7,538)
At 1 January
Expense for the year recognised in the income statement (Note 10)
Deferred tax on fair value movements in financial assets IFRS 9, Barryroe NPI
Deferred tax on fair value of other financial assets, Quoted shares
Deferred tax on fair value of other financial assets, Unquoted shares
At 31 December
2018
€’000
(7,538)
(2,726)
(667)
(35)
132
2017
€’000
(7,332)
(2,195)
1,989
–
–
(10,834)
(7,538)
Company
Financial assets – net profit Interest
Tax losses recognised
Unrecognised deferred tax assets
Group
Tax losses
Capitalised expenditure
Assets
Liabilities
Net
2018
€’000
–
3,233
3,233
2017
€’000
2018
€’000
2017
€’000
2018
€’000
2017
€’000
–
(14,094)
(13,427)
(14,094)
(13,427)
5,855
5,855
–
–
3,233
5,855
(14,094)
(13,427)
(10,861)
(7,572)
2018
€’000
12,886
28,615
41,501
2017
€’000
14,862
28,257
43,119
Deferred tax assets have not been recognised in respect of the above items because it is not
probable that future taxable profits will be available against which the Group can utilise these
losses.
120 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
32. RELATED PARTY TRANSACTIONS
The Company and Group has related party transactions with i) directors ii) shareholders
iii) subsidiaries and iv) other entities with which it has entered into business arrangements
(NSP Investments Holdings Ltd, previously referred to as Palomar, and various companies which
are a party to the OML 18 transaction)(Note 17). Due to the influence or material interest that
these parties have in transactions with the Company or Group they are required to be disclosed
and are detailed below.
Property
The Company holds an option to acquire a property at market value from Mr. Fanning. The option
has a remaining life of eight years and the option fee of €335,372 (Stg £300,000) is included in
other receivables (Note 19) and is refundable when the Company either exercises or terminates
the option. Mr. Fanning was paid €324,000 (£288,000) (2017: €137,108 (£120,000)) rent for the use
of this property by the Company of which €157,000 (£140,000) related to the period 1 January 2019
to 31 October 2019 and is included in other receivables (Note 19). The property is being provided
at a competitive rate and it is an arm’s length transaction.
The property is available for use by all staff and consultants requiring overnight accommodation
while conducting business on behalf of the Company.
Loan
A summary of the movement in the loan with Mr. Fanning is set out below:
At 1 January 2018
Repayments by the Company during the year
Advances by the Company during the year
Interest on loan
Exchange rate adjustment
At 31 December 2018
€’000
(1,669)
1,669
632
2
1
635
At 31 December 2018 Mr. Fanning owed €635,372 to the Company. This was fully repaid to the
Company by the date of these financial statements (Note 34).
Oisín Fanning was paid €1,682,879 in 2018 in respect of personal loan guarantees provided by
him in 2017, on behalf of the company.
Oisín Fanning was due 5,590,270 ordinary shares in lieu of 80% of his salary for the period
1 September 2016 to 30 September 2018. These shares were issued on 25 February 2019.
Surplan Limited
The Company and Surplan Limited had a common Director, Raymond King. The Company had
a consultancy agreement with Surplan Limited which was paid €342,000 in 2018 (2017: €156,000)
including a termination payment of €186,000 (2017: €Nil). Please see the Director’s emolument
table on page 33 which includes the amount paid to Surplan Limited. Raymond King is the sole
Director and shareholder of Surplan Limited. In addition, Raymond King was paid €22,500
(2017: €30,000) Director’s fees in 2018.
financial statements
| 121
32. RELATED PARTY TRANSACTIONS CONTINUED
Discovery Energy Limited
The Company and Discovery Energy Limited have a common Director, Ewen Ainsworth. Discovery
Energy Limited was paid €23,844 for amounts due for 2018 (2017: €23,057) and disclosed as
a pension payment. Please see the Director’s emolument table on page 33 which includes the
amount paid to Discovery Energy Limited. Ewen Ainsworth is the sole Director and shareholder
of Discovery Energy Limited. In addition, Ewen Ainsworth was paid a salary of €339,435 (2017:
€344,000) plus Directors’ fees of €52,513 (2017: €52,513) in 2018.
Greenbay Energy Resources Limited
San Leon Energy plc and Greenbay Energy Limited have a common Director, Mutiu Sunmonu.
San Leon has a consultancy agreement with Greenbay Energy Limited which was paid €78,439
for amounts due for 2018 (2017: €80,573). Please see the Director’s emolument table on page 33
which includes the amount paid to Greenbay Energy Limited. In addition, Mutiu Sunmonu was paid
Director fees of €58,348 (2017: 58,348) in 2018.
Linda Beal Consulting LLP
Linda Beal Consulting LLP provides consultancy services to San Leon Energy plc. Linda Beal
Consulting LLP was paid €39,633 for amounts due for 2018 (2017: €Nil). Please see the Director’s
emolument table on page 33 which includes the amount paid to Linda Beal Consulting LLP.
In addition, Linda Beal was paid Director fees of €48,106 (2017: €Nil) in 2018.
Brandon Hill Capital Limited
Brandon Hill Capital Limited is a related party on the basis that it and its parent company OWG PLC
are shareholders in the Company.
In 2017, the Company received a number of loans from Brandon Hill Capital Limited totalling
€1,240,325 (£1,087,330) inclusive of interest and foreign exchange movement. At 31 December
2017 the amount outstanding to Brandon Hill Capital Limited was €177,380 (£153,177). This was
repaid in January 2018.
In 2018, the Company advanced a short-term loan to Brandon Hill Capital Limited of €400,000
(£350,000). This loan was offset against the loan arrangement fees below.
In 2018 the Company was notified of loan arrangement fees totalling €1,173,801 (£1,050,000)
relating to finance received in 2016 and 2017 via one of Brandon Hill’s clients, LPL Finance Limited.
These amounts are included in Trade payables and were paid in 2019.
Palomar Natural Resources (Netherlands) B.V. / NSP Investments Holdings Ltd
On 18 November 2016, the Company announced the sale of its (i) 35% interest in TSH Energy
Joint Venture B.V. (TSH) and (ii) 35% interest in Poznan Energy B.V. (Poznan) to Palomar Natural
Resources (Palomar). This divested the Company’s interest in the Rawicz and Siekierki fields
respectively. A 10% net profit interest was retained in the Poznan assets. Palomar is regarded
as a related party as it already held the remaining interest in both TSH and Poznan.
The total cash consideration due to the Company for the sale of its 35% interest in TSH was
€8.6 million (US$9.0 million), of which €4.3 million (US$4.5 million) was received in November 2016.
The balance of €4.3 million (US$4.5 million) plus accrued interest (the “Amount Due”) was due to
paid to San Leon on or before 1 October 2017. As announced on 2 January 2018 under a novation
agreement and extension agreement dated 22 December 2017, the Amount Due is now the full
responsibility of NSP Investments Holdings Ltd, a BVI registered company that holds a 35% interest
in TSH. San Leon also announced that it had received a further €1.3 million (US$1.5 million)
payment of the Amount Due. The Company was due to receive a further €2.9 million
(US$3.6 million), including an extension fee plus any further accrued interest on or before
1 September 2018. The Company had not received the €2.9 million (US$3.6 million) by 31 December
2018 and, provided for expected credit losses of €3.1 million (US$3.4 million) and reversed accrued
interest receivable in 2018 of €0.2 million (US$0.2 million).
122 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
32. RELATED PARTY TRANSACTIONS CONTINUED
Toscafund Asset Management LLP
Toscafund Asset Management LLP (Toscafund) is a related party on the basis that funds managed
by Toscafund hold a substantial shareholding in San Leon Energy plc and the substantive
transactions which the parties entered into during 2016 and as more fully described below detailing
the purchase of the indirect interest in OML 18.
OML 18
In September 2016, the Company secured an indirect economic interest in Oil Mining Lease 18
(“OML 18”), onshore Nigeria.
The Company undertook a number of steps to effect this purchase. Midwestern Leon Petroleum
Limited (“MLPL”), a company incorporated in Mauritius of which San Leon Nigeria B.V. has a 40%.
shareholding, was established as a special purpose vehicle to complete the transaction by
purchasing all of the shares in Martwestern Energy Limited (“Martwestern”), a company
incorporated in Nigeria.
Martwestern holds a 50%. shareholding in Eroton Exploration and Production Company Limited
(“Eroton”), a company incorporated in Nigeria and the operator of OML 18, and it also holds an
initial 98%. economic interest in Eroton. To partly fund the purchase of 100%. of the shares of
Martwestern, MLPL borrowed €156.6 million (US$174.5 million) in incremental amounts by issuing
loan notes with a coupon of 17%. (“Loan Notes”). Midwestern Oil and Gas Company Limited is the
60%. shareholder of MLPL and transferred its shares in Martwestern to MLPL as part of the full
transaction. Following its placing in September 2016, San Leon became beneficiary and holder
of all Loan Notes issued by MLPL. San Leon is also a beneficiary of any dividends that will be paid
by MLPL as a 40%. shareholder in MLPL but the Loan Notes repayments take priority over any
dividend payments made to the MLPL shareholders. The economic effect of this structure is that
San Leon has an initial indirect economic interest of 10.584%. in OML 18. Shareholders will note
this is higher than the percentage interest anticipated by San Leon at the time of the acquisition.
There have been no further purchases or payments by San Leon but this revised percentage is
based on a reassessment and recalculation of the various parties’ interests in OML 18 which has
resulted in Martwestern’s economic interest in Eroton now standing at 98%.
To date, San Leon has received aggregate payments under the Loan Notes totalling €100.1 million
(US$116.5 million). An expected credit loss of €8.1 million (US$9.7 million) was recognised on
1 January 2018 on adoption of IFRS9, and reduced to €4.8 million (US$5.5 million) at 31 December 2018.
To make payment of principal and interest due under the Loan Notes, MLPL is dependent on
Eroton making dividend payments to Martwestern which in turn makes dividend payments to
MLPL. MLPL will use the receipt of dividends to make Loan Notes payments to San Leon. There are
various undertakings, guarantees and security in place with Eroton, Martwestern and Midwestern
with regard to the Loan Notes, as more fully described below, in the event that MLPL is not in
a position to pay the Loan Notes from dividends received.
The Loan Notes have been secured with undertakings by both Eroton and Martwestern,
including not to take any action within their control which would result in default by MLPL, and
to act honestly and in good faith. In addition, to the extent practicable and subject to law, use
commercially reasonable efforts to declare dividends in order that MLPL can satisfy its obligations
under the Loan Notes instrument.
The shares held by MLPL in Martwestern have also been pledged as security to the obligations
under the Loan Notes.
financial statements
| 123
32. RELATED PARTY TRANSACTIONS CONTINUED
Midwestern and Mart Resources Limited jointly and severally guaranteed the payment of the Loan
Notes following a default and to make immediate payment and performance of all obligations to
holders of the Loan Notes.
While San Leon is also a beneficiary of any dividends that will be paid by MLPL as a 40%
shareholder in MLPL, the Loan Notes repayments must take priority over dividend payments made
by MLPL to shareholders with a minimum 65% cash sweep of available funds for a period of four
years in order to redeem the Loan Notes.
There are shareholders agreements which govern the relationship between Midwestern and
San Leon, and Bilton and Martwestern regulating the rights and obligations with respect to MLPL,
Martwestern and Eroton. These agreements cover the appointment of Directors and unanimous
approval for major decisions.
A Master Services Agreement exists which entitles San Leon Energy Nigeria BV to provide specific
services to Eroton and Midwestern for their activities.
During 2018 San Leon entered into an agreement with Eroton for the provision of drilling technical
and management services with estimated consideration for the services of US$6 million until the
end of 2020.
Further extensive details can be found on the Company’s website which contains a copy of
the Admission Document at: http://www.sanleonenergy.com/media/2491705/admission_
document_2016.pdf
2017
As a consequence of MLPL not being in receipt of dividends in 2017, MLPL had to enter into a loan
during 2017 and subsequently in order to be able to meet its obligations under the Loan Notes and
make payments to San Leon. During 2017 San Leon received total payments under the Loan Notes
totalling €34.3 million (US$39.6 million). All payments during 2017 were received by the due date
and in accordance with the terms of the Loan Notes. The payments received during 2017 represent
interest and no principal on the Loan Notes was repaid.
2018
During 2018 San Leon received total payments under the Loan Notes totalling €56.4 million
(US$66.2 million). The payments received during 2018 represent principal of €27.6 million
(US$32.2 million) and interest of €28.8 million (US$34.0 million) on the Loan Notes was repaid.
MLPL also entered into loan agreements with third parties to enable it to make the repayments
during 2018.
Key management
Key management is deemed to comprise the Board of Directors. The total remuneration paid
to key management was as follows:
Salary and emoluments
Bonuses
Shares to be issued in lieu of salary
Fees and consulting services
Pension
Termination payments
Benefits
Share based payment expense
2018
€’000
1,555
2017
€’000
1,349
753
660
701
84
186
29
169
631
812
636
84
–
45
–
4,137
3,557
124 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
32. RELATED PARTY TRANSACTIONS CONTINUED
Company
Transactions with subsidiaries
The Company has a related party relationship with its subsidiaries and associates. The Company
and its subsidiaries and associates, in the ordinary course of business, enter into various sales,
purchase and service transactions with joint operations in which the Group has a material interest.
These transactions are under terms that are no less favourable to the Group than those arranged
with third parties.
At 31 December 2018, the Company is owed €133.3 million (2017: €133.2 million) by its subsidiaries
in respect of funds advanced to them and expenses discharged by the Company on their behalf.
An impairment provision of €130.5 million (2017: €130.9 million) against these debts has been
provided as at the year end. The credit-impaired balances relate to the funding of historical
investments in subsidiaries to hold assets and businesses which have been abandoned or
discontinued in prior periods and from which no economic value is expected. The expected credit
loss on remaining loans to subsidiaries is not considered material. The Company owes €10.0 million
(2017: €12.3 million) to subsidiaries in respect of funds received by and services provided to the
Company.
Loss allowance at 31 December 2017 under IAS 39 and IFRS 9 *
Expected credit losses released
Loss allowance at 31 December 2018 under IFRS 9
€’000
130,914
(404)
130,510
* Loss allowance at 31 December 2017 under IAS 39 and IFRS 9 is the same as the loans and are fully provided for.
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Group and Company’s principal financial instruments comprise trade receivables, other
financial assets, trade payables and cash and cash equivalents.
The main purpose of these financial instruments is to provide finance for the Group and
Company’s operations.
The Group and Company’s financial assets and liabilities are classified as:
• Loans and receivables: all amounts due to and from subsidiaries and cash and cash equivalents
as disclosed in the statement of financial position;
• Financial assets: FVTPL – net profit interest as described in Note 17;
• Financial assets: FVOCI – equity instrument – unquoted investments and quoted investments
as described in Note 17;
• Liabilities at amortised cost: all trade and other payables and loans and borrowings as disclosed
in the statement of financial position.
financial statements
| 125
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
The main risks arising from the Group and Company’s financial instruments are foreign currency
risk, credit risk, liquidity risk, interest rate risk and capital management. Management reviews
and agrees policies for managing each of these risks in a non-speculative manner which are
summarised below.
(a) Currency risk
The Group is exposed to foreign currency risk on transactions denominated in a currency other
than the relevant functional currency of the entities of the Group which consist of Euro, Sterling,
US Dollars, Polish Zloty, Moroccan Dirhams and Canadian Dollars. The Euro is the presentation
currency for financial reporting and budgeting. The Group manages its exposure by matching
receipts and payments in the same currency and monitoring the residual net cash position. During
the years ended 31 December 2018 and 2017, the Group did not utilise either forward currency
contracts or other derivatives to manage foreign currency risk.
At 31 December 2018, the Group’s principal exposure to foreign currency risk was as follows:
Denominated
in GBP£
€’000
Denominated
in US$
€’000
Denominated
in PLN
€’000
Denominated
in CAD
€’000
Denominated
in MAD
€’000
Financial assets – OML 18 (Note 17)
Financial assets – Barryroe 4.5%
net profit interest (Note 17)
Financial assets – Quoted shares
(Note 17)
–
–
–
Trade and other receivables (Note 19)
Trade and other payables (Note 23)
1,272
(1,143)
Provisions (Note 26)
Loans and borrowings (payable within
one year) (Note 25)
Cash and cash equivalents (Note 21)
Total 2018
–
–
1,669
1,798
33,232
189,234
112,419
44,665
–
–
(1,082)
–
–
–
–
–
422
(494)
(664)
–
331
(405)
–
–
–
–
–
–
–
–
(18)
(316)
–
–
–
–
–
1
(18)
(315)
At 31 December 2017, the Group’s principal exposure to foreign currency risk was as follows:
Denominated
in GBP£
€’000
Denominated
in US$
€’000
Denominated
in PLN
€’000
Denominated
in CAD
€’000
Denominated
in MAD
€’000
Financial assets – OML 18 (Note 17)
Financial assets – Barryroe 4.5%
net profit interest (Note 17)
Financial assets – Quoted shares
(Note 17)
Trade and other receivables (Note 19)
Trade and other payables (Note 23)
Provisions (Note 26)
Loans and borrowings
(payable within one year) (Note 25)
Cash and cash equivalents (Note 21)
–
–
134,825
42,643
–
2,999
(2,509)
–
–
–
418
(572)
–
(2,521)
(2,707)
5,866
–
79
29
635
(1,788)
–
(177)
26
–
–
–
–
(82)
(42)
–
3
–
–
–
–
(240)
–
–
1
Total 2017
(1,275)
181,117
(2,596)
(121)
(239)
126 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
At 31 December 2018, the Company’s principal exposure to foreign currency risk was as follows:
Denominated
in GBP£
€’000
Denominated
in US$
€’000
Denominated
in PLN
€’000
Denominated
in CAD
€’000
Denominated
in MAD
€’000
Financial assets – OML 18 (Note 17)
Financial assets – Barryroe 4.5%
net profit interest (Note 17)
Financial assets – Quoted shares
(Note 17)
Trade and other receivables (Note 19)
Trade and other payables (Note 23)
Loans and borrowings (payable within
one year) (Note 25)
Cash and cash equivalents (Note 21)
Total 2018
–
–
–
1,268
(1,044)
–
1,566
1,790
112,419
44,665
–
–
(83)
–
–
–
–
–
–
–
33,213
190,214
141
141
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
At 31 December 2017, the Company’s principal exposure to foreign currency risk was as follows:
Denominated
in GBP£
€’000
Denominated
in US$
€’000
Denominated
in PLN
€’000
Denominated
in CAD
€’000
Denominated
in MAD
€’000
Financial assets – OML 18 (Note 17)
Financial assets – Barryroe 4.5%
net profit interest (Note 17)
Financial assets – Quoted shares
(Note 17)
Trade and other receivables (Note 19)
–
–
29
497
134,825
42,643
–
–
–
–
–
–
Trade and other payables (Note 23)
(1,689)
(1,851)
(183)
Loans and borrowings (payable within
one year) (Note 25)
Cash and cash equivalents (Note 21)
Total 2017
(177)
26
(2,707)
5,845
–
–
(1,314)
178,755
(183)
–
–
–
–
–
–
–
–
–
–
–
–
(14)
–
1
(13)
The euro exchange rates used in the preparation of the financial statements were as follows:
Sterling
US Dollars
Polish Zloty
Canadian Dollars
Moroccan Dirhams
2018
Average rate
2018
Closing rate
2017
Average rate
2017
Closing rate
0.88471
1.18100
4.30140
1.52940
0.89453
1.145
4.30140
1.56050
0.87667
1.12970
4.25700
1.46470
0.88723
1.19930
4.17700
1.50390
11.07283
10.92596
11.01000
11.21970
financial statements
| 127
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
Sensitivity analysis
If the Euro increased by 1% in value against the above currencies, the Group’s profit for the year
would decrease and equity at year end would increase by €1,884,085. If the Euro decreased by 1%
in value against the above currencies, the Group’s profit for the year would increase and equity at
year end would decrease by €1,902,834.
If the Euro increased by 1% in value against the above currencies, the Company’s profit for the year
would decrease and equity at year end would increase by €1,902,414. If the Euro decreased by 1%
in value against the above currencies, the Company’s profit for the year would increase and equity
at year end would decrease by €1,921,438.
(b) Credit risk
Credit risk refers to the risk that any counter-party will default on its contractual obligations
resulting in financial loss to the Group.
The Group and Company’s financial assets excluding financial assets – Net Profit Interest, see
(f) Fair values comprise trade and other receivables, cash and cash equivalents and OML 18.
The maximum financial exposure due to credit risk on the Group’s financial assets not subject
to impairment of IFRS 9, representing the sum of cash and cash equivalents, trade and other
receivables and other current assets, as at 31 December 2018 was €37.9 million (2017: €12.7 million).
Amount of maximum exposure to credit risk for financial assets not subject to impairment of IFRS 9
or comment to state there is none.
Trade and other receivables
Within trade and other receivables there are no significant exposure to credit risk on these assets.
The credit risk on amounts receivable from joint operating partners is managed by agreeing
budgets in advance with partners and where appropriate collecting any material share of
exploration costs from partners in advance of completing the exploration work programme.
Amounts in trade and other receivables impaired during 2018 are explained in Note 19 and
management believes that the existing sums are still collectable.
OML 18
The OML 18 transaction comprised the €156.6 million (US$174.5 million) Loan Notes as detailed in
Note 17. The credit risk is managed via various undertakings, guarantees, a pledge over shares and
the mechanism whereby MLPL prioritises payment of sums due under the Loan Notes. Given the
size and quality of the OML 18 oil and gas asset the main credit risk is regarded as the timing of
payments by MLPL which is dependent on dividend distributions by Eroton rather than being
unable to pay the total quantum due under the Loan Notes. To date Eroton have been unable to
make a dividend distribution. Consequently, MLPL had to enter into a loan in 2017 and subsequently,
in order to be able to meet its obligations under the Loan Notes and make payments to San Leon.
The credit risk associated with the MLPL Loan Notes is not regarded as low and despite
quarterly payments being largely received to date, however not always on time, and given other
considerations, leading the Company to determine that providing for a loss over the lifetime of
the loan is appropriate. Establishing an expected credit loss over the lifetime of the loan for a single
receivable requires significant judgement, as there is limited relevant historical data in the Company,
and no obvious reliable market data to benchmark. The factors that were considered in coming to
the conclusion of a lifetime expected credit loss provision are explained on the following page.
128 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
The credit risk of the instrument needs to be evaluated without consideration of collateral.
Financial instruments are not considered to have low credit risk because that risk is mitigated
by collateral.
MLPL is not considered to be in financial difficulty and is expected to repay all interest and principal
due under the loan agreement. The increase in credit risk identified does not change the prevailing
expectation that the loan will be recovered in full.
As the asset is not credit-impaired, the lifetime expected credit loss is recorded as a separate
provision on the Statement of Financial Position and remeasured at each reporting date. The MLPL
loan asset will continue to be held using the effective interest rate method.
The consideration of expected credit losses for this asset is set out in Note 17.
In the opinion of the directors there is no difference between the carrying amount of the MLPL
loan and its fair value.
Cash and cash equivalents
The credit risk on cash and cash equivalents is considered limited because the counterparties
are banks with high credit-ratings assigned by international credit rating agencies. The Group also
holds limited funds for day to day operational purposes with Irish banking institutions which are
subject to guarantee by the Irish government. The Group and Company’s maximum exposure to
credit risk is equal to the carrying amount of cash and cash equivalents in its consolidated and
Company statement of financial position. The Group does not expect any counterparty to fail to
meet its obligations.
Details of cash deposits, which are all for terms of one month or less are as follows:
Euro
Sterling
US Dollar
Polish Zloty
Canadian Dollar
Moroccan Dirhams
Group
Group
Company
Company
2018
€ 000
367
1,669
33,232
331
–
1
2017
€ 000
2,155
27
2018
€ 000
171
1,566
2017
€ 000
1,946
26
5,866
33,213
5,843
79
3
1
141
–
1
–
–
1
35,600
8,131
35,092
7,816
financial statements
| 129
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(c) Liquidity risk management
Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall
due. The Group manages liquidity risk by maintaining adequate cash reserves and by continuously
monitoring forecast and actual cash flows and matching the maturity profiles of financial assets
and liabilities. Cash forecasts are produced to identify the liquidity requirements of the Group.
Surplus cash is placed on deposit in accordance with limits and counterparties agreed by the
Board, with the objective to maximise return on funds whilst ensuring that the short term cash
requirements of the Group are maintained.
All cash and cash equivalents are due on demand. All trade and other receivables and trade and
other payables are due within three months.
The financial liabilities at 31 December 2018 are as follows:
Group
Trade and other payables and (Note 23)
Loans and borrowings (Note 25)
Company
Trade and other payables (Note 23)
Loans and borrowings (Note 25)
The financial liabilities at 31 December 2017 are as follows:
Group
Trade and other payables and (Note 23)
Loans and borrowings (Note 25)
Company
Trade and other payables (Note 23)
Loans and borrowings (Note 25)
Less than
1 year
€’000
One to
two years
€’000
Two to
five years
€’000
7,186
–
7,186
–
–
–
–
–
–
Less than
1 year
€’000
One to
two years
€’000
Two to
five years
€’000
13,770
–
13,770
–
–
–
–
–
–
Less than
1 year
€’000
One to
two years
€’000
Two to
five years
€’000
15,807
4,146
19,953
–
–
–
–
–
–
Less than
1 year
€’000
One to
two years
€’000
Two to
five years
€’000
21,601
4,146
25,747
–
–
–
–
–
–
Total
€’000
7,186
–
7,186
Total
€’000
13,770
–
13,770
Total
€’000
15,807
4,146
19,953
Total
€’000
21,601
4,146
25,747
The contractual cashflows are equal to the carrying value of the financial liabilities included in the
tables above.
130 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(d) Interest rate risk
The Group and Company’s exposure to the risk of changes in market interest rates relates
primarily to the Group and Company’s holdings of cash and short-term deposits.
It is the Group and Company’s policy to place surplus funds on short term deposit in order
to maximise interest earned whilst maintaining adequate short-term liquidity for operational
requirements.
The Loan Notes referred to in Note 17 attract a 17% fixed rate of contractual interest and as
a consequence there is no interest rate exposure.
(e) Capital management risk
The Group and Company manage its capital to ensure that entities in the Group will be able to
continue as a going concern while maximising the return to shareholders through the optimisation
of the debt and equity balance. The Group and Company manages its capital structure and makes
adjustments to it, in light of changes in economic conditions. To maintain or adjust its capital
structure, the Group may adjust or issue new shares or raise debt. No changes were made in the
objectives, policies or processes during the years ended 31 December 2018 and 31 December 2017.
The capital structure of the Group consists of equity attributable to equity holders of the parent,
comprising issued capital, reserves and retained losses as disclosed in the consolidated statement
of changes in equity.
The Group net debt and equity, and the net debt to equity ratio at 31 December 2018 was
as follows:
Total Liabilities
Less: cash and cash equivalents
Adjusted net debt
Total equity
Adjusted net debt to equity ratio
2018
€’000
19,259
35,600
2017
€’000
30,480
8,131
(16,341)
22,400
228,078
225,341
(0.07)
0.10
financial statements
| 131
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(f) Financial assets and liabilities by category
The following table sets out the carrying value of all the financial assets and liabilities held at
31 December 2018:
Fair value
31 December
2018
€’000
Carrying
amount
31 December
2018
€’000
Level 1
31 December
2018
€’000
Level 2
31 December
2018
€’000
Level 3^
31 December
2018
€’000
Group
Financial assets
OML 18# (Note 17)
Barryroe NPI (Note 17)
Quoted shares (Note 17)
Unquoted shares (Note 17)
Poznan NPI (Note 17)
Gora NPI (Note 17)
Liesa NPI (Note 17)
Trade receivables * (Note 19)
Other financial asset * (Note 20)
112,419
44,665
–
112,419
44,665
–
2,293
2,293
–
–
–
33
–
–
–
–
33
–
Cash and cash equivalents * (Note 21)
35,600
35,600
Other debtors * (Note 19)
Financial liabilities
Trade payables * (Note 23)
Other creditors * (Note 23)
Derivative (Note 24)
At 31 December 2018
958
958
(3,978)
(3,978)
(847)
(575)
(847)
(575)
190,568
190,568
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
112,419
44,665
–
2,293
–
–
–
–
–
–
–
–
–
(575)
158,802
# There has been no change to the assumptions underlying the determination of fair value of the OML 18 loan since initial recognition.
Therefore, the carrying amount arising from the application of the effective interest rate method approximates to the fair value.
* The Group has not disclosed the fair value of financial instruments such as short-term receivables and payables, as it is considered that
their carrying amounts are a reasonable approximation of their fair values.
^ For detailed disclosures on the valuation techniques of level 3 disclosures see the note referenced above.
Fair value
31 December
2018
€’000
Carrying
amount
31 December
2018
€’000
Level 1
31 December
2018
€’000
Level 2
31 December
2018
€’000
Level 3^
31 December
2018
€’000
Company
Financial assets
OML 18# (Note 17)
Barryroe NPI (Note 17)
Quoted shares (Note 17)
Unquoted shares (Note 17)
Trade receivables * (Note 19)
112,419
44,665
–
2,293
14
112,419
44,665
–
2,293
14
Cash and cash equivalents * (Note 21)
35,092
35,092
Other debtors * (Note 19)
Financial liabilities
Trade payables * (Note 23)
Other creditors * (Note 23)
Derivative (Note 24)
At 31 December 2018
751
751
(1,192)
(1,192)
(840)
(575)
(840)
(575)
192,627
192,627
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
112,419
44,665
–
2,293
–
–
–
–
–
(575)
158,802
# There has been no change to the assumptions underlying the determination of fair value of the OML 18 loan since initial recognition.
Therefore, the carrying amount arising from the application of the effective interest rate method approximates to the fair value.
* The Group has not disclosed the fair value of financial instruments such as short-term receivables and payables, as it is considered that
their carrying amounts are a reasonable approximation of their fair values.
^ For detailed disclosures on the valuation techniques of level 3 disclosures see the note referenced above.
132 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
During the period ended 31 December 2018, there were no significant changes in the business
or economic circumstances that affect the fair value of financial assets and liabilities, no
reclassifications and no transfers between levels of the fair value hierarchy used in measuring
the fair value of the financial instruments.
The following table sets out the carrying value of all the financial assets and liabilities held at
31 December 2017:
Group
Financial assets
OML 18 (Note 17)
Barryroe NPI (Note 17)
Quoted shares (Note 17)
Unquoted shares (Note 17)
Trade receivables* (Note 19)
Other financial asset* (Note 20)
Cash and cash equivalents* (Note 21)
Other debtors* (Note 19)
Financial liabilities
Trade payables* (Note 23)
Other creditors* (Note 23)
Derivative (Note 24)
At 31 December 2017
Fair value
31 December
2017
€’000
Carrying
amount
31 December
2017
€’000
Level 1
31 December
2017
€’000
Level 2
31 December
2017
€’000
Level 3^
31 December
2017
€’000
134,825
134,825
42,643
42,643
29
2,189
219
–
8,131
3,778
29
2,189
219
–
8,131
3,778
(6,505)
(2,426)
(426)
(6,505)
(2,426)
(426)
–
–
29
–
–
–
–
–
–
–
–
182,457
182,457
29
–
–
–
–
–
–
–
–
–
–
–
–
134,825
42,643
–
2,189
–
–
–
–
–
–
–
179,657
* The Group has not disclosed the fair value of financial instruments such as short term receivables and payables, as it is considered that
their carrying amounts are a reasonable approximation of their fair values.
^ For detailed disclosures on the valuation techniques of level 3 disclosures see the note referenced above.
financial statements
| 133
33. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
Company
Financial assets
OML 18 (Note 17)
Barryroe NPI (Note 17)
Quoted shares (Note 17)
Unquoted shares (Note 17)
Trade receivables* (Note 19)
Cash and cash equivalents* (Note 21)
Other debtors* (Note 19)
Financial liabilities
Trade payables* (Note 23)
Derivative (Note 24)
At 31 December 2017
Fair value
31 December
2017
€’000
Carrying
amount
31 December
2017
€’000
Level 1
31 December
2017
€’000
Level 2
31 December
2017
€’000
Level 3^
31 December
2017
€’000
134,825
134,825
42,643
42,643
29
2,189
12
7,816
598
29
2,189
12
7,816
598
(2,299)
(2,299)
(426)
(426)
–
–
29
–
–
–
–
–
–
185,387
185,387
29
–
–
–
–
–
–
–
–
–
–
134,825
42,643
–
2,189
–
–
–
–
–
179,657
* The Group has not disclosed the fair value of financial instruments such as short term receivables and payables, as it is considered that
their carrying amounts are a reasonable approximation of their fair values.
^ For detailed disclosures on the valuation techniques of level 3 disclosures see the note referenced above.
During the period ended 31 December 2017, there were no significant changes in the business or
economic circumstances that affect the fair value of financial assets and liabilities, no
reclassifications and no transfers between levels of the fair value hierarchy used in measuring the
fair value of the financial instruments.
(g) Hedging
At 31 December 2018 and 31 December 2017, the Group and Company had no outstanding
contracts designated as hedges.
34. SUBSEQUENT EVENTS
Functional and presentation currency
On 1 January 2019 the Company’s functional currency changed to US$ due to a change in the way in
which it transacts. The Company and the Group’s presentation currency were changed to US$ in
order to align presentation and reporting currency of the parent for periods commencing on or after
1 January 2019.
Reduction of Capital and tender buyback
On 22 March 2019 the Company announced the result of the Tender Offer, being an offer by the
Company to purchase shares from shareholders at 46p per share set out in the shareholder
circular published by the Company on 20 February 2019 (the "Circular").
The maximum number of Ordinary Shares authorised by shareholders under the Tender Offer,
being 50,475,000 Ordinary Shares, was acquired for a total cost of €26.8 million ($US30.5 million).
This represented approximately 9.97% of the issued ordinary share capital of the Company, at the
date of the announcement.
The Tender Offer was oversubscribed, with a total of 81,177,508 Ordinary Shares validly tendered
by Qualifying Shareholders. Qualifying Shareholders who tendered Ordinary Shares equal
to or less than their Individual Basic Entitlement had their tender accepted in full. Qualifying
Shareholders who validly tendered in excess of their Individual Basic Entitlement had their tender
accepted in respect of their Individual Basic Entitlement (being approximately 9.97% of their
shareholding) plus approximately 50.23% of the number of Ordinary Shares in excess of their
Individual Basic Entitlement that they validly tendered.
134 | San Leon Energy plc Annual Report and Accounts 2018
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2018
CONTINUED
34. SUBSEQUENT EVENTS CONTINUED
All proceeds payable under the Tender Offer to the Company's shareholders was transferred
to Computershare on 23 March for distribution to the shareholders.
As set out in the Circular, the Ordinary Shares were purchased by Cantor Fitzgerald Europe
pursuant to the Tender Offer and the Company purchased such Ordinary Shares from Cantor
Fitzgerald Europe under the terms of the Repurchase Agreement described in the Circular.
San Leon also announced that, pursuant to the exercise of warrants, an application was made
for an additional 250,000 ordinary shares in the Company to be admitted to trading on AIM
("Admission"). Admission took place on 26 March 2019. Following the issue of the new Ordinary
Shares, the Company had 506,097,127 ordinary shares in issue (at the time of the Circular there
were 505,847,127 Ordinary Shares in issue). No ordinary shares are held in treasury.
The Company cancelled the Ordinary Shares purchased by it under the Repurchase Agreement,
reducing the number of Ordinary Shares in issue from 506,097,127 Ordinary Shares to 455,622,127
Ordinary Shares (the "Cancellation").
Option and warrant repricing
In March 2019 the Company repriced all outstanding options with an exercise price above £0.45
to £0.45.
Oisín Fanning
Oisín Fanning was due 5,590,270 ordinary shares in lieu of his 80% of his salary for the period from
30 September 2016 to 30 September 2018. These shares were issued on 25 February 2019.
At 31 December 2018 Mr. Fanning owed €633,217 to the Company. This was fully repaid to the
Company by the date of these financial statements (Note 32).
Resignation of Executive Director
On 17 May 2019 the Company announced the resignation of Mr. Ewen Ainsworth with effect from
30 June 2019.
Appointment of Executive Director and Chief Financial Officer
The appointment of Ms. Lisa Mitchell as an Executive Director and Chief Financial Officer of the
Company was announced on 17 May 2019 with effect from 30 June 2019.
35. COMPARATIVE AMOUNTS
Comparative amounts were regrouped, where necessary, on the same basis as in the current
period.
36. APPROVAL OF FINANCIAL STATEMENTS
The Financial Statements were approved by the Board on 26 June 2019.
financial statements
| 135
Corporate information
Directors
Mutiu Sunmonu (Non-Executive Chairman)
Oisín Fanning (Chief Executive Officer)
Joel Price (Chief Operating Officer)
Alan Campbell (Commercial and Business Development Director)
Ewen Ainsworth (Finance Director)
Raymond King (Non-Executive Director) resigned 28 September 2018
Mark Phillips (Non-Executive Director)
Linda Beal (Non-Executive Director) appointed 16 January 2018
Bill Higgs (Non-Executive Director) appointed 22 May 2018
Registered Office
First Floor
Wilton Park House
Wilton Place, Dublin 2
Secretary
Auditor
Raymond King (resigned 17 January 2019)
Alan Campbell (appointed 17 January 2019)
KPMG
Chartered Accountants, Statutory Audit Firm
1 Stokes Place, St Stephen’s Green
Dublin 2
Principal Bankers Ulster Bank Ireland DAC
33 College Green, Dublin 2
Solicitors
Whitney Moore Solicitors
Wilton Park House
Dublin 2
David M Turner & Co Solicitors
32 Lower Abbey Street
Dublin
Fieldfisher LLP
2 Swan Lane
London EC4R 3TT
Nominated Advisor
and Joint Broker
Cantor Fitzgerald Europe
1 Churchill Place, Canary Wharf
London E14 5EF
Joint Stockbrokers Whitman Howard Limited
Brandon Hill Capital
First floor, Connaught House 1 Tudor Street
1-3 Mount Street
London W1K 3NB
London EC4Y 0AH
Registrars
Computershare Investor Services (Ireland) Limited
3100 Lake Drive, Citywest Business Campus,
Dublin 24
Public Relations
Vigo Communications
One Berkeley Street
London W1J 8DJ
Plunkett Communications
62b York Road
Dun Laoghaire Co. Dublin
Registered Number 237825
136 | San Leon Energy plc Annual Report and Accounts 2018
Glossary
2C
AIM
AIM Rules
BCF or bcf
Bilton
B.V.
BVI
CPR
Eroton
€’000
ESM
FSO
Group
LLP
Loan Notes
Best estimate of Contingent Resources
The London Stock Exchange’s AIM market
AIM Rules for Companies
Billion cubic feet
Bilton Energy Limited
Dutch private limited company
British Virgin Islands
Competent Person’s Report
Eroton Exploration and Production Company Limited
Euro, thousands
European Stability Mechanism
Floating Storage and Offloading
San Leon and its subsidiaries
Limited liability partnership
$174.5 million principal amount of 17% fixed rate loan notes acquired
by San Leon pursuant to the amended and restated loan note
instrument dated September 30, 2016 executed and issued by
Midwestern Leon Petroleum Limited
Ltd or limited
A private limited company incorporated under the laws of England and
Wales, Scotland, certain Commonwealth countries and Ireland
m
’m
Metres
Millions
Martwestern
Martwestern Energy Limited
MLPL
MSA
mmbbL
Nomad
NNPC
NPI
PLC
Midwestern Leon Petroleum Limited
Master Services Agreement
Million barrels
A company that has been approved as a nominated advisor for AIM by
the London Stock Exchange
Nigerian National Petroleum Corporation
Net Profit Interest
A publicly held company
San Leon or the Company San Leon Energy PLC
SEDA
Sp. z o.o.
Standby Equity Distribution Agreement
Polish limited liability company
Sp. z o.o. sp.k
Polish LLP
SPV
Yorkville
Special purpose vehicle
Yorkville Advisors Global LP
financial statements
| 137
Conversion
The following table sets forth certain standard conversions from Standard Imperial Units
to the International System of Units (or metric units).
To convert from
mcf
Cubic metres
bbls
Cubic metres
Feet
Metres
Miles
Kilometres
Acres
Hectares
To
Cubic metres
Cubic feet
Cubic metres
bbls
Metres
Feet
Kilometres
Miles
Hectares
Acres
Multiply by
28.174
35.494
0.159
6.290
0.305
3.281
1.609
0.621
0.405
2.471
138 | San Leon Energy plc Annual Report and Accounts 2018
Notes
financial statements
| 139
Notes
140 | San Leon Energy plc Annual Report and Accounts 2018
Notes
Credits
Concept / Design: Lamtar
Philippe Boutié, Milos Zaric
Main Photography
/ Nigeria: Musa Tukurah
mtukurah.com
Additional Photography
Philippe Boutié, DR
Produced by:
Instinctif Partners
www.creative.instinctif.com
San Leon Energy plc
Head Office
3300 Lake Drive
Citywest Business Campus
Dublin 24, Ireland
Registered address
First Floor
Wilton Park House
Dublin 2, Ireland
sanleonenergy.com