San Leon Energy plc
Head Office
3300 Lake Drive
Citywest Business Campus
Dublin 24
Ireland
Registered address
2 Shelbourne Buildings
Crampton Avenue
Shelbourne Road
Ballsbridge
Dublin 4
Ireland
sanleonenergy.com
S
a
n
L
e
o
n
E
n
e
r
g
y
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
9
An independent
oil and gas company
Annual Report 2019
Corporate statement
San Leon Energy plc (“San Leon” or the “Company”) is a
publicly listed energy company focused on Nigeria. The
Company currently holds a 10.58% indirect economic
interest in Oil Mining Lease 18 (“OML 18”), a producing
asset located onshore Nigeria.
The Company is aiming to use OML 18 as a platform to become a leading
independent production and exploration company focused on Nigeria
and West Africa – by securing and developing further high potential
asset opportunities that yield value to our shareholders.
01 Highlights
02
San Leon at a glance
04 Our strategy
44
45
46
Statement of Director’s responsibilities
Financial statements
Independent Auditor’s report
05 Overview / Corporate structure
52 Consolidated income statement
06 Chairman’s statement
53 Consolidated statement of other comprehensive income
08
Four expected cash flow sources
54 Consolidated statement of changes in equity
10 Chief Executive’s statement
56 Company statement of changes in equity
13 Corporate governance
14 Board of Directors
58 Consolidated statement of financial position
59 Company statement of financial position
16 Corporate governance statement
60 Consolidated statement of cash flows
24
27
Audit Committee report
61 Company statement of cash flows
Remuneration Committee report
62 Notes to the financial statements
30 Nomination Committee report
121 Alternative performance measures
31
Risk and Safety Committee report
122 Corporate information
32 Directors’ report
39 Corporate Social Responsibility
42 Country and industry overview
123 Glossary
124 Conversion
y
b
d
e
c
u
d
o
r
p
d
n
a
d
e
n
g
s
e
D
i
Highlights
Corporate
• Returned approximately US$66.0 million to shareholders during the year and post year
end delivering on the company’s commitment to shareholder returns:
– Tender offer completed in early 2019, repurchasing US$30.5 million of Company shares
– A share repurchase of US$2.0 million of Company shares was also completed
between October 2019 and January 2020
– A special dividend of US$33.0 million was declared in May 2020.
• Appointed Lisa Mitchell as Chief Financial Officer and Executive Director.
• Completed the sale of interests in four Polish concessions to Horizon Petroleum Ltd
as part of the Company’s strategy to dispose of non-core assets.
OML 18 Operational
• Eroton Exploration and Production Limited (“Eroton”) (the operator of OML 18) received
a 20-year lease renewal for OML 18. The lease will now expire in 2039.
• Gross oil production before allocated losses was around 39,000 bopd. Removing the
effect of field downtime, gross production during uptime was approximately 50,000
bopd (2018: 45,000 bopd).
• Two new wells drilled and completed with the third started (completed in April 2020).
14 workovers were performed during the year (cement packer reservoir zone changes,
gas lift installations and retrofits, perforations and hot oil treatments).
• Oil sales averaged approximately 29,500 bopd (2018: 30,000 bopd) after overall
downtime of 24% (largely associated with NCTL export pipeline downtime) and pipeline
losses of 22% (2018: 12% downtime, 26% pipeline losses).
• Significant progress on planning new oil export pipeline and offshore storage facility,
targeting reduced export downtime and losses – on track to be completed in the
coming quarters.
Financial
• US$43.2 million received in cash from loan notes mechanism in OML 18 in 2019, further
strengthening San Leon’s financial position and outlook, also enabling the Company
to start to deliver its shareholder return commitment.
•
In January 2019, the Company reported the restructuring of the Reserves Based Lending
(“RBL”) facility held by Eroton which frees up near-term cash resources for operations.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 1
San Leon at a glance
Considerable exploration potential exists across OML 18,
an asset which is larger than Bahrain
Material reserves
in Nigeria
The 2016 Competent Person
Report (“CPR”) by Petrovision
Energy Services (“Petrovision”)
illustrated the scale of the
reserves applicable to OML 18
partners. A summary is
provided in the table below.
Contingent resources and
considerable exploration
potential also exist across an
asset which is larger than
Bahrain. Further details
regarding San Leon’s
investment in OML 18 can be
found in Notes 13 and 17 of the
Financial Statements and in the
2016 AIM admission document
in the investors section of the
Company’s website.
BURKINA
FASO
BENIN
N I G E R I A
TOGO
Abuja
CHAD
Lagos
G U L
F
O F
G U I N E A
Port
Harcourt
CAMEROON
N
I
G
E
R D E L T A
Bonny
Terminal
200km
OML 18
N
0
OML 18
Oil + Condensate (mmstb^)
Gas (bscf*)
Gross technical reserves before economic cut-off
1P
389
3119
2P
576
3213
3P
777
5080
^ million stock tank barrels of oil. * billion standard cubic feet of gas.
Other assets
Nigeria is 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 the
structure. Providence Resources plc
(the operator of Barryroe) continues to
market the asset to gain a farm-in
partner in order to progress to appraisal
and development. The Directors note the
delays to the planned work programme
in 2019 and funding uncertainty created
by a planned farm-in not completing.
However, with the recent successful raise
of additional working capital, change in
directorship and reduction of corporate
overheads the Directors believe that
further progress will be made.
Despite this, the Directors have reviewed
information regarding timing, oil price,
costs and risk, and consider it prudent to
impair the carrying value of the Barryroe
4.5% NPI down to US$2.8 million, until
the Directors are confident that
necessary funding and a development
plan is in place.
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
continues to negotiate to enter the
appraisal stage, with a view to farming
out the asset. In the previous year the
Company impaired the asset to nil value
to reflect the time that farm out is taking.
Poland
In August 2019, the Company completed
the sale of interests in four Polish
concessions to Horizon Petroleum Ltd
as part of the Company’s strategy to
monetise non-core assets.
NovaSeis
The assets of NovaSeis are planned to
be sold as part of the Company’s exit
from Poland.
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. The Directors consider it appropriate
to impair the asset to nil value to reflect
the uncertainty in timing for the assets
within Island Oil & Gas Limited to receive
approval by the Irish authorities.
2 SAN LEON ANNUAL REPORT 2019
OML 23
DEGEMA
BUGUMA
Port
Harcourt
Apara
GTS 4GTS 4
GTS 4
Gas Line
Gas Line
Gas Line
OML 2006
OML 2006
OML 2006
Port Harcourt
Port Harcourt
Port Harcourt
Oil Refinery
Oil Refinery
Oil Refinery
Ajokpori
Ebubu
05
Greater Port
Harcourt Swamp
Line (GPHSL)
Buguma
Creek
Asaritoru
Orubiri
Idama
OML 55
Jokka
OML18
Alakiri
Bille
Eastern Gas
Gathering
System
(EGGS-1)
Krakama
East
OGONI
Notore
N’tore
Notore
Chemicals
Chemicals
Chemicals
Onne
Dawes
Dawes
Dawes
Island
Island
Island
OML 11
Alakiri
East
Awoba
Krakama
OML 24
Nembe
Nembe
Nembe
Creek
Creek
Creek
Trunk Line
Trunk Line
Trunk Line
(NCTL)
(NCTL)
(NCTL)
OML 25
OPL 278
Ke
Cawthorne
Channel
Hughes
Channel
OML 55
OML 55
OML 55
Akaso
YELLOW
ISLAND
GTS 4
Gas Line
Nembe
Creek
Trunk Line
(NCTL)
Asaramatoru
Bonny
Island
1
2
3
1. Bonny Oil Terminal (Shell)
1.1. Bonny Oil Terminal (Shell)
Bonny Oil Terminal (Shell)
2. NLNG Bonny LNG Terminal
2.2. NLNG Bonny LNG Terminal
NLNG Bonny LNG Terminal
3. MPN Bonny
River Terminal
(Exxon Mobil)
OML 52
Bonny
Terminal
OML 141
OML 55
OML 74
OML 467
OML 72
Proposed
FSO location
OML 151
OPL 2012
OPL 126
OPL 119
SAN LEON ANNUAL REPORT 2019 3
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Our strategy
The Company’s strategy is to become a leading independent
production and exploration company focused on West Africa
We are seeking to achieve this by using
our technical and operational expertise
in securing production and near-term
operating cash flow which will yield value
to our shareholders whilst continuing to forge
close links with governments, partners and
the local communities that we operate in.
We are targeting further dividend
distributions to shareholders from our
expected future cash flow.
4 SAN LEON ANNUAL REPORT 2019
Overview
San Leon holds an initial indirect 10.58% economic
interest in OML 18
NNPC
55%
Bilton
1.8%
2%
Bilton
Governed by JOA
Sahara
16.2%
Eroton
27%
98%
Martwestern
100%
MLPL
40%
60%
Midwestern
55%
2.34%
10.58%*
15.88%
16.2%
Direct interest in OML 18
Initial economic interest in OML 18
The parties in the OML 18
shareholding structure are
described below.
NNPC: Nigerian National Petroleum
Corporation is the state oil corporation
of Nigeria.
Eroton: Eroton Exploration and
Production Company Limited is the
current operator that completed
the purchase of 45% of OML 18 for
US$1.1 billion from Shell, Total and ENI
in March 2015. Following a farm out to
Sahara and Bilton (see below), Eroton
now holds a 27% interest in the licence.
Sahara: Sahara Field Production Limited
is a Nigerian privately-owned integrated
oil and gas company – part of a power
and energy conglomerate established in
1996. Effective 16.2% stake was part of
Eroton’s original 45% purchase.
MLPL: Midwestern Leon Petroleum
Limited, a Mauritian incorporated
special purpose vehicle, holding the
combined OML 18 interest of both
San Leon and Midwestern Oil & Gas
Company Limited, through Martwestern.
Bilton: Bilton Energy Limited is an
indigenous company whose entry costs
into OML 18 were carried by certain
partners. Bilton has a 1.8% direct
interest in OML 18 and also owns
50% of Eroton.
Midwestern: Midwestern Oil and Gas
Company Limited is a Nigerian company
awarded operatorship of Umusadege
Marginal Field located in OML 56, Nigeria,
in 2003, increasing production from
3,000 to ~20,000 bopd.
Martwestern: Martwestern Energy
Limited is a Nigerian company 100%-
owned by Midwestern Leon Petroleum
Limited (“MLPL”). Martwestern owns
50% of Eroton (Bilton owns the
remaining 50%).
* After various financial and production hurdles
are met, San Leon’s indirect economic interest
in OML 18 reduces to 5.4%.
SAN LEON ANNUAL REPORT 2019 5
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Chairman’s statement
San Leon has continued to make significant progress
in the last year. The Company’s financial position and
outlook has been further strengthened in 2019 through
the receipt of US$43.2 million in cash from the loan
notes mechanism in its OML 18 investment, enabling
us to carry out the inaugural distribution of returns
to our shareholders through share repurchases.
A further US$41.5 million in cash was received in
2020 after the reporting period.
Last year I reported the significant
progress which was being made to
address the operational and financial
challenges with the Company’s
involvement in OML 18, onshore Nigeria.
This year has seen further progress in
this regard. Eroton has continued to drill
new wells throughout 2019 as well as
ensuring that the new oil export system
would become operational during 2020 –
this remains on track to be delivered in
Q4 2020. Eroton has also succeeded in
restructuring the RBL (“Reserve Based
Lending”) facility which frees up
near-term cash resources for operations,
which is again very welcome. The future
tenure of the OML 18 block was also
secured in 2019 by Eroton with the
award of a 20-year licence extension.
West Africa, focusing on Nigeria, is where
San Leon’s activities and resources will
continue to be concentrated, and we
expect this focus to continue to deliver
value for shareholders.
The Company still retains two
non-Nigerian, non-core assets. These
are the Durresi block offshore Albania,
for which a farm out is being sought,
and the Company’s Net Profit Interest
(“NPI”) in the Barryroe field, offshore
Ireland, where the operator, Providence
Resources plc, is currently seeking
a partner to fund appraisal and
development drilling.
During the year, the Company fulfilled
its pledge of returning value to
shareholders and has now returned
approximately US$66.0 million to
shareholders since the start of 2019.
This was delivered by repurchasing
US$30.5 million of its own shares
through a tender offer in March 2019,
and the repurchase of a further US$2.0
million of Company shares was completed
between October 2019 and January 2020.
The Company also declared a special
dividend of US$33.0 million after the
reporting period in May 2020.
In June 2019 we welcomed Lisa Mitchell
as Chief Financial Officer and Executive
Director. Lisa has extensive and varied
financial expertise as well as local
Nigerian experience. Lisa worked
previously as Chief Financial Officer at
Lekoil Limited and Ophir Energy plc,
having also held senior financial and
Company Secretary positions with
various other companies both in natural
resources and other industries. Post
year end, the Company appointed
Adekolapo Ademola as a Non-Executive
Director. Adekolapo brings a wealth of
experience across a variety of disciplines
with a strong focus on Nigeria. The
Company would also like to thank the
previous Finance Director, Ewen
Ainsworth and Non-Executive Director,
Bill Higgs for their service and wish
them both well for the future.
Environment, Social and Governance
(“ESG”) is an area of increasing
importance for businesses and
shareholders. This is an area to which
San Leon continues to be committed
and is in the process of developing
its own ESG strategy, which the
Company anticipates will meet all
the expectations of good international
industry practice. As part of this we
will continue ongoing engagement with
all stakeholders and governments to
ensure that we operate our business
in a way that is sustainable and
benefits the local communities in
“ The Company’s financial
position has gone from
strength to strength since
this time last year.”
Mutiu Sunmonu
Chairman
6 SAN LEON ANNUAL REPORT 2019
US$43.2 m
Receipt of US$43.2 million in cash
from OML 18 investment
20-year
The future tenure of the OML 18
block was also secured in 2019 by
Eroton with the award of a 20-year
licence extension
“This year has seen further
progress, Eroton continued to drill
new wells throughout 2019.”
which we have a presence. The
Company implemented several initiatives
during the course of 2019 in Nigeria
including the provision of educational
support for disadvantaged children, the
building of a new medical centre, and
construction of a new classroom block
at a school in Benue State has begun.
This is in addition to our ongoing
support of small women-led enterprises
in Nassarawa and Benue States and the
installation of motorised water boreholes.
Subsequent to year end, there has been
significant turmoil in the financial
markets due to the impact of the
Covid-19 pandemic. This, along with
certain geopolitical issues, has also led to
a sharp fall and continued volatility in the
oil price. Although this sharp decline is
concerning, we do not expect significant
long term impacts to our indirect
interest in OML 18 or upon the Loan
Notes, due to Eroton taking necessary
steps to defer some operational and
capital expenditure, observing work from
home where possible for office
employees, adjusting field location
rotations and managing working capital.
In addition to this, San Leon is in a
strong financial position with cash on
hand at 19 June 2020 of US$36.5 million.
This allows the Company not only to
survive the on-going market turmoil, but
to take advantage of potential
value-adding opportunities. The
Company continues to monitor the
situation and managing its financial
position accordingly.
On receipt of US$40.0 million in Loan
Note repayments in May 2020, the
company amended the terms of the
Loan Notes, extending the term out to
December 2021. The Company
anticipates a further cash receipt of
US$10.0 million in October 2020, with
the remaining outstanding balance,
including interest, being repaid in H2
2021. With its increasing technical
involvement in OML 18, relationships
in-country, and strong balance sheet,
San Leon is well-positioned to continue
to realise value for shareholders from
Nigeria. I look forward with confidence
to updating shareholders on the
achievement of these aims.
Mutiu Sunmonu
Chairman
24 June 2020
SAN LEON ANNUAL REPORT 2019 7
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Four expected cash flow sources
Strong cash flow enabled
the Company to complete
a US$30.5 million share
repurchase programme in
March 2019, a further US$2.0
million between October
2019 to January 2020 and
declared a US$33.0 million
special dividend in May 2020.
US$43.2 million received in
Loan Note payments in 2019,
and a further US$41.5 million
to date in 2020.
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 par value of US$174.5
million* plus an annual coupon of 17%
(accounted for as US$152.0 million at an
annual 25% coupon under IFRS) through
to 2020. In April 2020, it was agreed that
the loan term would be extended
through to 2021. The coupon would
continue to accrue on the outstanding
balance. By 31 December 2019, San
Leon had received total cash inflows of
US$149.1 million (interest and principal)
due under the terms of the Loan Note.
During H1 2020, a further payment of
US$41.5 million was received, bringing
total cash receipts to date to US$190.6
million, leaving US$82.1 million* at par
value (before interest) (accounted for as
US$79.5 million under IFRS) outstanding
as of 6 April 2020.
Such receipts to date have largely been
paid on behalf of MLPL due to the
existence of guarantees to the Company
under the Loan Notes instruments.
The Company expects to receive a
further US$10.0 million in 2020 with the
remaining outstanding balance in 2021,
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.
2
Services
revenue
San Leon provides certain technical
services in relation to subsurface work on
OML 18. The Company also has a Master
Services Agreement to provide certain
rig-related services to Eroton.
The Directors believe there will be a
drilling hiatus on OML 18 due to the
current oil price environment, and drilling
may recommence during Q3 2021.
Current expectation of services income is
a continuation of the contract for its
subsurface technical input and leadership.
No income has yet been recognised for
technical services or under the Master
Services Agreement.
Indirect
equity interest
3
Eroton is the Operator of OML 18 while
San Leon has a defined partner role
through its shareholding in MLPL. San
Leon provides technical support to Eroton.
No dividend has been paid by MLPL in
2019 because OML 18 cash flow has not
been as hoped due to the operational
issues summarised below.
Firstly, the majority of the 24% production
downtime in 2019 was caused by
problems in the third-party terminal and
gathering system. Underlying production
(production at the wellhead before
pipeline losses) from the assets was
approximately 50,000 bopd during 2019
before that downtime. This issue is being
addressed by the planned implementation
of the new export pipeline and Floating
Storage and Offloading (“FSO”) project,
which has secured all necessary
permissions and much of the equipment
for which is now in country. Reducing
field downtime is also expected to
improve overall well performance. This is
due to decreasing the time taken to bring
all wells back to normal production rates
again once the field is back operating.
Secondly, pipeline losses have been
allocated to all operators by the Bonny
Terminal operator. The 22% pipeline
losses (reducing 2019 field oil sales
further to approximately 29,500 bopd)
have been a significant burden on net oil
sales, albeit a lower level of pipeline
losses than in 2018. The reason for the
reduced pipeline losses is partially due
to 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.
Removing the above challenges 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$50.0 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 the settlement of MLPL’s
Loan Notes obligations.
The Directors have assessed the
carrying value of the equity interest in
MLPL, considering the above issues
(Note 13), and have determined that
it is not impaired.
Barryroe net
profit interest
4
The Company’s 4.5% Net Profit Interest in
Barryroe oil field, offshore Ireland, provides
a zero cost potential future cash stream.
At year end, the Company has impaired
the Net Profit Interest down to
US$2.8 million.
* Refer to Alternate Performance Measures on page 121 for full reconciliation of IFRS numbers and Alternative Performance Measures.
8 SAN LEON ANNUAL REPORT 2019
US$30.5 million
Share repurchase programme
in March 2019
US$33.0 million
Special dividend in May 2020
Cash generation, our current portfolio of potential
sources for cash flow is:
NEAR TERM
MEDIUM TERM
LONG TERM
1
Loan
Notes
Payment
under the
Loan Notes.
2
Services
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,
and/or provision of subsurface technical services to Eroton.
3
Dividend
Dividend payments as a consequence of holding an initial
indirect 10.58% economic interest in OML 18.
4
Net Profit
Interest
4.5% Barryroe
Net Profit
Interest (through
potential income
or a potential
sale).
SAN LEON ANNUAL REPORT 2019 9
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Chief Executive’s statement
OML 18 is positioned for its next stage in development
2019 saw significant progress being made at OML 18
as the partners looked to advance the asset to its
next phase of development.
Eroton continued drilling three new
wells as well as ensuring considerable
progress on the new oil export system
(Alternative Crude Oil Evacuation and
Storage system, or “ACOES”). Together,
these activities are expected to enable
Eroton to reap rewards for the partners
and shareholders, including San Leon, as
historic operational hurdles are overcome.
Downtime and allocated pipeline losses
associated with the use of the Nembe
Creek Trunk Line (“NCTL”) have meant
that both gross production at the
wellhead and sales oil volumes were
lower than expected. Gross oil
production, taking out the effect of
NCTL downtime, was around 50,000
bopd. Sales oil, including the effects of
downtime and allocated losses, was
around 29,500 bopd. It is notable that
the pipeline losses attributable to OML
18 in 2019 were lower than 2018 (22%
in 2019 versus 26% in 2018). This was
largely due to the installation of
LACT units on most of its production.
The higher downtime in 2019 (24%
compared with 12% in 2018) reflects
a particularly challenging performance
from NCTL, highlighting the need for
an alternative.
The most positive impact on OML 18
oil sales is expected to be Eroton’s
agreement with Energy Link
Infrastructure (Malta) Limited (“ELI”).
ELI will finance and construct the ACOES
and once commissioned, this system
is expected, by Eroton, to significantly
reduce the downtime and allocated
pipeline losses currently associated with
the NCTL. The NCTL was responsible
for the majority of the approximately
20,000 bopd difference between gross
production, when the pipeline is running,
and average sales oil. In addition, it is
anticipated that the FSO project will
greatly improve overall well uptime.
In January 2019, San Leon also
announced that Eroton had successfully
restructured its RBL facility, providing
a material boost to cash availability for
operations, and reducing the burden
of cash required in the DSRA.
San Leon is becoming increasingly
involved with the subsurface technical
input into OML 18 and has a contract
to provide such services on OML 18,
providing geoscience and engineering
resource into well and reservoir
planning. We believe that OML 18 is
a world class asset and one that
we look forward to developing further
with our partners.
Other assets
San Leon holds a 4.5% NPI over the
whole of the Barryroe oil and gas
discovery, offshore Ireland. An NPI
structure means that San Leon has
no costs whatsoever with regard to
Barryroe but has a right to a share of
profits from the asset once Barryroe
equity holders’ costs have been
recovered. Providence Resources plc
(the operator of Barryroe) continues
to seek a farm-in partner to progress
appraisal and potential development.
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. A farm-in partner is
currently being sought for this block.
Cash flow
The Company has four anticipated
sources of cash flow. As of 31 December
2019, cash receipts totalling US$149.1
million have come from the repayment
of Loan Notes, including interest. The
outstanding balance payable as of
6 April 2020 is US$82.1 million* at par
value (US$79.5 million under IFRS),
which continues to accrue interest.
Final payment of the Loan Notes is
anticipated in late 2021.
* Refer to Alternate Performance Measures on page 121 for full reconciliation of IFRS numbers and
Alternative Performance Measures.
“The Company is in a very
strong situation armed
with such significant
cash, and together
with its professional
relationships and
people, believes it is
well-positioned to grow
and add further value
to shareholders.”
Oisín Fanning
CEO
10 SAN LEON ANNUAL REPORT 2019
“San Leon is committed to meeting high
standards of ESG practices across all
aspects of the business.”
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 11
Chief Executive’s statement continued
The Company’s balance sheet is robust with cash on
hand as at 19 June 2020 of US$36.5 million
increasing importance. This is an area in
which San Leon is committed to meeting
high standards of ESG practices across
all aspects of the business. The
Company is committed to the countries
in which it operates and is dedicated
to promoting sustainable growth as
well as providing support to local
communities in Nigeria. The Company
firmly believes that by providing the
younger generation with the valuable
skills and education needed to succeed,
the whole country will benefit from
growth and prosperity.
Outlook
Oil price has been significantly affected
since the beginning of Q1 2020, due
to the combined effects of Covid-19
affecting demand, and quota
disagreements within OPEC regarding
how to deal with that reduction in
demand. This uncertainty presents the
Company with both risks and
opportunities. The company’s Statement
of Financial Position is robust with cash
in hand as at 19 June 2020 of US$36.5
million, which we believe puts us in a
strong position to continue moving
forward with our strategy and capitalise
on current market turmoil with accretive
opportunities. The Company is
monitoring events closely, maintaining
its financial strength whilst being ready
to pursue any appropriate opportunities
that may arise.
I look forward to updating shareholders
with news of the planned continued
operational activity on OML 18, its
effect on net production, and how our
various expected cash flow streams are
performing. The Company is in a very
strong situation armed with such
significant cash, and together with its
professional relationships and people,
believes it is well-positioned to grow and
add further value to shareholders.
Company announced that a number of
parties, including San Leon and SunTrust
had signed binding agreements which
terminated all litigation against San Leon,
and preclude any future such litigation.
No consideration was paid by either
party to the other.
Also, in June 2019, Midwestern Oil & Gas
Limited, the Company’s partner in MLPL,
increased their shareholding in San Leon.
The appointment of Lisa Mitchell as Chief
Financial Officer and Executive Director
in 2019 has provided the Company with
considerable financial as well as local
Nigerian expertise. In April 2020, the
Company added further strength to
the Board with the appointment of
Adekolapo Ademola as a Non-Executive
Director, who brings with him extensive
corporate Nigerian experience.
ESG
As discussed in the Chairman’s
statement ESG is becoming an area of
Oisín Fanning
CEO
24 June 2020
The Company will also generate income
from the provision of subsurface
technical services to Eroton. In addition,
future OML 18 rig activity is an
opportunity for the Company to
generate income from the provision
of services under its Master Service
Agreement with Eroton.
Cash flow from the Company’s indirect
shareholding in Eroton is anticipated
once OML 18 is generating sufficient
free cash flow.
Corporate
The first shareholder returns were
provided in 2019 via share buybacks, in
line with the Company’s announced policy.
During May 2018 the first of several
allegations by SunTrust Oil (“SunTrust”)
were made in the Nigerian press, against
San Leon and other entities. The
Company made it clear that all such
allegations were spurious and would be
vigorously defended. In June 2019 the
12 SAN LEON ANNUAL REPORT 2019
Corporate governance
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.
14 Board of Directors
16 Corporate governance statement
24 Audit Committee report
27 Remuneration Committee report
30 Nomination Committee report
31 Risk and Safety Committee report
32 Directors’ report
39 Corporate Social Responsibility
42 Country and industry overview
44
Statement of Director’s responsibilities
SAN LEON ANNUAL REPORT 2019 13
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Board of Directors
San Leon Energy is led by a team of
specialist industry professionals
Mutiu Sunmonu
Non-Executive Chairman
Oisín Fanning
Chief Executive Officer
Joel Price
Chief Operating Officer
Lisa Mitchell
Chief Financial Officer
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: Chair of Risk and Safety Committee, Member of Audit,
Remuneration and Nomination Committees.
(Appointed 21 September 2016)
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, and was heavily involved with broking of
Tullow Oil plc shares early in its 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.
(Appointed 16 September 1995)
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 three 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.
(Appointed 21 September 2016)
Background and experience: Ms Mitchell is an experienced Chief Financial Officer with over 25 years’
international experience, across the oil and gas, mining and the pharmaceutical industries. She was most
recently CFO and Executive Director of Lekoil Limited (AIM: LEK), the African focused oil and gas
exploration and production company with interests in Nigeria. Previously, Lisa was CFO and Executive
Director at Ophir Energy plc, formerly a FTSE 250 company (LSE:OPHR) where she was responsible for
contributing to the overall business strategy of Ophir; leading the finance function including all financial,
taxation, treasury and funding requirements and investor relations. Lisa’s previous roles include CSL
Limited, (ASX top 50) and Mobil Oil Australia. Lisa is a Certified Practicing Accountant (CPA Australia) and
holds a Bachelor of Economics (major in Accounting) from La Trobe University, Melbourne and a
Graduate Diploma in Applied Corporate Governance from the Governance Institute of Australia.
(Appointed 30 June 2019)
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.
Alan Campbell: Director
of Commercial & Business
Development and
Company Secretary
(Appointed 21 September 2016)
14 SAN LEON ANNUAL REPORT 2019
Background and experience: Ms Beal has over 30 years’ experience with PwC including as a partner
for 16 years specialising in the natural resources sector. She was also a partner for two years 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. Ms Beal is currently Non-Executive Director at Kropz plc,
Aminex plc, Orca Exploration Group Inc and i3 Energy plc.
Committee memberships: Chair of Audit Committee and Member of Remuneration Committee.
Linda Beal: Independent
Non-Executive Director
(Appointed 16 January 2018)
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.
Mark Phillips: Independent
Non-Executive Director
(Appointed 21 September 2016)
Background and experience: Mr Ademola is a marketing and business strategy specialist with over
30 years’ experience. A Business Management graduate from the University of Jos, Nigeria with further
training in the USA and UK. With extensive consulting experience across multiple industry sectors added
to his 17+ years of involvement in the Nigerian Oil and Gas sector; Mr Ademola brings valuable regional
knowledge, expertise and relationships to San Leon Energy plc.
(Appointed 7 April 2020)
Adekolapo Ademola:
Non-Executive Director
Previous Directors
Bill Higgs: Independent Non-Executive Director
(Appointed 22 May 2018, Resigned 18 May 2020)
Ewen Ainsworth: Finance Director
(Appointed 21 September 2016, Resigned 30 June 2019)
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 15
Corporate governance statement
The Directors of San Leon Energy plc are committed to
maintaining high standards of corporate governance
Corporate Governance
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.
The Board adopted the principles of the
Quoted Companies Alliance Corporate
Governance Code (“QCA Code”). The
QCA Code is based on ten principles that
focus on the pursuit of medium to long
term value for shareholders. 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 detailed on page 20.
This deviation is to Principle 5 –
Maintain the Board as a well-
functioning, balanced team led by the
Chair and relates to the participation
of Non-Executive Directors in the
Company’s share option scheme and
the impact on their independence.
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 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 – a requirement
which has been satisfied.
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 the
Chairman, four Executive Directors and
three Non-Executive Directors. The
Independent Non-Executive Directors
are Mutiu Sunmonu (appointed
21 September 2016), Linda Beal
(appointed 16 January 2018) and Mark
Phillips (appointed 21 September 2016).
On 7 April 2020 Mr Adekolapo Ademola
was appointed to the Board as a
Non-Independent Non-Executive
Director on behalf of Midwestern Oil
and Gas Company Limited. The following
paragraphs set out the Company’s
compliance with the ten principles of
the QCA Code.
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
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 West Africa and
produce a near-term operating cash
flow, yielding value to shareholders.
We plan to grow the Company by
carefully selecting new opportunities,
particularly in Nigeria where we can
achieve this through our technical
expertise, operational capabilities and
industry contacts, secured by the close
links we forge with governments and the
local communities. 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 and in keeping with
that strategy allowed the Tarfaya Basin,
Zag Basin and Tarfaya Oil Shale licences
in Morocco to lapse in 2019.
Key challenges and risks around meeting
this strategy and mitigants are detailed
in the Directors’ report on page 32.
These are namely:
•
continued financial strength through
MLPL Loan Note repayments; and
•
partnership risk.
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.
We are committed to operating a
sustainable business and plan to
incorporate Environmental, Social
and Governance aspects to all future
opportunities reviewed.
16 SAN LEON ANNUAL REPORT 2019
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 having completed a required
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 50,475,000 shares,
at a price of 46 pence per share (which
was approximately 50% above the
closing price before the tender
announcement) with a value of US$30.5
million (£23.2 million). In October 2019,
the Company announced a second
share buyback programme up to a total
of US$2.0 million. In January 2020 it was
announced that the buyback
programme had completed with the
repurchase of 5,709,101 shares at an
average price of 27.5 pence per share,
with a value of US$2.0 million (£1.6
million). On 27 April 2020 the Company
announced a special dividend of £27.0
million (US$33.0 million), or 6 pence
per ordinary share, with an expected
payment date of 29 May 2020.
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. By keeping open and
transparent dialogue we can consider
matters and discuss with shareholders
in a positive and constructive way.
The Non-Executive Chairman and
Independent Non-Executive Directors
are available to meet with shareholders
if required.
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. The full Board was
present at the AGM on 27 September
2019 with the Committee Chair
available to answer any questions
regarding the activities of each of the
Board Committees. At the AGM, all
resolutions were passed.
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. Staff
attend committee meetings as required
enabling two-way communication.
The Executive Directors hold regular
executive team meetings of which key
messages are then relayed to their
respective teams. 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 and conducting social work has
helped them understand what we are
doing. Please refer to the CSR report on
page 39 for details on the initiatives and
local community engagement made by
the Company directly.
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. Any feedback will be
respectfully acknowledged by the
Company and appropriately dealt with.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 17
Corporate governance statement
Continued
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.
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.
An updated risk management policy and
procedure has recently been adopted
which provides a procedure for the
management of the Company’s risk. As
part of the risk management procedure,
the Company has further developed its
detailed risk register which identifies
business continuity risks, corporate
governance risks, security risks, financial
risks, reputational risks and health,
safety and environment protection risks.
Reporting is required from each
Executive Director and consists of
quarterly reports assessing material
changes within the risk profiles.
The Chief Financial Officer is in charge of
collating the risk reports and presenting
them to the Audit Committee quarterly.
The Audit Committee reports on its
activities and make recommendations
to the Board as appropriate.
The Audit Committee also instigated
two internal audit reviews, conducted
by BDO, reporting directly to the
Committee, of the following during 2019:
•
information technology audit; and
•
expenditure controls review.
The key risk management procedures
include:
•
•
•
•
•
preparation and review of budgets and
cash flow projections for approval and
expenditure monitoring;
establishment of appropriate policies
for the management of financial,
industry and country-specific risk;
regular management meetings to
review operating and financial activities,
and statutory staff requirements and
committee meetings;
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.
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 planning;
determining standards of ethics and
policy in relation to health, safety,
environment, social and community
responsibilities; and
•
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
and Linda Beal 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.
18 SAN LEON ANNUAL REPORT 2019
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. Each
Non-Executive Director is expected to
attend not less than six board meetings
in each calendar year as well as the
Annual General Meeting and any
Extraordinary General Meetings of the
Company. However, in exceptional
circumstances all Board members
understand the need to commit
additional time. The Executive Director
roles are all full-time roles.
The Board Committees
The Board has established four
separate committees: Remuneration
Committee, 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 2019
Audit Committee considered the need
for internal audit and decided to appoint
an external firm to conduct two internal
audit reviews. The firm worked with the
CFO on two workstreams during the
year and reported directly into the Audit
Committee with their final reviews and
recommendations. For more details on
the reviews please refer to the Audit
Committee report on page 24.
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 2019
Number of
Number of meetings
meetings attended
Mutiu Sunmonu 7 6
Number of
Number of meetings
meetings attended
Mark Phillips 7 7
Linda Beal (Chair) 7 7
Mutiu Sunmonu 3 3
Mark Phillips (Chair) 3 3
Linda Beal 3 3
Board meetings attendance in 2019
Maximum
possible Meetings
attendance attended
Mutiu Sunmonu 11 9
Oisín Fanning 11 11
Joel Price 11 11
Ewen Ainsworth * 7 7
Lisa Mitchell ^ 4 4
Alan Campbell 11 11
Linda Beal 11 10
Mark Phillips 11 11
Bill Higgs < 11 9
* Resigned 30 June 2019.
^ Appointed 30 June 2019.
< Resigned 18 May 2020.
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 and risk management
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. During the year the
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. There were two meetings
held during the year whereby the
Committee led the process for a new
Board appointment and making
recommendations to the Board.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 19
Corporate governance statement
Continued
Nomination Committee meetings
and attendance in 2019
Number of
Number of meetings
meetings attended
Mutiu Sunmonu
Mark Phillips (Chair)
Oisín Fanning
2
2
2
2
2
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 2019
Number of
Number of meetings
meetings attended
Mutiu Sunmonu
Joel Price
Bill Higgs (Chair) <
1
1
1
1
1
1
< Resigned 18 May 2020. The current Chair of the
Risk and Safety Committee is Mutiu Sunmonu.
Mutiu Sunmonu, Mark Phillips and
Linda Beal 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.
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 comply with the QCA Code
in this respect.
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 Board believes that independence
is a matter of independence of mind,
judgement and integrity and that
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
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.
During the year the Audit Committee
engaged BDO to perform two internal
audit reviews. The Audit Committee
has secured external advice on tax and
legal matters as required.
In addition to this, Gallaghers Insurance
was used to perform a full insurance
review across the business to ensure
appropriate levels of cover.
The Board is supported by a Company
Secretary who acts as a trusted advisor
to the Chair and the Board. The
Company Secretary plays a vital role in
relations to both regulatory and legal
compliance. As part of this role the
Company Secretary assists the Chair in
preparing for board meetings including
dissemination of appropriate
information.
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.
20 SAN LEON ANNUAL REPORT 2019
Summary background and diversity of the Board
Directors
Mutiu Sunmonu
Oisín Fanning
Joel Price
Ewen Ainsworth *
Lisa Mitchell ^
Alan Campbell
Linda Beal
Mark Phillips
Bill Higgs <
Adekolapo Ademola #
Background
Diversity
Oil & gas/ Finance/
Non-UK/
energy commercial Investor Female Irish
3
3
3
3
3
3
3
–
3
3
3
3
3
3
3
3
3
3
3
3
3
3
–
3
3
–
–
3
–
3
–
–
–
–
3
–
3
–
–
–
3
–
–
–
3
–
–
–
–
3
* Resigned 30 June 2019.
^ Appointed 30 June 2019.
# Appointed 7 April 2020.
< Resigned 18 May 2020.
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.
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
Chief Executive Officer in consultation
with the Board. The Board is satisfied
that this is appropriate for this stage
in the Company’s development.
Succession planning will continue to
be reviewed for 2020.
Formal evaluation of
Board and Directors
The Chairman and Company Secretary,
engaged the services of an independent
consultant to conduct a Board evaluation
in the latter half of 2018. As part of the
engagement the independent consultant
undertook the following:
•
•
•
•
prepared a Board evaluation
questionnaire which was issued to
each of the Directors for completion
on an anonymous basis;
collated anonymised questionnaire
responses and undertook an analysis
of these responses;
compared the responses received
against best practices; and
created a Board evaluation report to
include findings and recommendations
for review by the Chairman and
Company Secretary, which was in turn
presented by the Chairman to the
Board which engendered a collective
discussion by the Board on suggested
performance enhancements.
The Board evaluation was finalised in
January 2019 and the findings and
recommendations were presented to
the Board by the Chairman. The Board
has actively implemented the key
recommendations of the independent
evaluation.
In summary the evaluation highlighted
that the Board has a strong mix of
experienced Executives and
Non-Executive Directors led by an
experienced Board Chair that is
well respected by the Board. The Board
has a genuine commitment and has
made progress on embracing corporate
governance best practices, attaining
compliance with the QCA code and
improving the Board team’s effectiveness
and performance. The Board has
improved focus on strategic imperatives
including the fostering of best practice
in all areas of governance and
ensuring that the Executive team and
Non-Executive Directors closely
collaborate on the development of
strategy and ensuring its execution.
In line with the recommendations of
the evaluation the Board has a clear set
of formal KPI’s, the quality of Board
reporting has improved and a
consistent approach across all
sub-committees in terms of annual
meeting schedules and frequency of
meetings has 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 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.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 21
Corporate governance statement
Continued
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. A culture based upon
sound ethical values and behaviours is
an asset and source of competitive
advantage. Key to this is recruiting and
retaining key senior personnel.
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.
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 December 2019
as part of the Audit Committee
responsibilities.
Share-dealing Code
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
Anti-Bribery and Corruption Policy
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 and
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 Policy was last reviewed in
December 2019 as part of the Audit
Committee responsibilities.
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;
•
policies and guidelines;
•
internal controls and governance;
•
•
•
appointment or removal of Directors
and the Company Secretary;
establishment of sub-boards and
committees;
appointment, re-appointment or
removal of the auditors and any other
corporate advisers;
22 SAN LEON ANNUAL REPORT 2019
makes full use of its investor website to
provide information to shareholders and
other interested parties.
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 Board is briefed
by the Chief Executive Officer regarding
these discussions at each board
meeting as required. Feedback by way
of market updates, brokerage and
communication reports, analyst and
proxy agents is presented on an
ad hoc basis as received.
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
24 June 2020
•
management development,
remuneration and employee
benefits; and
•
returns to shareholders.
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. (Refer to the Audit Committee
report for a description of the committee
and the 2019 reviews on page 24.)
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 Board has been supported by an
Audit Committee, Remuneration
Committee, Nomination Committee
and Risk and Safety Committee; details
of their activities during 2019 can be
found in each of their reports on
pages 24 to 31.
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
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 23
Audit Committee report
The Audit Committee reviews the effectiveness and implementation
of the risk management and internal control systems
The Audit Committee comprises three
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
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.
The key policies and procedures are:
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
•
•
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;
provide input in the 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 management policy and
procedure which incorporates 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 32.
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 reviews 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.
24 SAN LEON ANNUAL REPORT 2019
Activities of the
Audit Committee
During 2019 the Audit Committee
implemented various policies and
procedures that were identified in the
prior year review of controls and
procedures. The following were
implemented 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;
implementation of the Board
performance review findings; 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 to conduct two internal audit
reviews in 2019. The internal auditor
reported into the Audit Committee
and the main processes of control
reviewed are detailed below:
•
Information technology (IT) audit
– IT entry level controls
– Cyber Security and Information
security management
– Data security, backup and recovery
– Change management
– IT third party management
procedures
•
Expenditure controls review
– Procure to pay process
– Segregation of duties and
delegations
– Expenditure governance and
reporting
– Budgeting and forecasting
– Monthly reconciliation process
The IT audit report was considered by
the Committee on 26 September 2019
and recommendations were discussed
with management and an action plan
timetable was agreed in Q4.
The Expenditure controls review report
was considered by the Committee on 2
December 2019 with recommendations
discussed with management and a
timetable for implementation agreed to.
Management have also developed a Risk
Management Policy and Procedure which
was reviewed by the Audit Committee in
February 2020. Part of this policy detailed
the process by which risk is managed
plus a procedure of review and reporting.
A formal Corporate Risk Register has
been developed in 2019 and as part of
this process management reviews the key
risks and mitigating factors quarterly.
The Audit Committee reviewed the
Corporate Risk Register at its meeting
on 8 June 2020 and will formally review
it quarterly.
Other policies and procedures reviewed
and implemented were:
•
treasury policy; and
•
banking delegations and signatories.
2019 financial statements
The Audit Committee reviewed the
interim financial statements.
The Audit Committee reviewed the
planning of the 2019 audit and annual
report. With regard to the Group’s
financial statements, the Audit
Committee considered:
•
•
•
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, IFRS 16 leases, Revenue
recognition, change in presentational
and functional currency and going
concern. These matters were discussed
with management during the year when
the Committee considered the interim
financial statements and in 2020 when
the Committee reviewed the 2019
Annual report and financial statements.
Valuation of MLPL Loan Notes
and equity interest
At 31 December 2019 there was
US$108.4 million* at par value (US$114.3
million under IFRS) outstanding (before
interest) on the MLPL Loan Notes. The
value of the equity interest in MLPL at
31 December 2019 was US$51.9 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.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
* Refer to Alternate Performance Measures on page 121 for full reconciliation of IFRS numbers and
Alternative Performance Measures.
SAN LEON ANNUAL REPORT 2019 25
Audit Committee report
Continued
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
2019 was impaired down to US$2.8
million. The Audit Committee considered
the market-based valuation approach
and assumptions included timing, oil
price, costs and risk, and considered it
reasonable and appropriate.
expected income from the provision of
subsurface 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:
Going concern
The Audit Committee reviewed the
detailed cash flow forecast for the Group
and the Company for the period from
1 June 2020 to 31 December 2021, the
principal assumptions underlying the
cash flow forecast and the availability of
finance to the Group. The Audit
Committee considered that whilst any
future 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
Linda Beal
Audit Committee Chair
24 June 2020
26 SAN LEON ANNUAL REPORT 2019
Remuneration Committee report
The Group’s policy on senior executive remuneration is designed
to attract and retain individuals of the highest calibre
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.
Roles and Responsibilities
•
Determine and agree with the Board the
policy for the remuneration of the
Chairman, the Executive Directors, the
Company Secretary and such other
members of the executive management
as it is required by the Board to consider;
•
review and approve long and short-term
incentive plans and payments including
but not limited to share incentive plans,
option plans, performance targets,
bonuses, goals and remuneration
package recommendations from the
Chief Executive Officer in respect of
Executive Directors;
•
review and approve long and short-term
incentive plans for the Company; and
•
consider any matters as may be
requested by the Board.
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 2019 were as follows:
Salary &
emoluments
Shares to
Fees &
Bonus Pension services Benefits be issued
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Mutiu Sunmonu #
Oisín Fanning
Joel Price
Lisa Mitchell ^
Alan Campbell
Ewen Ainsworth *~>
Mark Phillips
Linda Beal
–
1,280
455
196
455
321
–
–
Bill Higgs < –
–
305
115
102
115
–
–
–
–
–
–
36
16
36
14
–
–
–
153
63
63
31
63
31
63
63
63
–
29
2
–
2
–
–
–
–
2,707
637
102
593
33
–
–
–
–
–
–
–
–
–
–
2019
Total
US$’000
153
1,677
671
345
671
366
63
63
63
4,072
* Resigned 30 June 2019.
^ Appointed 30 June 2019.
# The Group has a consultancy agreement with Mutiu Sunmonu and Greenbay Energy Resources Limited and Mutiu Sunmonu and Caledonian Properties Nigeria
Limited. Please see Note 31 for further details.
~ The Group had a consultancy agreement with Ewen Ainsworth and Discovery Energy Limited. Please see Note 31 for further details.
> Termination payment of US$127,836 is included within Salary & Emoluments.
< Resigned 18 May 2020.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 27
Remuneration Committee report
Continued
Director emoluments and pension contributions, excluding share option arrangements, during the year ended
31 December 2018 were as follows:
Salary &
emoluments
Shares to
Fees &
=Bonus Pension services Benefits be issued
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
2018
Total
US$’000
Mutiu Sunmonu >
Oisín Fanning #
Raymond King +^§
Joel Price
Alan Campbell
Ewen Ainsworth º†
Mark Phillips
Linda Beal ~*
–
486
–
453
453
388
–
–
Bill Higgs < –
–
504
–
179
179
–
–
–
–
–
–
–
34
34
28
–
–
–
157
57
418
61
61
61
66
101
34
–
33
–
–
–
–
–
–
–
–
157
756 1,836
–
–
–
–
–
–
–
418
727
727
477
66
101
34
1,780
862
96 1,016
33
756 4,543
# Oisín Fanning was 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.
+ 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 31 for further details.
^ The Group has a consultancy agreement with Raymond King and Surplan Limited. Please see Note 31 for further details.
º The Group had a consultancy agreement with Ewen Ainsworth and Discovery Energy Limited. Please see Note 31 for further details.
* Linda Beal Consultancy LLP provided consultancy services to the Group. Please see Note 31 for further details.
† See Note 31.
§ Raymond King was paid a termination payment of US$212,970 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%
was due to 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 Director’s loan.
Please see Note 31 for further details.
In addition to the emoluments above, in accordance with IFRS 2 share based payments, a cost of US$491,635 (2018: US$200,015)
has been recognised in respect of share options granted to Directors. Lisa Mitchell was granted 1,000,000 share options to the
value of US$270,617 and Bill Higgs was granted 1,000,000 share options to the value of US$221,018. A total of US$115,712
(2018: US$Nil) was recognised in respect of Directors options modified in the year. See Note 27 for further details of share options.
Directors’ interests
The Directors and Company Secretary who held office at 31 December 2019, 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
19/06/20
31/12/19
01/01/19
107,495,864 9,495,864 3,635,594
66,666
66,666
66,666
^ Oisín Fanning is now considered a significant shareholder, holding of 23.89% of issued share capital of the Company.
* Resigned 30 June 2019.
28 SAN LEON ANNUAL REPORT 2019
Share options
Details of share options granted to the Directors are as follows:
Options at Options at
01/01/19 Granted in year Lapsed in year 31/12/19 Exercise price Expiry date
Mutiu Sunmonu 1,000,000 – – 1,000,000 £0.45 20/09/23
Oisín Fanning # 35,000 – 35,000 – £13.00 20/03/19
55,000 – 55,000 – €5.00 06/07/19
1,500,000 – – 1,500,000 £0.45 20/09/23
Joel Price # 2,000,000 – – 2,000,000 £0.45 30/09/22
1,500,000 – – 1,500,000 £0.45 20/09/23
Alan Campbell # 2,000,000 – – 2,000,000 £0.45 30/09/22
1,500,000 – – 1,500,000 £0.45 20/09/23
Ewen Ainsworth * 1,000,000 – – 1,000,000 £0.45 20/09/23
Mark Phillips 1,000,000 – – 1,000,000 £0.45 20/09/23
Linda Beal 1,000,000 – – 1,000,000 £0.45 08/07/25
Bill Higgs ^< – 1,000,000 – 1,000,000 £0.45 19/02/26
Lisa Mitchell ~ – 1,000,000 – 1,000,000 £0.45 –
* Resigned 30 June 2019.
^ 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. The repricing resulted in an increase in the fair value of the options, expiring on 30 September 2022,
of US$115,712.
~ On her appointment on 30 June 2019, the Board approved the grant of 1,000,000 of share options at a strike price of £0.45, however as the Company was
in a closed period at the date of award these options have not yet been formally awarded. The fair value of these options has been calculated at US$270,617.
< Resigned 18 May 2020.
Transactions involving Directors
Contracts and arrangements of significance during the year in which Directors of the Company were interested are disclosed
in Note 31 to the financial statements.
Signed on behalf of the Remuneration Committee by:
Mark Phillips
Remuneration Committee Chair
24 June 2020
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 29
Nomination Committee report
The Committee continues to regularly review structure,
size and composition required of the Board
The Committee conducted its business
through two meetings held in 2019.
Membership during the year comprised
of the Chairman Mutiu Sunmonu, the
Chief Executive Officer Oisín Fanning
and myself Mark Phillips as Independent
Non-Executive Director and Chair of
the Committee.
The Committee also will review the
Directors’ existing conflicts of interests
every six months, or more frequently
as required.
Board succession planning is ongoing
and we continue to focus on planning
for the Executives’ roles during 2020.
After a detailed process, the Board was
delighted to report that Lisa Mitchell
was joining the Company and Board as
Chief Financial Officer on 30 June 2019.
Lisa has extensive operational and
transactional experience across the
oil and gas sector, and has worked
in several different geographies
including Nigeria.
Previous Finance Director Ewen
Ainsworth resigned as at the same
date with the Board’s best wishes.
The Committee is of the view that the
Board including the current senior team
is fit for purpose, with the requisite skills
and experience to support the business.
There are no changes to Board
committees to report, this will be
reviewed during 2020 in the normal way.
In accordance with the Articles of
Association, myself (Mark Phillips), Oisín
Fanning and Mutiu Sunmonu retire from
the Board by rotation and, being eligible,
offer themselves for re-election.
Mark Phillips
Nomination Committee Chair
24 June 2020
Role and Responsibilities
•
•
•
Review the structure, size and
composition of the Board and
recommend any changes to the Board;
carry out succession planning for the
Board and other senior executives;
be responsible for filling board
vacancies when they arise and, before
any appointment is made, evaluating
the balance of skills, knowledge, and
experience on the Board; and
•
make recommendations to the Board
on all new appointments to the Board.
The Committee continues regularly to
review structure, size and composition
(including the skills, knowledge and
experience) required of the Board
compared to its current position and will
make recommendations as required to
the Board on the Board’s composition
and balance.
Before any appointment is made by the
Board, the Committee will evaluate the
balance of the skills, knowledge and
experience on the Board, and in light of
this evaluation prepare a description of
the role and capabilities required for a
particular appointment. In identifying
suitable candidates, the Committee
shall consider using services of external
advisors to facilitate the search for
candidates from a wide range of
backgrounds; and on merit and against
objective criteria, take care that
appointees have enough time available
to devote to the position.
30 SAN LEON ANNUAL REPORT 2019
Risk and Safety Committee report
The management of business and operational risk
is a key success factor for the Company
During 2019 the Risk and Safety
Committee reviewed the terms of
reference, a copy of which is available
on the Company’s website.
Roles and Responsibilities
The management of business and
operational risk is a key success factor
for the Company, as such the
Committee will:
Ethics and Corporate Social
Responsibility
The Company will conduct business with
the highest ethical values and will be
socially responsible in the communities
in which we work.
The Committee will govern the
Company’s ethics policy and code
of ethics to ensure ethical
business practice.
report significant changes to the risk
profile of the business as necessary;
Security
•
•
•
monitor the Company’s risk
assessment procedure and action
plans for all operational risks; and
ensure that the controls to prevent
and mitigate the most significant
risks for the business are in place
and functioning.
The security of our people and our
assets is of paramount importance to the
Company, as such the Committee will:
•
•
ensure appropriate security
controls and systems are in place
and operational; and
ensure that the Company’s journey
management procedure is adequate
and functioning.
An updated health, safety, environment
and quality management system was
noted as being required for office based
activity, inclusive of a journey
management policy. In the interim,
standard journey management protocols
are being followed for travel to Nigeria.
Anti-Bribery and Corruption, and
Whistleblowing policies, have been
circulated to all employee and
acknowledged. The Ethics and
Corporate Social Responsibility policies
are to be reviewed.
Mutiu Sunmonu
Risk and Safety Committee Chair
24 June 2020
Health, Safety and
Environment
The protection of people, the
environment and our assets are central to
San Leon Energy’s values and principles
and as such the Committee will:
•
•
ensure health and safety audits of each
operation and country office are
carried out at such times that the
Committee deems appropriate
considering the scale and nature of
the operations; and
ensure the Company’s Health, Safety
and Environmental Policy (“HSE Policy”)
meets or exceeds international oil
and gas practice appropriate to the
Company’s operations and meets
the required legal and regulatory
standards for the jurisdictions in
which we work.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 31
Directors’ report
for the year ended 31 December 2019
Since the end of the financial period payments totalling US$41.5 million
have been made on behalf of MLPL and received by the Company
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 2019.
Principal activity and
future developments
The principal activities of the Company
are the holding of an initial indirect
10.58% economic interest in OML 18
Nigeria, through its investment in 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 Chief Executive Officer’s Statement.
Results and dividends
The Group loss for the year after
providing for depreciation and taxation
amounted to a loss of US$38.6 million
(2018 Restated: loss of US$5.8 million).
Net assets of the Group at 31 December
2019 amounted to US$202.9 million
(2018 Restated: US$261.2 million).
Exploration & evaluation impairments /
write off totalled US$1.4 million in 2019
(2018 Restated: US$3.1 million). The
Barryroe 4.5% Net Profit Interest was
impaired down to a carrying value of
US$2.8 million (2018 Restated: US$51.1
million). A special dividend was paid in
May 2020 of US$33.0 million (2018
Restated: US$Nil).
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 24.
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:
Going concern and
Loan Notes repayment
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.
Since the end of the financial period cash
payments totalling US$41.5 million have
been made on behalf of MLPL and
received by the Company. On 6 April
2020, the Company entered into an
Agreement with MLPL, amending the
existing Loan Notes Instrument. Under
the Amendment, the remaining
outstanding balance is US$82.1 million*
at par value (US$79.5 million under IFRS).
Of this, US$10.0 million (which includes
interest), will be repaid on or before 6
October 2020, with the balance of the
Loan Notes receivable payable in three
quarterly instalments, commencing in
July 2021 and completing by December
2021. The outstanding par value will
continue to accrue interest until repaid.
All other material terms of the Loan
Notes Instrument remain unchanged.
The Directors have considered the
impact of Covid-19 upon the Company’s
indirect interest in OML 18, and upon
the Loan Notes. The impact of the
current low oil price will likely result in
the deferral of some operational and
capital expenditure, as is prudent to
preserve working capital by Eroton. That
is expected to delay some production
increases from drilling. Eroton’s income
will also be affected by the lower oil price
itself, although that is buffered to some
extent by the deferral of costs and
hedging currently in place. The overall
effect is likely to be some modest delay
in receiving distributions from Eroton via
MLPL. Eroton has taken customary steps
in its corporate offices to reduce
people’s presence as far as possible
while maintaining functional
administration with people working
from home.
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.
* Refer to Alternate Performance Measures on page 121 for full reconciliation of IFRS numbers and
Alternative Performance Measures.
32 SAN LEON ANNUAL REPORT 2019
Risk management
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 twice a year by the Board and
on a quarterly basis by the Audit
Committee. 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, a Risk
Management Policy and Procedure was
developed and presented to the Audit
Committee in February 2020. This
provides a procedure for the
management of the Company’s risk.
As part of the risk management
procedure, the Company has developed
a detailed risk register which identifies
business continuity risks, corporate
governance risks, security risks, financial
risks and health, safety and environment
protection risks.
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.
Risk
Detail
Mitigation
Year on year
change
STRATEGIC RISK
Lack of MLPL Loan
Notes repayments
•
The Company will not be able to
fund current operations or invest
for future expansion.
Partnership risk
•
Risk of relationship with partners
deteriorating or partner having
insufficient financial or technical
resources.
•
Strong financial discipline.
No change
•
•
•
•
Maintain sufficient working capital for 12
months look ahead.
Monitor the situation and maintain dialogue
and good relations with OML 18 partners and
investors, relevant Nigerian national and
regional authorities.
Partners in joint ventures are reputable with
significant experience and financial resources.
Continuous dialogue maintained with partners.
No change
The Company has Board representation
throughout the ownership structure allowing
a transparent working relationship.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 33
Directors’ report
Continued
Risk
Detail
Mitigation
OPERATIONAL RISK
Political instability
/ OML 18
operational
disruption
Geological and
development risk
Health, Safety &
Environmental risk
•
•
•
•
•
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.
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.
The industry faces high risk
operating conditions and HSE risks,
posing the threat of industrial
accidents; natural disasters.
Impact from a pandemic or
epidemic affects the ability of the
Company or the JVs from being
able to successfully operate
the assets (such as Covid-19 virus).
•
•
•
•
•
•
•
•
•
•
Year on year
change
No change
Eroton is a local experienced operator
completely focused 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.
No change
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.
Periodic review of reserves by an independent
consultant.
Ensure industry best practice regarding
technical estimates and judgements.
The Company has a Risk & Safety Committee to
ensure risks are managed appropriately in
accordance with international best practice and
legislation.
No change
Promote and facilitate best practice
international standards.
Embedding a strong HSE culture, with support
at a high level in the Company.
Adequate insurances to be in place at the
operational level.
The Company is dependent on its operating
partners to impose and maintain required
standards to operations.
•
Early adoption of guidance based on World
Health Organisation (“WHO”) guidance.
34 SAN LEON ANNUAL REPORT 2019
Risk
Detail
Mitigation
OPERATIONAL RISK CONTINUED
Year on year
change
Cyber risk
•
Major cyber breach may result in
loss of confidential data and
business disruption.
•
•
Prevention software in place and regularly
monitored.
No change
Back-up system and business recovery plan
in place.
Human
resource risk
•
Failure to recruit and retain key
senior personnel in key senior
management positions is essential
to ensure success.
FINANCIAL RISK
Commodity
price risk
Financial &
currency risk
•
Volatility and decreases in oil or
natural gas prices can lead to
insufficient funds to finance growth
plans. This may lead to the inability
to repay RBL facility debt, or
inability to pay dividends. The field
could become uneconomic and
there would be an inability to fund
capital development.
•
Risks associated with exchange
rate fluctuations include Economic
Risk, Translation Risk and
Transaction Risk. The result is that
the Company loses out in cash
terms and / or Income Statement
impact.
•
Internal audit reviewed during 2019.
•
Compensation packages are approved by the
full Board, with remuneration for key executives
being highly competitive.
No change
•
Staff packages are validated for
competitiveness.
•
Flexible working arrangements allowed.
•
Creation of a long-term incentive scheme to
increase incentive opportunity.
Increased
Decreased
•
•
•
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 US$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.
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 32.
The Group changed its presentational currency
and the Company changed its functional
currency to USD in accordance with IAS 21
which will avoid currency exchange rate losses /
gains which could result in large tax liabilities
and 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.
SAN LEON ANNUAL REPORT 2019 35
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Directors’ report
Continued
Risk
Detail
FINANCIAL RISK CONTINUED
Mitigation
Availability of
capital /
insufficient
funds
•
The oil and gas industry is capital
intensive with significant amounts
of capital required for development
of assets. The Group’s business
partners may require significant
capital expenditure and the future
expansion and development of its
business could require future debt
and equity financing. The future
availability of such funding may not
always be certain, which may lead
to funding shortages.
•
•
Active dialogue maintained with financial
institutions and investors.
There is a significant population of investors
who are willing to invest in companies like
San Leon.
•
Management have a strong track record of
successful fundraisings.
•
Discretionary spend actively managed.
•
Continued engagement with partners and
lenders.
Year on year
change
Decreased
COMMODITY PRICE RISK
Bribery &
Corruption
•
Reputational damage and
exposure to possible criminal
charges.
No change
•
The area in which the Company holds its
material asset scores high 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
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
17 January 2019)
•
•
Lisa Mitchell, Chief Financial Officer
(appointed 30 June 2019)
Ewen Ainsworth, Finance Director
(resigned 30 June 2019)
•
Mark Phillips, Non-Executive Director
•
Linda Beal, Non-Executive Director
•
•
Bill Higgs, Non-Executive Director
(resigned 18 May 2020)
Adekolapo Ademola, Non-Executive
Director (appointed 7 April 2020)
In accordance with the Articles of
Association, Mark Phillips, Oisín Fanning
and Mutiu Sunmonu retire from the
Board by rotation and, being eligible,
offer themselves for re-election.
36 SAN LEON ANNUAL REPORT 2019
Significant shareholders
The Company has been informed that, in addition to the interests of the Directors at 31 December 2019 (see Remuneration
Report), the following shareholders owned 3% or more of the issued share capital of the Company:
Percentage of issued share capital
19/06/20 31/12/19 31/12/18
Funds managed by Toscafund Asset Management LLP 50.85% 72.41% 62.33%
Midwestern Oil & Gas Company Limited 13.18% 13.14% 9.44%
The Capital Group Companies Inc. – – 6.47%
Total Investment Solutions SA – – 7.94%
Amara Equity Invest SA – – 6.35%
OWG PLC – – 3.91%
The Directors are not aware of any other holding of 3% or more of the share capital of the Company.
Acquisition of own shares
In 2019 the Company repurchased
US$30.5 million of its own shares. An
additional US$2.0 million of its own
shares were purchased between
October 2019 and January 2020.
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 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 licence where the aggregate
of the payment in the year exceeds
US$100,000 otherwise, they are
combined into a corporate level
payment which consolidated all the
smaller payments.
All of the payments disclosed in
accordance with the law have been
made to National Governments, covering
both direct and indirect payments.
The payments type covered by this
disclosure are:
•
Licence fees: Licence fees cover the
costs associated with holding each of
our licences.
Licence fees
Licence US$’000
2019
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
Details of significant events since the
year end are included in Note 33 to the
financial statements.
Group undertakings
Details of the Company’s subsidiaries
are set out in Note 16 to the financial
statements.
Corporate# 40
Total Poland 40
Political donations
2018
Corporate# 41
Total Poland 41
# Corporate is the consolidated total of all our
Polish licences where the total of each licence
payment in the year is less than US$100,000.
There were no political donations made
during the current or prior year.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 37
Directors’ report
Continued
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, were first appointed
statutory auditor on 9 September 2010
and have been re-appointed annually
since that date and pursuant to Section
282(2) of Companies Act 2014 will
continue in office.
Oisín Fanning
Chief Executive
Lisa Mitchell
Chief Financial Officer
24 June 2020
38 SAN LEON ANNUAL REPORT 2019
Corporate Social Responsibility
Supporting Health, Education and Communities: Results from
our Corporate Social Responsibility policy in action are being seen
Throughout 2019, the Company also
continued its programme to support
small women-led enterprises. Most
recently, sixteen women from Nassarawa
and Benue States were trained in
tailoring and were donated sewing
machines, as making traditional African
clothing is a sustainable business locally.
Following the successful completion of
providing motorised water boreholes for
a number of communities in Nigeria, we
continue to see if we can assist other
communities in a similar way.
Building on our previous efforts, San
Leon has continued to contribute food,
clothing and educational support to
many people while also focusing on
infrastructural projects that we hope will
leave a lasting impact on communities.
One such project, that we have recently
undertaken, is the building of a new
medical centre in Kanshio village in a
suburb of Makurdi in Benue State.
Families here, including many vulnerable
women and children, often suffer
without local medical support and San
Leon is trying to assist this community.
A building that was falling into ruin is
being reconstructed and modernised,
secure perimeter fencing is being
installed and a laboratory to test for
common diseases and infections such
as malaria and typhoid is planned.
The building is also being equipped with
six beds and medical equipment and
supplies to serve the health needs of
the Kanshio community and other
neighbouring villages for a period and
it is expected to be run by the
community thereafter.
“San Leon Energy continues to
be committed to and takes its
Corporate Social Responsibility
in countries in which we have
an interest very seriously.
The Company contributes
directly to projects in Nigeria
when possible and where we
trust our contributions can
have a direct impact on the
environment and communities
we seek to assist.”
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Top right: Reconstruction of a medical
centre and laboratory in Kanisho Village.
Above: Support for women-led enterprise
providing tailoring tuition and donating
sewing machines.
SAN LEON ANNUAL REPORT 2019 39
Corporate Social Responsibility
Continued
Finally, we were due to begin the
construction of a new classroom block at
a school in Achusa, Benue State in 2019.
However, due to the road leading to the
village being damaged by a flood it was
not possible to transport building
materials to the village. This project has
been delayed but we do hope to see it
completed in 2020.
San Leon is honoured and committed to
help where it can. Results from our
Corporate Social Responsibility policy in
action are being seen. The true credit,
we believe, should lie with the leaders in
these communities who are trying to
improve living standards and future
prospects for the whole of society. It is
leadership that we endeavour to
support as much as possible.
While the above projects bring relief
and assistance in the present, we firmly
believe in the right of access to, and the
importance of, supporting education as
a way to underpin hope and change in
the future.
In 2019, we provided books and
uniforms to students in Benue State,
where students often work as house
helps in the morning and attend schools
from 1 pm to 6 pm in the heat of the
day. We also covered fees, books, school
uniforms and clothing for some orphans
and vulnerable children who were
enrolled in St. Patrick Nursery/Primary
School, Kojoli, Adamawa State.
We are told that many of these children
would not be gaining an education if we
had not helped. We have also paid school
fees, provided books and uniforms for
boys and girls from deeply disadvantaged
homes in Makurdi and Idah areas who
began secondary schools in September
this year. We have also supported third
level students, some orphaned, to attend
different colleges and universities.
Above and opposite: Providing books and
uniforms to students in Benue State.
40 SAN LEON ANNUAL REPORT 2019
Women-led enterprise
Continued support for women-led enterprises.
16 women from Nassarawa and Benue States
were trained in tailoring using donated sewing
machines, making traditional African clothing
is a sustainable business locally.
Education
In 2019, we provided books and uniforms
to students in Benue State; where students
attend schools in the afternoon between
1pm to 6pm in the heat of the day.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
“Building on our previous efforts,
San Leon has continued to contribute
food, clothing and educational support
to many people that we hope will leave
a lasting impact on communities.”
SAN LEON ANNUAL REPORT 2019 41
Country and industry overview
Nigeria is West Africa’s biggest producer of petroleum, with its
oil producing region seeing over 2 million barrels a day extracted
Nigeria – Oil and Gas
Industry Overview
Nigeria is West Africa’s biggest producer
of petroleum, with its oil producing
region, the Niger Delta, seeing over
two million barrels a day extracted from
both on-shore and deep water facilities.
Covering an area of approximately
75,000 km2 and with up to 10 km
sedimentary thickness, this impressive
petroleum system contains total proved
reserves of over 37 bn barrels of oil and
189 tcf of gas, ranking Nigeria 11th in the
world closely behind the US with 39 bn
barrels of proven oil reserves.
In the last half of 2019, the Minister
of State for Petroleum, Timpre Sylva,
iterated the Nigerian government’s
resolve to reduce the government’s
stake in joint venture oil business (to
40% from 55-60%) in order to spur
more foreign investment. This would
also benefit the government by lowering
its share of the cash cost in upstream
operations. Nearly 60% of total crude
oil and gas sales revenue in 2018 for
the Nigerian Government was directed
toward Joint Venture (“JV”) cash calls
and the government is in arrears on
some payments (African Chamber
Outlook, 2020).
Historically, major international oil
companies (“IOCs”) have dominated the
development of Nigeria’s oil and gas
sector. To address this bias, the last
decade has seen the Nigerian Federal
Government and relevant departments
introduce a number of initiatives and
structural changes to help facilitate the
increased participation of indigenous
companies in the sector. The Nigerian Oil
and Gas Industry Content Development
(“NOGICD”) Act, which came into effect
in April 2010, created an overarching
framework for a combination of
restrictive policies and incentives to drive
more indigenous participation across
human capital, material resources
and technical services in the industry.
In reality, these initiatives have had a
measurable amount of success.
Compared with a decade ago, when
indigenous operators contributed
approximately 6% to the nation’s daily
production, indigenous operator activity
has now doubled and accounts for
around 12% of Nigeria’s oil production.
There is still room for partnerships from
international investors, as many of these
smaller companies will have significant
financing needs to move projects
forward. Recognising this, the Nigerian
government has taken steps to
encourage foreign investment in the
sector, within the provisions set by the
NOGICD Act.
The NNPC is also considering a new
Incorporated Joint Venture (“IJV)” model
in 2020, which could further encourage
greater participation from IOCs. The IJV
model would involve the creation of
a new company through which the
venture will be operated. In this regard,
the parties involved in the Joint Venture
will be shareholders of the company,
through which capital can be raised
through debt or equity, with dividends
paid to shareholders. In theory, the
IJV removes the need for cash call and
annual funding strategy which will
create transparency across all JV
partners, while reducing the level of
government bureaucracy.
More recently, Minister Timpre Sylva has
also disclosed that a new Petroleum
Industry Bill (“PIB”) would be sent to the
National Assembly by March 2020 in
order to have it passed into law by
mid-2020. Following the February
election, President Buhari’s allies have
assumed leadership of both the Senate
and House of Representatives, and this
political alignment may help facilitate
passing of the PIB. For a piece of
legislation that has been on the table
since 2008, this would be a welcome
development to both existing and
prospective investors in the Nigerian
oil and gas space.
Covering an area of
approximately 75,000 km2
and with up to 10 km
sedimentary thickness, this
impressive petroleum system
contains total proved reserves
of over 37 bn barrels of oil
and 189 tcf of gas, ranking
Nigeria 11th in the world.
42 SAN LEON ANNUAL REPORT 2019
75,000 km2
Niger Delta covers an area of
approximately 75,000 km2 and with
up to 10 km sedimentary thickness
>37 bn
Total proved reserves of over 37 bn
barrels of oil and 189 tcf of gas,
ranking Nigeria 11th in the world
closely behind the US
2,000,000+
Over 2 million barrels a day
extracted from both on-shore
and deep water facilities
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
“The Nigerian government has
taken steps to encourage foreign
investment in the sector, within the
provisions set by the NOGICD Act.”
Bonny Terminal, Niger Delta
SAN LEON ANNUAL REPORT 2019 43
Statement of Directors’ responsibilities
in respect of the annual report and the financial statements
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.
On behalf of the Board:
Oisín Fanning
Director
Lisa Mitchell
Director
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 and Company’s profit or
loss for that year.
In preparing each of the Group and
Company financial statements, the
Directors are required to:
•
•
•
select suitable accounting policies and
then apply them consistently;
make judgements and estimates that
are reasonable and prudent;
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.
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.
44 SAN LEON ANNUAL REPORT 2019
Financial statements
Financial statements
46
Independent Auditor’s report
52 Consolidated income statement
53 Consolidated statement of other
comprehensive income
54 Consolidated statement of changes in equity
56 Company statement of changes in equity
58 Consolidated statement of financial position
59 Company statement of financial position
60 Consolidated statement of cash flows
61 Company statement of cash flows
62 Notes to the financial statements
Other information
121 Alternative performance measures
122 Corporate information
123 Glossary
124 Conversion
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 45
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 2019, 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 2019 and of the Group’s loss 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 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 cash flows received to date, and the revised
payment schedule, there remains significant uncertainty in relation to the quantum and timing of future cash flows, and this
uncertainty in turn impacts the value of the Group’s investment in MLPL and the recoverability of the Group and Company’s loans
due from MLPL. Our opinion is not modified in respect of this matter.
46 SAN LEON ANNUAL REPORT 2019
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.
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 69 to 74 (accounting policy) and pages 82 to 83 and 88 to 91 (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 $112.3 million (2018: $128.7
million) and the equity interest $51.9 million
(2018: $55.1 million) at 31 December 2019.
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:
•
•
•
•
•
•
•
•
•
Inspection 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;
Inspection of the historical accuracy of the Group’s cash flow forecast by
comparing the prior period forecasted cash receipts from the MLPL
Loan Note to actual receipts in 2019 and to the date of signing the
financial statements;
Inspection of documentation supporting the amounts received and due
from MLPL under the loan;
Comparison of the Group’s forecasted income from the MLPL Loan Note to
MLPL’s own cash flow 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;
Inspection of reporting and opinion of MLPL issued to us and discussions
with the MLPL component auditor on the MLPL audited consolidated
financial statements for the year ended 31 December 2019; and
Assessment of the required accounting disclosures of the Loan Notes and
related subsequent events in accordance with IFRS 9 Financial Instruments
and IFRS 7 Financial Instruments: Disclosures.
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 the control of San Leon Energy plc and reflects a significant
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.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 47
Independent Auditor’s report
Continued
Key audit matter
How the matter was addressed in our audit
Valuation of 4.5% Net Profit Interest (“NPI”) on the Barryroe oil field
(refer to pages 69 to 74 (accounting policy) and pages 88 to 92 (financial disclosures))
The risk relates to the assessment of the
carrying value of the Barryroe NPI financial
asset of $2.8 million (2018: $51.1 million)
at 31 December 2019.
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:
•
•
Inspection of management and the Board’s accounting papers setting out
their assessment of the carrying value of the financial asset;
Inspection 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 key management assumptions and inputs which
underpin their valuation model; and
Assessment of the required accounting disclosures are in accordance with
IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures.
In determining the appropriate valuation technique to be used for the
Barryroe NPI, we challenged management in respect of the use of some
unobservable inputs against a technique which maximises the use of
observable inputs, using existing market data. Management considered this
alternative approach and reflected our challenge in their estimate.
The fair value of the Barryroe NPI asset is estimated by management to be
$2.8 million at 31 December 2019 (2018: $51.1 million) based on a fair
value model produced by management. This resulted in an impairment of
$48.4 million recognised in the statement of profit and loss for the period
ending 31 December 2019.
We consider the valuation technique and key assumptions in management’s
model to be supportive of the valuation. All assumptions are appropriately
disclosed.
48 SAN LEON ANNUAL REPORT 2019
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 $1,200,000 (2018: $1,450,000). This has been
calculated using a benchmark of Group and Company total assets (of which it represents 0.6% (2018: 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 (2018: $70,000), 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 held a number of video and telephone conference calls with the component auditors of the MLPL
component to assess the audit risk and strategy and work undertaken. We reviewed the component auditor’s procedures and
conclusions over the significant risks identified by us. 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 12
months from the date of approval of the financial statements. We have nothing to report in these respects.
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, Highlights, San Leon at a glance, Director’s
strategy, Overview / Corporate structure, Chairman’s statement, Four expected cash flow sources, Chief Executive’s statement,
Corporate governance, Board of Directors, Corporate governance statement, Audit Committee report, Remuneration Committee
report, Nomination Committee report, Risk and Safety Committee report, Corporate Social Responsibility, Country and industry
overview and Statement of Director’s responsibilities. 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.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 49
Independent Auditor’s report
Continued
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; and
•
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 44, 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.
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.
50 SAN LEON ANNUAL REPORT 2019
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
24 June 2020
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 51
Consolidated income statement
for the year ended 31 December 2019
Continuing operations
Revenue from contracts with customers
Cost of sales
Gross profit
Share of loss of equity accounted investments
Administrative expenses
(Loss) / profit on disposal of subsidiaries
Impairment / write off of exploration and evaluation assets
Decommissioning of wells
Other income
Expected credit losses
Loss from operating activities
Finance expense
Finance income
Expected credit losses
Fair value movements in financial assets
Loss before income tax
Income tax
Loss for the financial year
Loss per share (cent) – total
Basic loss per share
Diluted loss per share
Notes
2019
US$’000
2018
US$’000
(Restated)
2
13
4
12
24
3
8
6
7
8
17
10
266
(148)
118
198
(95)
103
(3,204) (14,693)
(14,899) (16,349)
(13,770) (13,133)
(1,407)
(3,074)
–
1,400
–
485
–
(3,532)
(31,762) (50,193)
(144)
24,123
3,465
(48,373)
(52,691)
(2,417)
44,082
4,212
2,281
(2,035)
14,079
(3,777)
(38,612)
(5,812)
11
11
(8.28)
(8.28)
(1.15)
(1.15)
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
52 SAN LEON ANNUAL REPORT 2019
Consolidated statement of other comprehensive income
for the year ended 31 December 2019
Loss for the year
Items that may be reclassified subsequently to profit or loss
Currency translation differences – subsidiaries
Recycling of currency translation reserve on disposal of subsidiaries
Fair value movements in financial assets
Deferred tax on fair value movements in financial assets
Total other comprehensive income
Notes
2019
US$’000
2018
US$’000
(Restated)
(38,612)
(5,812)
26
26
17
29
(26)
13,870
(2,625)
40
11,259
46
13,567
119
(39)
13,693
Total comprehensive (loss) / profit for the year
(27,353)
7,881
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 53
Consolidated statement of changes in equity
for the year ended 31 December 2019
2018
Attributable
Other
Share Share undenom-
to equity
capital premium inated Special translation payment be issued Fair value Retained holders
reserve reserve reserve reserve reserve reserve reserve reserve earnings in Group
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated)
Share
Currency based Shares to
Balance as at 1 January 2018
(Restated)1
150,600 478,666
Total comprehensive income for year
Loss for the year
Other comprehensive income
Recycling of currency translation
reserve on disposal of subsidiaries
Foreign currency translation
differences – subsidiaries
Foreign currency translation
differences – joint venture
Fair value movements in financial assets
Deferred tax on fair value
movements in financial assets
Total comprehensive income for year
Transactions with owners recognised
directly in equity
Contributions by and distributions to owners
Share-based payment
Effect of share options cancelled
Total transactions with owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2018
150,600 478,666
–
–
–
–
–
–
–
–
–
–
–
–
– (2,836) 19,778 1,343
– (395,557) 251,994
–
–
– 13,567
– 46
–
–
–
–
–
–
– 13,613
–
–
–
–
–
–
–
– (5,812) (5,812)
–
–
–
–
–
–
–
– 119
– 13,567
– 46
–
–
–
119
– (39)
– (39)
– 80 (5,812) 7,881
–
–
–
–
–
–
519 756
–
– 1,275
(5,320)
–
– 5,320
–
(4,801) 756
–
5,320 1,275
– 10,777 14,977 2,099 80 (396,049) 261,150
1 As described in Note 1, the presentation currency for the Group has been changed to USD from 1 January 2019, with retrospective effect on comparative figures.
Equity items at 1 January 2018 have been translated to USD using the USD / EUR rate applicable at the transaction date.
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
54 SAN LEON ANNUAL REPORT 2019
Consolidated statement of changes in equity
for the year ended 31 December 2019 – continued
2019
Attributable
Other
Share Share undenom-
to equity
capital premium inated Special translation payment be issued Fair value Retained holders
reserve reserve reserve reserve reserve reserve reserve reserve earnings in Group
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Share
Currency based Shares to
– 10,777 14,977 2,099 80 (396,049) 261,150
Balance as at 1 January 20191
150,600 478,666
Total comprehensive income for year
Loss for the year
Other comprehensive income
Foreign currency translation
differences – subsidiaries
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Tender offer (Note 25)
(144,871) (459,721) –
5,024
Reduction of capital (Note 25)
Share buybacks (Note 25)
Share-based payment
Issue of shares in lieu of salary
Effect of share options exercised
Effect of repricing of share options
Effect of options expired
(576)
(47)
–
– 576
– 47
–
63 2,036
3 96
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
848
–
–
–
– (38,612) (38,612)
–
–
– (26)
– 13,870
– (2,625) –
(2,625)
– 40
–
40
– (2,585) (38,612) (27,353)
–
–
–
–
– 599,568
–
–
–
–
(30,512) (30,512)
(1,535) (1,535)
– 848
– (2,099) –
–
–
– (72)
219
(1,680)
–
–
–
– 72 99
–
– 219
– 1,680
–
–
–
– (26)
– 13,870
–
–
–
–
– 13,844
–
–
–
–
–
–
–
–
Total transactions with owners
(145,428) (457,589) 623 5,024
(685) (2,099)
– 569,273 (30,881)
Balance at 31 December 2019
5,172 21,077 623 5,024 24,621 14,292
–
(2,505) 134,612 202,916
1 As described in Note 1, the presentation currency for the Group has been changed to USD from 1 January 2019, with retrospective effect on comparative figures.
All comparatives, including equity, have been translated using the rate applicable on the date of the change being 1 January 2019.
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
SAN LEON ANNUAL REPORT 2019 55
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Company statement of changes in equity
for the year ended 31 December 2019
Other
undenom-
Share-
Currency based Shares to
Share Share inated Special translation payment be issued Fair value Retained Total
capital premium reserve reserve reserve reserve reserve reserve earnings equity
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated)
2018
Balance as at 1 January 2018
(restated)1
Total comprehensive income
Profit for the year
Fair value movements
in financial assets
Deferred tax on fair value movements
in financial assets
Total comprehensive income
for the year
Transactions with owners recognised
directly in equity
Contributions by and distributions to owners
share-based payment
Effect of share options cancelled
Total transactions with owners
150,600 478,666
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2018
150,600 478,666
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 19,778 1,343
– (445,540) 204,847
–
–
–
–
–
–
–
–
–
–
–
–
– 24,098 24,098
– 119
–
119
– (39)
– (39)
– 80 24,098 24,178
519 756
–
– 1,275
(5,320)
–
– 5,320
–
(4,801) 756
–
5,320 1,275
– 14,977 2,099 80 (416,122) 230,300
1 As described in Note 1, the presentation currency for the Company has been changed to USD from 1 January 2019, with retrospective effect on comparative figures.
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
56 SAN LEON ANNUAL REPORT 2019
Company statement of changes in equity
for the year ended 31 December 2019 – continued
Other
undenom-
Share-
Currency based Shares to
2019
Share Share inated Special translation payment be issued Fair value Retained Total
capital premium reserve reserve reserve reserve reserve reserve earnings equity
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balance as at 1 January 20191
150,600 478,666
Total comprehensive income
Loss 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
Tender offer and reduction of
capital (Note 25)
Reduction of capital (Note 25)
Share buybacks (Note 25)
Share-based payment
Issue of shares in lieu of salary
Effect of share options exercised
Effect of repricing of share options
Effect of options expired
(144,871) (459,721) –
5,024
(576)
(47)
–
– 576
– 47
–
63 2,036
3 96
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 14,977 2,099 80 (416,122) 230,300
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
848
–
– (12,284) (12,284)
– (2,625) –
(2,625)
– 40
–
40
– (2,585) (12,284) (14,869)
–
–
–
–
– 599,568
–
–
–
–
(30,512) (30,512)
(1,535) (1,535)
– 848
– (2,099) –
–
–
–
–
–
– 72 99
–
– 219
– 1,680
–
– (72)
219
(1,680)
–
–
–
–
Total transactions with owners
(145,428) (457,589) 623 5,024
Balance at 31 December 2019
5,172 21,077 623 5,024
(685) (2,099)
– 569,273 (30,881)
14,292
–
(2,505) 140,867 184,550
1 As described in Note 1, the presentation currency for the Company has been changed to USD from 1 January 2019, with retrospective effect on comparative figures.
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
SAN LEON ANNUAL REPORT 2019 57
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Consolidated statement of financial position
as at 31 December 2019
Assets
Non-current assets
Intangible assets
Equity accounted investments
Property, plant and equipment
Financial assets
Deferred tax asset
Other non-current assets
Current assets
Inventory
Trade and other receivables
Financial assets
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Called up share capital
Share premium account
Other undenominated reserve
Special reserve
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
Lease liability
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
2019
US$’000
2018
US$’000
(Restated)
2017
US$’000
(Restated)
12
13
14
17
29
15
18
19
17
20
25
25
26
26 / 27
26
30
22
29
21
23
24
–
51,866
4,344
–
55,070
1,964
2,864
69,763
2,745
2,963 124,876 134,998
1,718
–
–
206
–
206
60,891 182,116 210,576
180
987
112,252
36,697
272
2,440
57,611
40,762
150,116 101,085
323
4,976
70,743
9,311
85,353
211,007 283,201 295,929
5,172 150,600 150,600
21,077 478,666 478,666
623
5,024
14,292
–
24,621
(2,505)
–
–
14,977
2,099
10,777
80
–
–
18,496
2,382
(2,836)
(363)
134,612 (396,049) (385,710)
202,916 261,150 261,235
2,501
128
–
2,629
5,406
–
56
–
5,462
8,091
–
659
12,404
13,063
8,228
–
760
–
8,988
22,051
–
488
8,630
9,118
17,895
4,747
1,789
1,145
25,576
34,694
211,007 283,201 295,929
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
Oisín Fanning, Director
Lisa Mitchell, Director
24 June 2020
58 SAN LEON ANNUAL REPORT 2019
Company statement of financial position
as at 31 December 2019
Assets
Property, plant and equipment
Financial assets
Financial assets – investment in subsidiaries
Deferred tax asset
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
Other undenominated reserve
Special reserve
Share-based payments reserve
Shares to be issued reserve
Fair value reserve
Retained earnings
Attributable to equity shareholders
Non-current liabilities
Derivative
Lease liability
Deferred tax liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Total liabilities
Total equity and liabilities
Notes
2019
US$’000
2018
US$’000
(Restated)
2017
US$’000
(Restated)
14
17
16
29
19
17
20
25
25
26
26 / 27
22
30
29
21
23
3,066
46
–
2,769 124,876 134,998
31,539
1,691
31,539
–
34,608
–
39,065 156,461 169,606
4,068
112,252
36,388
4,911
57,611
40,180
152,708 102,702
3,426
70,743
8,950
83,119
191,773 259,163 252,725
5,172 150,600 150,600
21,077 478,666 478,666
623
5,024
14,292
–
(2,505)
–
–
14,977
2,099
80
–
–
18,496
2,382
1,408
140,867 (416,122) (437,464)
184,550 230,300 214,088
128
2,501
–
2,629
4,594
–
4,594
7,223
659
–
12,436
13,095
15,768
–
15,768
28,863
488
–
8,670
9,158
24,732
4,747
29,479
38,637
191,773 259,163 252,725
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
Oisín Fanning, Director
Lisa Mitchell, Director
24 June 2020
SAN LEON ANNUAL REPORT 2019 59
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Consolidated statement of cash flows
for the year ended 31 December 2019
Cash flows from operating activities
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
Expected credit losses
Loss 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
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
Purchase of property, plant and equipment
Lease – prepaid rental
Loans advanced
Loans repaid by Directors
Loans issued to Directors
Interest on Director’s loan
Interest and investment income received
OML 18 Loan Notes principal payments received
OML 18 Loan Notes interest payments received
Net cash inflow from investing activities
Cash flows from financing activities
Share buybacks
Proceeds from issue of shares
Repayment of lease liability – principal
Repayment of other loans
Dissenting shareholder payment
Loans repaid to Directors
Interest and arrangement fees paid
Net cash outflow 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
2019
US$’000
2018
US$’000
(Restated)
(38,612)
(5,812)
14
6
7
10
12
8
4
24
24
17
13
12
14
30
23
31
7
7
17
17
23
24
20
20
960
144
850
2,417
(24,123) (44,082)
1,275
(552)
3,777
3,074
(680)
13,133
(485)
(496)
(2,281)
50
(132)
(8,737)
14,693
(54)
(15,727) (24,042)
1,069
(403)
(14,079)
1,407
(3,465)
13,770
–
(702)
48,373
92
532
(3,876)
3,204
(18)
(466)
(82)
(231)
–
727
–
1
278
23,361
19,885
43,473
(32,048)
99
(192)
–
–
–
(144)
(32,285)
(4,539)
474
40,762
36,697
(210)
(75)
–
458
–
(724)
2
101
31,572
33,032
64,156
–
–
–
(5,227)
(48)
(1,911)
(2,248)
(9,434)
30,680
771
9,311
40,762
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
60 SAN LEON ANNUAL REPORT 2019
Company statement of cash flows
for the year ended 31 December 2019
Cash flows from operating activities
Loss for the year
Adjustments for:
Depletion and depreciation
Finance income
Finance expense
Share-based payments charge
(Reversal of impairment) / impairment of investment in subsidiaries
and amounts due from Group undertakings
Fair value movements in financial assets
Expected credit losses
Foreign exchange
Income tax
Decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Tax paid
Net cash outflow from operating activities
Cash flows from investing activities
Advances to subsidiary companies
OML 18 Loan Notes principal payments received
OML 18 Loan Notes interest payments received
Loans advanced
Loans issued to Directors
Loans repaid by Directors
Interest on Director’s loan
Interest and investment income received
Lease – prepaid rental
Purchase of property, plant and equipment
Net cash inflow from investing activities
Cash flows from financing activities
Share buybacks
Proceeds of issue of shares
Repayment on lease obligations
Repayment of other loans
Loans repaid to Directors
Interest and arrangement fees paid
Net cash outflow from financing activities
Net increase / (decrease) 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
2019
US$’000
2018
US$’000
(Restated)
(12,284)
24,098
14
7
343
1
(24,123) (44,082)
144
1,069
(6,943)
48,373
(3,465)
(678)
(14,084)
130
(2,403)
(18)
2,413
520
6,183
(2,281)
(4,212)
(724)
3,702
(123)
(4,446)
(41)
(13,939) (18,992)
(2,160)
23,361
19,885
–
–
727
1
278
(231)
(82)
(5,537)
31,572
33,032
458
(724)
–
2
101
–
(47)
41,779
58,857
(32,048)
99
(192)
–
–
(144)
(32,285)
(4,445)
653
40,180
36,388
–
–
–
(5,227)
(1,911)
(2,243)
(9,381)
30,484
746
8,950
40,180
17
8
17
17
23
31
7
7
30
14
23
20
20
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
The accompanying notes on pages 62 to 120 form an integral part of these financial statements.
SAN LEON ANNUAL REPORT 2019 61
Notes to the financial statements
for the year ended 31 December 2019
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 2 Shelbourne Buildings,
Crampton Avenue, Shelbourne Road, Ballsbridge, Dublin 4.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements, with the exception of some comparative information. This is due to the adoption of the accounting policy regarding a
change in presentation currency, the details of which are explained further below and the adoption of IFRS 16 in the current period
using the modified retrospective approach in which comparative amounts were not restated.
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 2019 or were early adopted as indicated below.
New standards required by EU companies for the year ended 31 December 2019
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
IFRS 16: Leases (13 January 2016)
IASB effective date EU effective date
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
1 January 2019 1 January 2019
Amendments to IAS 28: Long-term interests in Associates and Joint Ventures
1 January 2019 1 January 2019
Amendments to IAS 19: Plan amendment, Curtailment or Settlement (8 February 2018) 1 January 2019 1 January 2019
Annual improvements to IFRS Standards 2015-2017 Cycle (issued on 12 December 2017) 1 January 2019 1 January 2019
The Group has initially applied IFRS 16 (see below) from 1 January 2019. The other standards listed above, are also effective from
1 January 2019 but they do not have a material effect on the Group’s financial statements.
Due to the transition method chosen by the Group in applying IFRS 16, the Group has opted for the modified retrospective
approach where comparative information throughout these financial statements has not been restated to reflect the
requirements of the new standard.
IFRS 16 Leases
IFRS 16 is effective for accounting periods beginning on or after 1 January 2019, and the Group adopted IFRS 16 with effect from
1 January 2019. 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 in the Statement of Financial Position, 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 standard primarily affects the accounting for the Group’s operating leases. The application of IFRS 16 results in the recognition
of additional assets and liabilities in the Consolidated Statement of Financial Position and in the Consolidated Income Statement.
It replaces the straight-line operating lease expense with a depreciation charge for the right-of-use asset and an interest expense
on the lease liabilities.
62 SAN LEON ANNUAL REPORT 2019
1. Accounting policies continued
The incremental borrowing rate is the rate of interest that the lessee would expect to incur on funds borrowed over a similar term
and security to obtain a comparable value to the right-of-use asset in the relevant economic environment. The Group’s weighted
average incremental borrowing rate pertaining to these leases is 5%.
i. Definition of a lease
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IAS 17 Leases
and IFRIC 4 Determining whether an Arrangement contains a Lease. The Group now assesses whether a contract is or contains a
lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains a lease if the contract conveys a right to
control the use of an identified asset for a period of time in exchange for consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions
are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases
under IAS 17 and IFRIC 4 were not reassessed.
ii. Transition
The Group adopted the new standard by applying the modified retrospective approach.
At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 January 2019. All right-of-use assets were
measured at the amount of the lease liability on adoption, adjusted by the amount of any prepaid or accrued interest payments.
Previously under IAS 17 operating lease rentals were charged to the Income Statement on a straight-line basis over the term of
the lease.
The Group applied the recognition exemption for short-term and low-value leases and used hindsight when determining the lease
term and if the contract contained options to extend or terminate the lease. The Group also elected not to separate non-lease
components from lease components and instead capitalise both the lease cost and associated non-lease cost.
The Group has also elected to use the practical expedient which allows for a single discount rate to be applied to a portfolio of
leases with reasonably similar characteristics.
The impact on the financial statements on transition to IFRS 16 is outlined below:
2019
US$’000
Opening lease commitments at 31 December 2018 as disclosed in the 2018 Annual Report 4,045
Impact of discounting (957)
Recognition exemptions for short term and low value assets (38)
Lease liabilities recognised at 1 January 2019 3,050
Statement of Financial Position:
The impact of the transition has resulted in higher property, plant and equipment and current and non-current lease liabilities.
For short-term leases (lease term less than 12 months) and leases of low-value assets the Group has opted to recognise a lease
expense on a straight-line basis as permitted by IFRS 16. Depending on the nature of the lease, this is either recognised as additions
to property, plant and equipment as a right-of-use asset or administrative costs as a short-term/low-value lease rental expense.
1 January 2019
Property, plant and equipment US$’000
Non-current 3,050
Total IFRS 16 transition 3,050
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 63
Notes to the financial statements
for the year ended 31 December 2019 – continued
1. Accounting policies continued
1 January 2019
Lease liabilities US$’000
Current 333
Non-current 2,717
Total IFRS 16 transition 3,050
Income Statement:
During 2019 depreciation on the right of use assets was US$329,000, associated lease rental charge decreased by US$336,000
and a foreign exchange gain of US$24,000 led to an increase in operating profit of US$31,000. The interest charge on the
associated leases was US$144,000 and the aggregate impact of IFRS 16 on profit before tax was a decrease of US$113,000.
2019 2018
US$’000 US$’000
Lease expense – 336
Interest on lease liabilities 144 –
Depreciation on right-of-use assets 329 –
Foreign exchange gain (24) –
Loss 449 336
Cash Flow Statement:
Lease payments are currently included in financing cash flows in the cash flow statement. Financing cash flows represent both
repayment of principal and interest. In prior periods, operating lease payments were all presented as operating cash flows under
IAS 17.
2019 2018
US$’000 US$’000
Cash flows from operating activities
Lease expense – 336
Cash flows from financing activities
Payment of lease liability – principal 144 –
Payment of lease liability – interest 192 –
Total cash outflow for leases 336 336
iii. Measurement
The Group recognises right-of-use assets representing its right to use the underlying assets and lease liabilities representing its
obligation to make lease payments at the lease commencement date. The right-of-use assets are initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the
underlying asset or to restore the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the
lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the
right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over
the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the
right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental
borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and
makes certain adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
•
fixed payments, including in-substance fixed payments;
64 SAN LEON ANNUAL REPORT 2019
1. Accounting policies continued
•
•
•
variable lease payments that depend on an index or rate, initially measured using the index or rate as at the commencement date;
amounts expected to be payable under a residual value guarantee; and
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional
renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease
unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in the
Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of
whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use
asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’
and lease liabilities in ‘loans and borrowings’ in the Statement of Financial Position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases,
including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line
basis over the lease term.
IFRIC 23: Uncertainty over income tax treatment
IFRIC 23 is effective for accounting periods beginning on or after 1 January 2019, and the Group adopted IFRIC 23 with effect from
1 January 2019. IFRIC 23 sets out how to determine taxable profits and losses, tax bases, unused tax losses, unused tax credits and
tax rates when there is uncertainty over income tax treatments under IAS 12 – Income Taxes. Where the Group considers it is
probable that an uncertain tax treatment will not be accepted by a tax authority the tax risk is measured using either the most
likely amount method or the expected value method, as appropriate. The adoption and application of IFRIC 23 did not have a
material impact on the Group.
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
Amendments to IAS 1 and IAS 8: Definition of material
1 January 2020 1 January 2020
Amendments to references to the Conceptual Framework in
IFRS Standards (29 March 2018)
1 January 2020 1 January 2020
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform 1 January 2020 1 January 2020
Amendments to IFRS 3: Definition of a Business
IFRS 17: Insurance Contracts
1 January 2020 Not endorsed but on track
1 January 2020 Not endorsed but on track
Amendments to IAS 1: Classification of liabilities as current or non-current
1 January 2020 Not endorsed but on track
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between 1 January 2020 Not endorsed. No indicative
endorsement date provided
an Investor and its Associate or Joint Venture
IFRS 14: Regulatory Deferral Accounts
1 January 2020 Not endorsed. No indicative
endorsement date provided
New standards that came into effect on 1 January 2020 will be applied in the year ending 31 December 2020, first reporting to
include these will be for the period ending 30 June 2020. The Directors do not believe that any of these standards will have a
significant impact on Group and Company reporting.
SAN LEON ANNUAL REPORT 2019 65
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Notes to the financial statements
for the year ended 31 December 2019 – continued
1. Accounting policies continued
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 2020 to
31 December 2021.
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 paid US$174.5 million to acquire Loan Notes in Midwestern Leon
Petroleum Limited (“MLPL”), which are repayable by MLPL to San Leon and 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 Energy Limited’s (“Martwestern”) 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 2019 and the basis of the forecast for 2020 and 2021. On 6 April 2020, the
Company entered into an agreement amending the Loan Notes Instrument. The Amendment extends the term of the Loan
Notes to December 2021 and changes the expected Loan Note repayment schedule. Up to 31 December 2019, Loan Note
payments totalling US$149.1 million of both principal and interest have been made on behalf of MLPL. Since reporting date, a
further US$41.5 million has been received. US$10.0 million will be due on 6 October 2020, with quarterly repayments starting
from July 2021. The Group has assumed that it will receive the respective forecast cash flows during 2020 and 2021 from the
Loan Notes and for the purposes of managing the loan, cash flows are allocated to interest and then capital repayments in
accordance with the terms of the Loan Notes.
•
Income from the provision of subsurface technical and management services of US$3.0 million per year in 2020 and 2021.
•
•
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.
•
Payment of a special dividend of approximately US$33.0 million in May 2020 (Note 33).
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 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 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 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 and cash equivalents balance at 31 December 2019 of US$36.7
million and the other cash flow forecast assumptions to continue for a period of at least 12 months from the date of approval of
the financial statements.
The Directors have considered the impact of Covid-19 upon the Company’s indirect interest in OML 18, and upon the Loan Notes.
The field operations of OML 18 will necessarily be slowed by the taking of customary health precautions, but as with most oil operations
around the world, the Company are advised by Eroton that operations are continuing on a reasonable basis. The impact of the current
low oil price will likely result in the deferral of some operational and capital expenditure, as is prudent to preserve working capital by
Eroton. That is expected to delay some production increases from drilling. Eroton’s income will also be affected by the lower oil price
itself, although that is buffered to some extent by the deferral of costs mentioned and a number of put options in place. The overall
effect is likely to be some modest delay in receiving distributions from Eroton via MLPL. The Directors do not expect a material effect
on the risk profile of the Loan Notes.
66 SAN LEON ANNUAL REPORT 2019
1. Accounting policies continued
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 2019.
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 US Dollars (US$), which is the Company’s functional currency and the Group’s presentational currency, rounded to
the nearest thousand.
On 1 January 2019 the Company’s presentation and functional currency changed from Euro to US$, given that a significant
majority of Group earnings are now denominated in US$. On 1 January 2019 the Group also changed its presentation currency
from Euro to US$. The Group believes that the presentation currency change will give investors and other stakeholders a clearer
understanding of the Group’s performance over time. It was determined appropriate to change from this date, as the Group is
now in the process of exiting the majority of its European operations, and focussing on Western Africa.
Following this change in accounting policy, the comparatives in the consolidated financial statements are represented in US$ using
the procedures outlined below:
•
Assets and liabilities of operations with functional currencies other than US$ (including the Company for periods prior to
1 January 2019) are translated into US$ at closing rates of exchange. Trading results of such operations are translated into US$
at the rates of exchange prevailing at the dates of transaction or average rates where these are a suitable proxy. Differences
resulting from the retranslation on the opening net assets and the results for the period have been presented in the currency
translation reserve, a component within shareholders’ equity.
•
Share capital, share premium and other reserves are translated at the rate applicable on the date of the change being 1 January 2019.
•
Cumulative currency translation adjustments are presented as if the Group had always used US$ as the presentation currency
of its consolidated financial statements.
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:
Judgements
•
•
•
•
•
Going concern (Note 1)
Classification of finance income (Note 7)
Impairment of investment in subsidiary (Note 16)
Recoverability of equity accounted investments (Note 13)
Recoverability of financial assets (Note 17)
Estimates
•
•
•
•
•
Measurement of equity accounted investments (Note 13)
Measurement of financial assets (Note 17)
Recognition and measurement of derivatives (Note 22)
Measurement of share-based payments (Note 27)
Recognition of deferred tax asset for tax losses (Note 29)
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 67
Notes to the financial statements
for the year ended 31 December 2019 – continued
1. Accounting policies continued
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 intra-group 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.
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.
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.
68 SAN LEON ANNUAL REPORT 2019
1. Accounting policies continued
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
Joint operations
The Group has entered into a number of joint arrangements on production and exploration assets that result in joint operations.
The Group accounts for only its share of assets, liabilities, income and expenditure in relation to these joint operations.
Inventories
Inventories are valued at the lower of cost and net realisable value.
Joint arrangements
The Group has also entered into a joint venture arrangement which is operated through a joint venture. The Group accounts for
its interest in this entity 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 (“OCI”) of the joint venture recognised in OCI.
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
i. Recognition and initial measurement
Financial assets are classified at initial recognition and subsequently measured at amortised cost, Fair Value through Other
Comprehensive Income (“FVOCI”) or Fair Value Through Profit or Loss (“FVTPL”). 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.
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.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 69
Notes to the financial statements
for the year ended 31 December 2019 – continued
1. Accounting policies continued
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.
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 this is 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 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 MLPL 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.
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.
70 SAN LEON ANNUAL REPORT 2019
1. Accounting policies continued
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.
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 comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the
tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the
tax amount expected to be paid or received that reflects uncertainty relates to income taxes, if any. It is measured using tax rates
enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
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 (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.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 71
Notes to the financial statements
for the year ended 31 December 2019 – continued
1. Accounting policies continued
Foreign operations
The assets and liabilities of foreign operations are translated into US Dollars 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 32.
Revenue recognition
For the year ended 31 December 2019 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.
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.
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.
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.
72 SAN LEON ANNUAL REPORT 2019
1. Accounting policies continued
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 present 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 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.
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 22 Derivative
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 73
Notes to the financial statements
for the year ended 31 December 2019 – continued
1. Accounting policies continued
Assets and liabilities measured at fair value
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.
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
Poland Morocco Albania Nigeria Ireland Spain Unallocated# Total
2019 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Total revenue 266 – – – – – – 266
Impairment of exploration
and evaluation assets (126) (150) (190) – – (941) – (1,407)
Segment profit / (loss) before
income tax (15,074) 1,134 (190) 23,575 (48,373) (1,014) (12,749) (52,691)
Property, plant and equipment 32 – – 1,476 2,836 – – 4,344
Equity accounted investments – – – 51,866 – – – 51,866
Segment non-current assets 32 – – 53,111 7,554 – 194 60,891
Capital expenditure – – – – – – – –
Segment liabilities (194) (268) (804) – (2,835) (739) (3,251) (8,091)
# 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.
74 SAN LEON ANNUAL REPORT 2019
2. Revenue and segmental information continued
2018
Total revenue
Impairment of exploration and
evaluation assets
Segment (loss) / profit
before income tax
Property, plant and equipment
Equity accounted investments
Segment non-current assets
Capital expenditure ^
Segment liabilities
Poland Morocco Albania Nigeria Ireland Spain Unallocated# Total
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated)
198
–
(14,075)
50
–
49
–
–
–
– (3,074)
–
–
–
–
–
–
–
–
(3,111) 33,346 2,315
– 1,867 47
– 55,070
–
– 128,048 53,767
– 211
(911)
(661)
(816)
–
–
–
–
–
–
–
–
–
–
–
–
– 198
– (3,074)
(20,510) (2,035)
– 1,964
– 55,070
252 182,116
– 211
(19,663) (22,051)
^ 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.
3. Other income
Group
Zag Licence – Bank Guarantee
2019
US$’000
2018
US$’000
(Restated)
1,400
–
Zag Licence – Bank Guarantee
In September 2019, Office National des Hydrocarbures et des Mines (“ONHYM”) returned the Zag Licence bank guarantee of US$1.4
million to the Company. This bank guarantee had been previously fully provided for in the 2017 and 2018 financial statements.
ONHYM have also withdrawn their request for a penalty regarding the non-performance of the Zag Licence work programme of
US$1.4 million. This penalty was not previously recognised in the accounts as the Directors believed it was unlikely to succeed in
any arbitration case.
SAN LEON ANNUAL REPORT 2019 75
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Notes to the financial statements
for the year ended 31 December 2019 – continued
4. Profit or loss on disposal of subsidiaries
2018
2019 US$’000
US$’000 (Restated)
Gora Energy Sp. z o.o. & Liesa Energy Sp. z o.o. to Gemini Resources Limited (i) – 1,184
Island Oil & Gas Limited to Ardilaun Energy Limited (ii) – (750)
Other, recycling from equity to Income Statement (iii) (13,870) (13,567)
Horizon Petroleum Ltd (iv) 100 –
(13,770) (13,133)
(i) Gora Energy Sp. z o.o. & Liesa Energy Sp. z o.o. to Gemini Resources Limited
In 2018, the Group recognised a profit on disposal of US$1.2 million 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”).
The profit related to the Group’s derecognition of decommissioning liabilities associated with Gora and Liesa, which had previously
been fully provided for. This resulted in a US$1.2 million gain in the Income Statement as at 31 December 2018.
The sale to Gemini has also resulted in the realisation of the cumulative foreign currency losses of US$8.6 million.
(ii) Island Oil & Gas Limited to Ardilaun Energy Limited
In 2018, the Group recognised a further loss on disposal of US$0.8 million 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 2019 the Company liquidated certain foreign operations that held non-core assets. The Group’s investment in the assets held by
the subsidiaries has been fully impaired in prior periods. The liquidation or disposal of the foreign operations has resulted in the
realisation of cumulative foreign currency losses of US$13.9 million (2018: US$13.6 million), that had previously been recognised in
equity. The realisation of the cumulative foreign currency losses does not impact the consolidated assets or liabilities.
(iv) Horizon Petroleum Ltd.
In August 2019, sale and purchase agreements were completed for the sale of a 100% interest in two oil and gas concessions in
Poland, known as Bielsko-Biala and Cieszyn (together the “Primary Concessions”), and a 100% interest in two additional oil and gas
concessions in Poland, known as Prusice and Kotlarka, (together the “Secondary Concessions”) with Horizon Petroleum Ltd.
(“Horizon”) (TSXV: HPL).
San Leon will receive a 6% net profit interest on the Primary and Secondary Concessions when the concessions are transformed
and granted to Horizon. Under revised completion terms, a cash payment of US$1,080,000 is also due to be paid to San Leon if
the Bielsko-Biala concession is transformed and granted to Horizon. At the same time, San Leon is also to receive US$769,558
(CAD$1.0 million) in shares of Horizon. A cash payment of approximately US$75,000 is due to be paid to San Leon for each of the
Secondary Concessions if granted to Horizon.
The aggregate consideration of US$2.0 million has been noted in Commitments and Contingencies (Note 28).
On completion of the sale, a US$100,000 advance received by the Company in 2017 as part of the Memorandum of
Understanding became non-refundable.
76 SAN LEON ANNUAL REPORT 2019
5. Statutory information
(a) Group
2018
2019 US$’000
US$’000 (Restated)
The loss for the financial year is stated after charging:
Depreciation of property, plant, machinery and equipment 960 850
Gain on foreign currencies 403 552
Operating lease rentals
– Premises – 381
Impairment of exploration and evaluation assets 1,407 3,074
Director’s shares to be issued * – 756
Share-based payment charge 1,068 520
* Oisín Fanning was due 2,537,328 ordinary shares in lieu of 80% of his salary for the period 1 January 2018 to 30 September 2018 and this was charged in 2018.
These shares were issued on 25 February 2019.
During the year, the Group (including its overseas subsidiaries) obtained the following services from KPMG, the Group Auditor:
Auditor’s remuneration
2018
2019 US$’000
US$’000 (Restated)
Fees paid to lead audit firm:
Audit of the Group financial statements 191 195
Audit of the subsidiary financial statements 62 63
Total 253 258
During the year, the Group (including its equity accounted investment) obtained the following audit services, excluding the
Group Auditor, KPMG:
2018
2019 US$’000
US$’000 (Restated)
Fees paid to other firms:
Audit of equity accounted investment 48 182
Total 48 182
(b) Company
2018
2019 US$’000
US$’000 (Restated)
The loss / profit for the financial year is stated after charging:
Depreciation of property, plant, machinery and equipment 343 1
Gain on foreign currencies 678 724
Operating lease rentals – premises – 344
Auditor’s remuneration – audit services 191 195
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 loss of US$12.3 million (2018: a profit of US$24.1 million) has been recorded
in the Parent Company.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 77
Notes to the financial statements
for the year ended 31 December 2019 – continued
6. Finance expense
2018
2019 US$’000
US$’000 (Restated)
On loans and overdraft – 143
Finance arrangement expenses – 2,105
Interest on obligations for leases 144 –
Fair value charge on issue of options and warrants (Note 22) – 169
144 2,417
7. Finance income
2018
2019 US$’000
US$’000 (Restated)
Total finance income on Loan Notes (Note 17) 23,313 37,613
Foreign exchange gain on Loan Notes, Valuation (Note 17) – 6,804
Foreign exchange loss on Loan Notes, ECL (Note 17) – (438)
Movement in fair value of derivatives (Note 22) 531 –
Deposit interest received 278 101
Interest on Director’s loan (Note 31) 1 2
24,123 44,082
All interest income is in respect of assets measured at amortised cost.
8. Expected credit losses
2018
2019 US$’000
US$’000 (Restated)
Loan Notes gain (Note 17) 3,465 4,212
Other debtors provision (Note 19) – (3,532)
3,465 680
78 SAN LEON ANNUAL REPORT 2019
9. Personnel expenses
Number of employees
The average monthly number of employees (including the Directors) during the year was:
2019 2018
Number Number
Directors 8 9
Administration 11 11
Technical 1 5
Seismic crew 4 6
24 31
Employment costs (including Directors)
2018
2019 US$’000
US$’000 (Restated)
Wages and salaries (excluding Directors) 1,625 2,088
Directors’ salaries 2,579 1,780
Director bonuses 637 862
Social welfare costs 494 472
Directors’ fees and consultancy costs 593 803
Termination payments 128 213
Shares to be issued in lieu of Director’s salary # – 756
Share-based payment charge for options issued to Directors 492 194
Share-based payment charge on repricing of options issued to Directors 116 –
Share-based payment charge on repricing of options issued to employees 104 –
Employees’ pension 35 53
Benefits (including Directors) 101 58
Directors’ pension 102 96
7,006 7,375
# 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 US$756,000 has 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 31.
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 US$0.1 million (2018: US$0.1 million).
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 79
Notes to the financial statements
for the year ended 31 December 2019 – continued
10. Income tax
Current tax
Current year income tax
Deferred tax
Origination and reversal of temporary differences (Note 29)
Deferred tax movement in Barryroe NPI (Note 29)
Deferred tax movement on fair value of other financial assets, Quoted shares
Total income tax (credit) / charge
Deferred tax relating to items charged / credited to equity
Deferred tax movement on fair value of other financial assets, Unquoted shares
Total income tax (credit) / charge
2019
US$’000
2018
US$’000
(Restated)
3
3
2,006
(16,064)
(24)
(14,079)
(40)
(40)
3,121
764
(111)
3,777
39
39
The difference between the total tax shown above and the amount calculated by applying the applicable standard rate of Irish
corporation tax to the loss before tax is as follows:
Loss before income tax
Tax on loss at applicable Irish corporation tax rate of 25% (2018: 25%)
Effects of:
Deferred tax on fair value movement in financial assets
Prior year adjustment
Losses utilised in year
Expenses not deductible for tax purposes
Income tax withheld
Excess losses carried forward
Tax (credit) / charge for the year
2019
US$’000
(52,691)
(13,173)
(3,870)
(24)
(2,006)
3,269
3
1,722
(14,079)
2018
US$’000
(Restated)
(2,035)
(509)
185
(111)
(3,121)
5,924
3
1,406
3,777
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of previous years. Liabilities for uncertain tax treatments are
recognised in accordance with IFRIC 23 and are measured using either the most likely amount method or the expected value
method – whichever better predicts the resolution of the uncertainty.
80 SAN LEON ANNUAL REPORT 2019
11. Loss per share
Basic loss per share
Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average
number of ordinary shares in issue during the year as follows:
Loss for the year
The weighted average number of shares in issue is calculated as follows:
In issue at start of year (Note 25)
Shares to be issued at start of year
Effect of tender offer and buybacks in the year
Effect of shares issued and shares to be issued in the year
Weighted average number of ordinary shares in issue (basic)
Basic loss per ordinary share (cent)
2019
US$’000
2018
US$’000
(Restated)
(38,612)
(5,812)
2019
Number
of shares
2018
Number
of shares
500,256,857 500,256,857
5,590,270 3,052,942
(39,697,582)
–
195,890 1,451,304
466,345,435 504,761,103
(8.28)
(1.15)
Diluted loss per share
Diluted loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average
number of ordinary shares outstanding after adjustment for effects of all dilutive potential ordinary shares as follows:
Loss for the year
The diluted weighted average number of shares in issue is calculated as follows:
Basic weighted average number of shares in issue during the year
Effect of share options and warrants in issue
Diluted loss per ordinary share (cent)
2019
US$’000
2018
US$’000
(Restated)
(38,612)
(5,812)
2019
Number
of shares
2018
Number
of shares
466,345,435 504,761,103
–
–
466,345,435 504,761,103
(8.28)
(1.15)
The number of options which are anti-dilutive and have therefore not been included in the above calculations is 39,559,074
(2018: 39,304,060).
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 81
Notes to the financial statements
for the year ended 31 December 2019 – continued
12. Intangible assets
Exploration
and evaluation
assets
Group US$’000
Cost and net book value
At 1 January 2018 (Restated) 2,864
Additions (ii) 210
Write off / impairment of exploration and evaluation assets (3,074)
At 31 December 2018 (Restated) –
Additions (ii) 1,201
Transfer from other non-current assets (Note 15) 206
Write off / impairment of exploration and evaluation assets (1,407)
At 31 December 2019 –
(i) The following geographical exploration areas in the Group were impaired / written off during the year:
2018
2019 US$’000
US$’000 (Restated)
Spain 941 –
Albania 190 3,074
Morocco 150 –
Poland 126 –
1,407 3,074
(ii) This is the net amount incurred by San Leon Energy and excludes amounts attributable to joint operating partners of US$Nil
in 2019 (2018: US$Nil).
The Directors have considered the carrying value at 31 December 2019 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. Based on internal
assessments from the latest information available, the Directors fully impaired the exploration and evaluation assets in 2019.
13. Equity accounted investments
2018
2019 US$’000
Group US$’000 (Restated)
Cost and net book value
At 1 January 55,070 69,763
Share of loss of equity accounted investment (3,204) (14,693)
At 31 December 51,866 55,070
82 SAN LEON ANNUAL REPORT 2019
13. Equity accounted investments continued
The Group’s only joint venture entity at 31 December 2019 is as follows:
Name Registered office % held
Midwestern Leon Petroleum Limited 5th Floor Barkly Wharf, Le Caudan Waterfront,
Port Louis, Republic of Mauritius 40%
A summary of the financial information of the equity investment is detailed below.
Equity Interest
40% 40%
2018
2019 US$’000
US$’000 (Restated)
Loss from continuing operations (8,011) (32,402)
Total comprehensive loss (8,011) (36,734)
Non-current assets 204,312 203,793
Current assets (excluding cash) 262,444 242,749
Non-current liabilities – (48,259)
Current liabilities (337,091) (260,608)
Net assets 129,665 137,675
Group’s interest in net assets of investee at 1 January 55,070 69,763
Share of loss (3,204) (14,693)
Group’s interest in net assets of investee at 31 December 51,866 55,070
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 2019 reflects a share of the loss of MLPL being administrative
costs of US$2.1 million (2018: US$1.9 million), other income of US$7.2 million (2018: US$0.1 million), net finance costs of US$5.5
million (2018: US$23.8 million), profit on investment of US$0.5 million (2018: US$0.5 million) and a tax charge of US$8.0 million
(2018: US$6.9 million).
The above interest is accounted for as an equity accounted investment as San Leon does not have control over the entity, which is
governed under a Joint Venture Agreement requiring the approval of both parties to the Joint Venture Agreement in respect of all
operating decisions.
The Group identified potential impairment indicators, being that MLPL is yet to receive a dividend from Eroton, the equity interest
is currently loss making, and MLPL has entered into a loan to be able to make Loan Note repayments to the Group. To test for a
potential impairment the carrying value of the equity interest in MLPL was compared against the fair value less cost of sale. This
was estimated using a discounted cash flow model of the expected future cash flows from MLPL’s share of the underlying OML 18
asset. Future cash flows of OML 18 were estimated using the following price assumptions of US$65/bbl in 2020, US$68/bbl in
2021, US$70/bbl in 2022 and a subsequent long term price US$72/bbl escalated at 2% annually, with the cash flows discounted
using a post-tax discount rate of 10%. Assumptions involved in the impairment assessment include estimates of commercial
reserves, production rates, future oil prices, discount rates and operating and capital expenditure profiles, all of which are
inherently uncertain. This analysis identified that the carrying value of the equity interest in MLPL is not impaired.
If the recoverable amount was estimated taking into account a reduction in the oil price to US$35/bbl in 2020, US$45/bbl in 2021 and a
long term price of US$60/bbl escalated at 2% annually, then the carrying value of the equity interest in MLPL would still not be impaired.
The Directors recognise that the future realisation of the equity accounted investment is dependent on future successful
exploration and appraisal activities and subsequent production of oil and gas reserves.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 83
Notes to the financial statements
for the year ended 31 December 2019 – continued
14. Property, plant and equipment
Leased Plant & Office Motor
assets equipment equipment vehicles Total
Group US$’000 US$’000 US$’000 US$’000 US$’000
Cost
At 1 January 2018 (Restated) – 9,256 1,197 438 10,891
Additions – – 75 – 75
Currency translation adjustment – (176) (14) (9) (199)
At 31 December 2018 (Restated) – 9,080 1,258 429 10,767
Adoption of IFRS 16 leases 3,050 – – – 3,050
Additions 231 – – 82 313
Currency translation adjustment – (30) (55) (16) (101)
At 31 December 2019 3,281 9,050 1,203 495 14,029
Depreciation
At 1 January 2018 (Restated) – 6,543 1,174 429 8,146
Charge for the year – 837 6 7 850
Currency translation adjustment – (173) (11) (9) (193)
At 31 December 2018 (Restated) – 7,207 1,169 427 8,803
Charge for the year 329 626 – 5 960
Currency translation adjustment – (30) (31) (17) (78)
At 31 December 2019 329 7,803 1,138 415 9,685
Net book values
At 31 December 2019 2,952 1,247 65 80 4,344
At 31 December 2018 (Restated) – 1,873 89 2 1,964
84 SAN LEON ANNUAL REPORT 2019
14. Property, plant and equipment continued
Leased Office Motor
assets equipment vehicles Total
Company US$’000 US$’000 US$’000 US$’000
Cost
At 1 January 2018 (Restated) – 501 – 501
Additions – 47 – 47
At 31 December 2018 (Restated) – 548 – 548
Adoption of IFRS 16 leases 3,050 – – 3,050
Additions 231 – 82 313
At 31 December 2019 3,281 548 82 3,911
Depreciation
At 1 January 2018 (Restated) – 501 – 501
Charge for the year – 1 – 1
At 31 December 2018 (Restated) – 502 – 502
Charge for the year 329 12 2 343
At 31 December 2019 329 514 2 845
Net book values
At 31 December 2019 2,952 34 80 3,066
At 31 December 2018 (Restated) – 46 – 46
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 85
Notes to the financial statements
for the year ended 31 December 2019 – continued
15. Other non-current assets
Deposits on Spanish oil and gas concession applications (i)
Deposits on Spanish oil and gas concessions (i)
At 1 January
Deposits retained by Ministry (i)
Transfer to intangible assets (i) (Note 12)
At 31 December
Group
Company
2019
US$’000
–
–
–
2018
US$’000
(Restated)
105
101
206
2019
US$’000
–
–
–
2018
US$’000
(Restated)
–
–
–
Group
Company
2019
US$’000
206
–
(206)
–
2018
US$’000
(Restated)
2019
US$’000
2018
US$’000
(Restated)
206
–
–
206
–
–
–
–
–
–
–
–
(i) The deposits paid were recoverable on completion of work programmes attached to each of the concessions. During 2019 the Ministry signalled its intention to retain
US$0.2 million in relation to oil and gas concession applications that were withdrawn by the Company.
The deposits were transferred to intangible assets and then fully impaired by the Company.
16. Financial assets – Company
Investment in subsidiary undertakings at cost:
Balance at beginning of year
Impairment during the year (i)
Balance at end of year
2019
US$’000
2018
US$’000
(Restated)
31,539
–
31,539
34,608
(3,069)
31,539
(i) The impairments to the Company’s investment in subsidiary undertakings recorded in 2018 reflects the write down in the carrying value of the Group’s exploration
and evaluation assets in the year.
86 SAN LEON ANNUAL REPORT 2019
16. Financial assets – Company continued
At 31 December 2019, 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 Registered Office
Directly held:
San Leon Energy B.V. de Ronge 16, 1852 XB Heiloo, The Netherlands
San Leon (USA) Limited 2 Shelbourne Buildings, Crampton Avenue, Shelbourne Road,
Ballsbridge, Dublin 4
San Leon (Morocco) Limited PO Box 146, Trident Chambers, Tortola, BVI
San Leon (Netherlands) Limited PO Box 146, Trident Chambers, Tortola, BVI
San Leon Energy Srl Piazza Vescovio, 700199 Rome, Italy
San Leon Services Limited 12 Castle Street, St. Helier, Jersey JE2 3RT
Aurelian Oil & Gas Limited 36 The Crescent, Bricket Wood, St Albans, AL2 3NF, United Kingdom
San Leon Energy Nigeria B.V. de Ronge 16, 1852 XB Heiloo, The Netherlands
San Leon Energy (Iraq) Limited 2 Shelbourne Buildings, Crampton Avenue, Shelbourne Road,
Ballsbridge, Dublin 4
Indirectly held:
Baltic Oil and Gas Sp. z o.o. ul. Zelazna 59, 00-848, Warsaw, Poland
Braniewo Energy Sp. z o.o. ul. Zelazna 59, 00-848, Warsaw, Poland
Novaseis Sp. z o.o. ul. Zelazna 59, 00-848, Warsaw, Poland
San Leon Services Sp. z o.o. ul. Zelazna 59, 00-848, Warsaw, Poland
Aurelian Oil and Gas Poland Sp. z o.o. ul. Zelazna 59, 00-848, Warsaw, Poland
Energia Torzym Sp. z o.o. ul. Zelazna 59, 00-848, Warsaw, Poland
T.K. Exploration Sp. z o.o. ul. Zelazna 59, 00-848, Warsaw, Poland
San Leon Durresi B.V. de Ronge 16, 1852 XB Heiloo, The Netherlands
San Leon 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. de Ronge 16, 1852 XB Heiloo, The Netherlands
Braniewo B.V. de Ronge 16, 1852 XB Heiloo, The Netherlands.
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
Frontera Energy Corporation S.L. Paseo Maria Agustin, 4-6, Esc 3. Piso 4, Zaragoza, 5004, Spain
San Leon Energy (UK) Limited 36 The Crescent, Bricket Wood, St Albans, AL2 3NF, United Kingdom
AOG Finance Limited 36 The Crescent, Bricket Wood, St Albans, AL2 3NF, United Kingdom
Balkan Explorers (Bulgaria) Limited 36 The Crescent, Bricket Wood, St Albans, AL2 3NF, United Kingdom
The Company is continuing the process of liquidating and or selling some of the above companies in line with its strategy to
relinquish non-core interests.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 87
Notes to the financial statements
for the year ended 31 December 2019 – continued
17. Financial assets
Barryroe 4.5%
net profit Quoted Unquoted
OML 18 (i) interest (ii) shares (iii) shares (iv)
US$’000 US$’000 US$’000 US$’000
Amortised FVOCI – equity FVOCI – equity Total
Group cost FVTPL instrument instrument US$’000
Cost / Valuation
At 1 January 2018 (Restated) 154,374 48,827 34 2,506 205,741
Finance income 37,613 – – – 37,613
Loan Notes receipts – principal (31,572) – – – (31,572)
Loan Notes receipts – interest (33,032) – – – (33,032)
Exchange rate adjustment, Income Statement 6,804 – – – 6,804
Fair value movement, Income Statement – 2,315 (34) – 2,281
Fair value movement, Other comprehensive income – – – 119 119
At 31 December 2018 (Restated) 134,187 51,142 – 2,625 187,954
Finance income 23,313 – – – 23,313
Loan Notes receipts – principal (23,361) – – – (23,361)
Loan Notes receipts – interest (19,885) – – – (19,885)
Impairment of unquoted shares,
Other comprehensive income – – – (2,625) (2,625)
Additions (viii) – – – 194 194
Fair value movement, Income Statement – (48,373) – – (48,373)
At 31 December 2019 114,254 2,769 – 194 117,217
Expected Credit Loss Provision
At 1 January 2018 (Restated) – – – – –
Recognised on transition to IFRS 9 (9,241) – – – (9,241)
Released in the year 4,212 – – – 4,212
Exchange rate adjustment, Income Statement (438) – – – (438)
At 31 December 2018 (Restated) (5,467) – – – (5,467)
Released in the year 3,465 – – – 3,465
At 31 December 2019 (2,002) – – – (2,002)
Book value at 31 December 2019 112,252 2,769 – 194 115,215
Current 112,252 – – – 112,252
Non-current – 2,769 – 194 2,963
Book value at 31 December 2018 (Restated) 128,720 51,142 – 2,625 182,487
Current 57,611 – – – 57,611
Non-current 71,109 51,142 – 2,625 124,876
Net Profit Interests (v) (vi) (vii): These NPIs have a nil value from acquisition.
88 SAN LEON ANNUAL REPORT 2019
17. Financial assets continued
Barryroe 4.5%
net profit Quoted Unquoted
OML 18 (i) interest (ii) shares (iii) shares (iv)
US$’000 US$’000 US$’000 US$’000
Amortised FVOCI – equity FVOCI – equity Total
Company cost FVTPL instrument instrument US$’000
Cost / Valuation
At 1 January 2018 (Restated) 154,374 48,827 34 2,506 205,741
Finance income 37,613 – – – 37,613
Loan Notes receipts – principal (31,572) – – – (31,572)
Loan Notes receipts – interest (33,032) – – – (33,032)
Exchange rate adjustment, Income Statement 6,804 – – – 6,804
Fair value movement, Income Statement – 2,315 (34) – 2,281
Fair value movement, Other comprehensive income – – – 119 119
At 31 December 2018 (Restated) 134,187 51,142 – 2,625 187,954
Finance income 23,313 – – – 23,313
Loan Notes receipts – principal (23,361) – – – (23,361)
Loan Notes receipts – interest (19,885) – – – (19,885)
Impairment of unquoted shares – – – (2,625) (2,625)
Fair value movement, Income Statement – (48,373) – – (48,373)
At 31 December 2019 114,254 2,769 – – 117,023
Expected Credit Loss Provision
At 1 January 2018 (Restated) – – – – –
Recognised on transition to IFRS 9 (9,241) – – – (9,241)
Released in the year 4,212 – – – 4,212
Exchange rate adjustment, Income Statement (438) – – – (438)
At 31 December 2018 (Restated) (5,467) – – – (5,467)
Released in the year 3,465 – – – 3,465
At 31 December 2019 (2,002) – – – (2,002)
Book value at 31 December 2019 112,252 2,769 – – 115,021
Current 112,252 – – – 112,252
Non-current – 2,769 – – 2,769
Book value at 31 December 2018 (Restated) 128,720 51,142 – 2,625 182,487
Current 57,611 – – – 57,611
Non-current 71,109 51,142 – 2,625 124,876
(i) OML 18
In September 2016, the Company secured an indirect economic interest in OML 18, onshore Nigeria.
The Company undertook a number of steps to effect this purchase. 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, a company incorporated in Nigeria. Martwestern holds a 50% shareholding in 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 that 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.
SAN LEON ANNUAL REPORT 2019 89
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Notes to the financial statements
for the year ended 31 December 2019 – continued
17. Financial assets continued
To partly fund the purchase of 100% of the shares of Martwestern, MLPL borrowed US$174.5 million in incremental amounts by
issuing Loan Notes with an annual coupon of 17% (“Loan Notes”) and effective interest rate of 25%, as noted below. Midwestern Oil
and Gas Company Limited (“Midwestern”) 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 and the holder of an indirect economic interest in OML 18. San Leon is due to be repaid the full amount of the US$174.5 million
plus the 17% coupon once certain conditions have been met and using an agreed distribution mechanism. Through its wholly owned
subsidiary, San Leon Nigeria B.V., the Company is also a beneficiary of any dividends that will be paid by MLPL as a 40% shareholder in
MLPL but the Loan Notes repayments must take priority over any dividend payments made to the MLPL shareholders.
The fair value assessment of the Loan Notes on acquisition was calculated as follows:
Total
US$’000
Total consideration 188,419
Fair value of Loan Notes attributable to equity investment # (30,889)
Net fair value of Loan Notes 157,530
Arrangement fees (5,500)
Additions to Financial Assets in 2016 including accrued interest at date of acquisition 152,030
# 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, giving an effective interest rate of 25%.
The key information relevant to the fair value of the Loan Notes on the date they were initially recognised is as follows:
Inter-relationships between the unobservable
Valuation technique Significant unobservable inputs* inputs and fair value measurements
Discounted cash flows • Discount rate 25% based on a market The estimated value would increase /
rate of interest of 8% above the (decrease) if: US Dollar exchange rate
coupon rate of 17% increased / (decreased)
• MLPL ability to generate cash flows
for timely repayment
• Loan Notes are repayable in full
by 30 September 2020.
* Day 1 and considered appropriate at 31 December 2019.
The business model for the MLPL loan is to hold to collect. In 2018 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 par value initially recognised.
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. These are described further in Note 31. 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 2019 San Leon received total payments under the Loan Notes of US$43.2 million (2018: US$64.6 million). The payments
received during 2019 represent principal of US$23.3 million (2018: US$31.6 million) and interest of US$19.9 million (2018: US$33.0
million)) on the Loan Notes repaid. As at 31 December 2019 there was US$114.3 million in principal and interest (2018: US$134.2
million), due under the Loan Notes.
90 SAN LEON ANNUAL REPORT 2019
17. Financial assets continued
In 2020 the Company has received total payments under the Loan Notes of US$41.5 million. On 6 April 2020, the Company
entered into an Agreement with MLPL, amending the timing of the remaining payment of the Loan Notes Instrument. At the date
of the Agreement, the remaining outstanding balance on the par value was US$82.1 million* (accounted for as US$79.5 million
under IFRS). Of this, US$10.0 million will be repaid on or before 6 October 2020, with the balance of the Loan Notes receivable
payable in three quarterly instalments, commencing in July 2020 and completing by December 2021. The outstanding loan will
continue to have an annual coupon rate of 17% and an effective interest rate of 25% per annum until repaid. All other material
terms of the Loan Notes Instrument remain unchanged.
The Directors of San Leon have considered the credit risk of the Loan Notes at 31 December 2018 and 31 December 2019.
Due to the inability of MLPL to make dividend distributions, the Directors continue to 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.
As at 31 December 2019 the Directors were not in discussion with MLPL regarding any amendment to the terms of the Loan
Notes nor were there any events at this time that warranted an amendment to the terms of the Loan Notes, and so the
Agreement entered into on 6 April 2020 was not taken into account at year end. However, under the terms of the Agreement
the full principal is to be repaid and interest continues to accrue at the original contractual rate.
The Loan Notes are 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.
In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the expected credit loss and,
although this has been assessed as having increased significantly since initial recognition, it is not considered to have increased
during the year ended 31 December 2019. Factors that have been considered to reduce overall credit risk include an ongoing
guarantee from Midwestern, which guarantees all indebtness and associated obligations of MLPL, with the Loan Notes being the
most senior debt within the company and a number of oil price put options in place at the Eroton level, which partially mitigates
downside risk to the cash flows of OML 18 arising from a reduction in oil prices.
The Loan Notes are unique assets for which there is no directly comparable market data. Repayments of the Loan Notes are
expected to be made from the underlying cash flows that support MLPL. Accordingly, 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 2019 or 31 December 2019.
The Directors have considered the credit risk of MLPL, and determined that, although the credit risk has increased since initial
recognition, it remains unchanged from the prior year. 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 2019 and 31 December 2019. In
management’s view the outlook for 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 US$5.5 million, being 4.0% of the balance at 1 January 2019
was appropriate. This declined to US$2.0 million at year end due to the contractual lifetime of the Loan Notes reducing by 12
months, thereby reducing the expected probability of default over the remaining loan term to 1.8%. The repayments made in 2019
reduced the balance at that date, resulting in a gain of US$3.5 million to the Income Statement for 2019.
(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. In 2018 the valuation
approach was based on assumptions, public information and modelling contained within a broker report (dated 12 December
2018). For the year ended 31 December 2019 the Board has considered this approach, but believe many of the previous
assumptions are now out-of-date, and have therefore adopted a market-based valuation approach using the price of the publicly
listed shares of Providence Resources plc (“Providence”) (operator and holder of an owner of 80% interest in the Barryroe oil field)
as its basis. The Directors believe the markets assessment of the current risks and uncertainties of the project have been reflected
within the share price of Providence at year end, and it is therefore appropriate to use this to update their valuation.
The 2019 announcements by Providence in relation to Standard Exploration Licence 1/11 which contains the Barryroe oil accumulation
indicate an increased project risk given the uncertainty regarding project funding and therefore timing around the development of the
asset. While the site survey on the project was achieved, these delays will impact the timing of future cash flows and valuation for San Leon.
* Refer to Alternate Performance Measures on page 121 for full reconciliation of IFRS numbers and Alternative Performance Measures.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 91
Notes to the financial statements
for the year ended 31 December 2019 – continued
17. Financial assets continued
Given the latest announcements and incorporating uncertainty regarding project timing and funding, the Directors have reviewed
the modelling assumptions regarding timing, oil price, costs and risk, and consider it reasonable and appropriate to impair the
Barryroe carrying value by US$48.4 million (Year end 2019: US$30.5 million, 2019 Half year: US$17.9 million) to US$2.8 million to
reflect their estimate of the impact of these risks to the future cash flows on the value of the asset.
The key information relevant to the fair value of the Barryroe 4.5% net profit interest is as follows:
Valuation technique
Significant unobservable inputs*
Market based approach using
share price of Operator
(Providence) (2018: Internal
management model)
Estimated value of NPI as percentage
of total field NPV 9.5% (2018: 9.5%)
2018: First oil 2024
Oil price over the period is to be
US$60/BBL
Risking applied is 64%
Discount rate 10%
Capex and opex based upon current
and expected market rates
Life of field expected to be 17 years
Oil production of 311MM BBL over
the life of the field on a successful
development of the 2C contingent
resources case
Inter-relationships between the unobservable
inputs and fair value measurements
The estimated fair value would increase /
(decrease) if:
The oil price per barrel increased /
(decreased)
The resource estimates increased /
(decreased) or the life of the field
increased / (decreased)
US Dollar exchange rate increased /
(decreased)
(iii) Amedeo Resources plc
At 31 December 2019, the Company holds 213,512 ordinary shares at a market value of US$Nil (2018: US$Nil). The value of the
investment was written down to nil in 2018 due to the shares of Amedeo Resources plc being de-listed.
(iv) Ardilaun Energy Limited
As part of the consideration for the sale of Island Oil & Gas Limited to Ardilaun Energy Limited (“Ardilaun”) in 2014 Ardilaun agreed
to issue shares equivalent to 15% of the issued share capital of Ardilaun to San Leon. The original fair value of the 15% interest in
Ardilaun was based on a market transaction in Ardilaun shares.
The Directors have considered the carrying value of this interest at 31 December 2019 and given the length of time to obtain Irish
government approval for the transaction, the Directors feel it is prudent to carry the 15% of Ardilaun shares still to be issued to San
Leon at a value of US$Nil (2018: US$2.6 million). Consequently, US$2.6 million has been charged to Other comprehensive income.
(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. There has been no change in 2019.
(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(i)). There has been no change in 2019.
(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(i)). There has been no change in 2019.
(viii) Gemini Resources Limited
In 2019, San Leon converted a debtor of US$192,607 due from Gemini Resources Limited (“Gemini”) into 54,818 fully paid ordinary
shares in Gemini.
92 SAN LEON ANNUAL REPORT 2019
18. Inventory
Spare parts and consumables
Group
Company
2019
US$’000
180
2018
US$’000
(Restated)
272
2019
US$’000
–
2018
US$’000
(Restated)
–
Spare parts include drilling equipment and consumables utilised by the Group’s seismic services company.
19. Trade and other receivables
Amounts falling due within one year:
Amounts owed by Group undertakings (i)
Expected credit loss on amounts owed by Group undertakings (i)
Net amounts owed by Group undertakings
Trade receivables from joint operating partners
Corporation tax refundable
VAT and other taxes refundable
Other debtors (ii)
Expected credit loss on other debtors (ii)
Prepayments
Director’s loan (Note 31)
Group
Company
2019
US$’000
2018
US$’000
(Restated)
2019
US$’000
2018
US$’000
(Restated)
–
–
–
2
52
134
4,242
(3,532)
89
–
987
–
103,236 152,611
– (100,059) (149,434)
–
38
38
474
4,629
(3,532)
66
727
2,440
3,177
3,177
–
52
63
696
–
80
–
4,068
16
38
71
860
–
22
727
4,911
(i) Amounts owed by Group undertakings are interest free and repayable on demand with the exception of amounts due from
the Polish subsidiaries of US$6.2 million (2018: US$7.7 million) which are repayable on demand and subject to a market rate of
interest from the date the loan was advanced (Note 31).
At 31 December 2019, the Company is owed US$103.2 million (2018: US$152.6 million) by its subsidiaries in respect of funds
advanced to them and expenses discharged by the Company on their behalf. An impairment provision of US$100.1 million
(2018: US$149.4 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 US$3.6 million due from NSP Investments Holdings Ltd for the disposal of equity accounted
investments. During 2018, the Directors fully provided for the amount. There has been no change in 2019.
The remaining other debtors consists of rent deposits and similar receivables.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 93
Notes to the financial statements
for the year ended 31 December 2019 – continued
20. Cash and cash equivalents
Group Company
2018 2018
2019 US$’000 2019 US$’000
US$’000 (Restated) US$’000 (Restated)
Cash and cash equivalents 36,197 40,762 35,888 40,180
Solicitor client account (i) 500 – 500 –
36,697 40,762 36,388 40,180
(i) Solicitor client account at 31 December 2019 represents monies held on behalf of the Company by David M. Turner & Company Solicitors.
21. Trade and other payables
Group Company
2018 2018
2019 US$’000 2019 US$’000
US$’000 (Restated) US$’000 (Restated)
Current
Trade payables 1,608 4,555 329 1,365
Amounts owed to Group undertakings (i) – – 2,401 11,506
PAYE / PRSI 215 228 116 125
Other creditors 158 970 71 962
Accruals 3,092 2,475 1,344 1,810
Current portion of lease 333 – 333 –
5,406 8,228 4,594 15,768
(i) Amounts owed to Group undertakings are interest free and repayable on demand (Note 31).
22. Derivative
Group Company
2018 2018
2019 US$’000 2019 US$’000
US$’000 (Restated) US$’000 (Restated)
Non-current
Derivative 128 659 128 659
128 659 128 659
During 2018, San Leon issued 2,222,222 options to LPL Finance Limited with an exercise price of £0.45 for a period of four years.
The fair value of the warrants issued of US$171,000 (€149,000) has been calculated using the Black-Scholes model. The warrants
were issued in connection with financing provided to the Company.
94 SAN LEON ANNUAL REPORT 2019
22. Derivative continued
The key inputs into the valuation model are as follows:
Inter-relationships between the unobservable
Valuation technique Significant unobservable inputs inputs and fair value measurement
Black-Scholes model Option strike price of £0.30 to £0.60 The estimated fair value would
(2018: £0.30 to £0.60) increase / (decrease) if:
Average maturity of one to two years The share price increased /
(2018: two to three years) (decreased)
Risk-free interest rate of 0.055% Sterling exchange rate increased /
(2018: 0.1%) (decreased)
Share price volatility of 62% The risk free interest rate increased /
(2018: 70%) (decreased)
23. Loans and borrowings
Cash Cash
Opening inflows outflows Non-cash Closing
Group and Company 2019 US$’000 US$’000 US$’000 US$’000 US$’000
Changes in financing
Borrowings – Current – – – – –
Cash Cash
Opening inflows outflows Non-cash Closing
Group and Company 2018 US$’000 US$’000 US$’000 US$’000 US$’000
Changes in financing
Borrowings – Current (Restated) 4,747 458 (5,227) (22) –
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 US$3.2 million in principal, interest, and fees.
Interest charged in 2018 was US$145,398.
In July 2018 the loan was repaid in full.
Ken Fetherston
In late 2017 the Company received a loan of US$1.2 million (€1.0 million) from Ken Fetherston with interest and a fee of
US$295,053 (€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 US$1.5 million (£1.1 million) inclusive
of interest and foreign exchange movement. At 31 December 2017 the amount outstanding to Brandon Hill Capital Limited was
US$212,732 (£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 US$0.5 million (£0.4 million).
This loan was offset against the loan arrangement fees below.
In 2018 the Company was notified of loan arrangement fees totalling US$1.4 million (£1.1 million) relating to finance received in 2016
and 2017 via one of Brandon Hill’s clients, LPL Finance Limited. These amounts are included in Trade payables and were paid in 2019.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 95
Notes to the financial statements
for the year ended 31 December 2019 – continued
24. Provisions for liabilities
Dissenting
Decommissioning Shareholders Total
Group US$’000 US$’000 US$’000
At 1 January 2018 (Restated) 1,741 48 1,789
Decrease in provision during the year (485) – (485)
Paid during the year (496) (48) (544)
At 31 December 2018 (Restated) 760 – 760
Currency translation adjustment (2) – (2)
Paid during the year (702) – (702)
At 31 December 2019 56 – 56
Current 56 – 56
Non-current – – –
Decommissioning
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.
Dissenting shareholders
In 2018 the amount provided was fully paid in cash to the shareholders.
25. 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 Number of
New Ordinary Deferred Authorised
shares Ordinary shares Equity
€0.01 each €0.0001 each US$’000
Authorised Equity
At 1 January 2019 2,847,406,025 1,265,259,397,525 177,475
At 31 December 2019 2,847,406,025 – 177,475
96 SAN LEON ANNUAL REPORT 2019
25. Share capital – Group and Company continued
Issued, called up and fully paid:
Number of Number of
New Ordinary Deferred Share Share
shares Ordinary shares capital premium
€0.01 each €0.0001 each US$’000 US$’000
At 1 January 2018 and 1 January 2019 (Restated) 500,256,857 1,265,259,397,525 150,600 478,666
Issue of shares in lieu of salary (i) 5,590,270 – 63 2,036
Exercise of share options (ii) 250,000 – 3 96
Reduction of capital – (1,265,259,397,525) (144,871) (459,721)
Tender offer (50,475,000) – (576) –
Share buybacks (4,319,113) – (47) –
At 31 December 2019 451,303,014 – 5,172 21,077
* See Consolidated and Company Statements of Changes in Equity on pages 54 to 57.
(i) On 25 February 2019, 5,590,270 ordinary shares were issued to Oisín Fanning in lieu of 80% of his salary due to him for the
period 1 September 2016 to 30 September 2018.
(ii) On 20 March 2019, the Company issued and allotted 250,000 New Ordinary Shares of €0.01 each in respect of options
exercised. The options were exercised at a price of £0.30 (US$0.39) per share.
Reduction of capital
On 8 February 2019, the Company obtained local statutory approval to cancel all the Deferred Shares of €0.0001 each, this resulted
in the release of Share Capital of US$144.9 million, Share Premium of US$459.7 million, a required Special Reserve of US$5.0 million
and an increase in retained earnings of US$599.0 million.
Tender offer
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 US$30.5 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.
All proceeds payable under the Tender Offer to the Company’s shareholders were transferred to Computershare on 23 March
2019 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.
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”).
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 97
Notes to the financial statements
for the year ended 31 December 2019 – continued
25. Share capital – Group and Company continued
Share Buyback Programme
On 18 October 2019 the Company announced that, pursuant to the shareholder resolutions passed on 27 September 2019 at the
Annual General Meeting, it planned to acquire ordinary shares of EUR 0.01 nominal value each (“Ordinary Shares”), up to a total value of
US$ 2.0 million (the “Buyback Programme”). In accordance with the shareholder resolutions, the Company is proposed to acquire the
Ordinary Shares at a maximum price of the greater of (i) 105% of the average market price of such shares for the previous five days and
(ii) the higher of the price quoted for the last independent trade and the highest current independent bid or offer for such shares.
Ordinary Shares acquired as a result of the Buyback Programme were cancelled. The Buyback Programme was funded from the
Company’s cash balances.
At 31 December 2019 Company had repurchased 4,319,113 Ordinary Shares at an aggregate value of US$1.5 million. Following
cancellation of the shares repurchased to 31 December 2019, the total number of Ordinary Shares in issue with voting rights
was 451,303,014.
On 22 January the Company announced that it had completed the Buyback Programme. Under the Buyback Programme, the
Company repurchased 5,709,101 Ordinary Shares at an aggregate value of £1,570,085.49. Following cancellation of the final
shares repurchased, the total number of Ordinary Shares in issue with voting rights was 449,913,026.
26. 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 US$13.9 million (2018: US$13.6 million) relates to the realisation of the
cumulative foreign currency losses on the disposal or liquidation 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.
Special reserve
Pursuant to the capital reduction, in Note 25, the Company undertook to credit US$5,024,260 to a special reserve. This special
reserve is not a distributable reserve and must remain in place until such time as obligations in respect of certain guarantees
given by the Company have lapsed or become unenforceable.
27. 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.
98 SAN LEON ANNUAL REPORT 2019
27. Share-based payments continued
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 US$1,068,601 (2018: US$1,275,177) includes the charge for options issued to the Directors of US$607,635
(2018: US$193,918) and shares to be issued to Directors of US$Nil (2018: US$755,700).
The movement on outstanding share options and warrants during the year was as follows:
Balance at beginning of the financial year
Granted during the financial year
Modified during the financial year
Expired or cancelled during the financial year
Exercised during the financial year
Balance at end of the financial year
Exercisable at end of the financial year
2019
2018
Number
of options /
warrants
39,035,025
2,000,000
Weighted
average
exercise
price
Number
of options /
warrants
£0.620 36,415,933
£0.450 5,222,222
–
£0.450
–
Weighted
average
exercise
price
£0.767
£0.450
–
(225,950)
(250,000)
40,559,075
40,559,075
£9.337 (2,603,130)
£3.730
£0.300
–
£0.400 39,035,025
£0.400 39,035,025
–
£0.620
£0.620
The range of exercise prices of outstanding options/warrants at year end is £0.25 to £0.60 (2018: £0.25 to £25.00).
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 2019 is 3.53 years (2018: 3.41 years).
During the current year 250,000 options at £0.25 were exercised (2018: Nil).
The following table illustrates the number, exercise price and expiry date of share options and warrants remaining at year end.
Type
Options
Warrants
Options
Warrants
Warrants
Options
Options
Warrants
Warrants
Options
Options
Options
Total
Number Exercise price Year of expiration
10,240,372
319,298
10,000
300,000
750,000
250,000
10,625,000
10,000,000
4,939,405
125,000
1,000,000
2,000,000
40,559,075
£0.45
£0.60
£0.45
£0.30
£0.45
£0.45
£0.45
£0.25
£0.45
£0.45
£0.45
£0.45
2020
2020
2021
2021
2021
2022
2023
2023
2023
2024
2025
2026
SAN LEON ANNUAL REPORT 2019 99
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Notes to the financial statements
for the year ended 31 December 2019 – continued
27. Share-based payments continued
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 2019 and 2018 and the repricing of the options in 2019:
2019 2018
Weighted average fair value of options granted during year £0.20 £0.45
Weighted average share price of options at date of grant £0.28 £0.35
Dividend yield 0% 0%
Exercise price £0.45 £0.45
Expected volatility 48% – 90% 70%
Risk-free interest rate 0.55% – 1.7% 1.0% – 1.7%
Expected option life 7 years 7 years
Expected early exercise % 0% 0%
Model used Black-Scholes Black-Scholes
model 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 attached to the options.
Option repricing
In March 2019 the Company repriced all outstanding options with an exercise price above £0.45 to £0.45.
28. Commitments and contingencies
(a) Operating leases
Cash commitments under operating leases (Note 30) are as follows:
Total
Total 2018
2019 US$’000
Group US$’000 (Restated)
Payable:
Within one year 340 381
Between one and five years 1,348 1,374
Over five years 1,910 2,290
3,598 4,045
Total
Total 2018
2019 US$’000
Company US$’000 (Restated)
Payable:
Within one year 337 344
Between one and five years 1,348 1,374
Over five years 1,910 2,290
3,595 4,008
100 SAN LEON ANNUAL REPORT 2019
28. Commitments and contingencies continued
(b) Exploration, evaluation and development activities
The Group has commitments of US$Nil (2018: US$Nil) in the year ended 31 December 2019 to contribute to its share of
exploration and evaluation expenditure in respect of exploration licences and concessions held.
(c) Horizon Petroleum Ltd.
The Group has contingent consideration in aggregate of US$2.0 million in relation to the sale completed in August 2019 to
Horizon Petroleum Ltd. outlined in Note 4.
29. Deferred tax
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
2018 2018 2018
2019 US$’000 2019 US$’000 2019 US$’000
Group US$’000 (Restated) US$’000 (Restated) US$’000 (Restated)
Financial assets – IFRS 9 – – (73) (16,137) (73) (16,137)
Financial assets – other 175 111 – – 175 111
Tax losses recognised 1,616 3,622 – – 1,616 3,622
1,791 3,733 (73) (16,137) 1,718 (12,404)
2018
2019 US$’000
US$’000 (Restated)
At 1 January (12,404) (8,630)
Expense for the year recognised in the Income Statement (Note 10) (2,006) (3,121)
Deferred tax on fair value movements in financial assets IFRS 9, Barryroe NPI (Note 10) 16,064 (764)
Deferred tax on fair value of other financial assets, Quoted shares 64 111
At 31 December 1,718 (12,404)
Assets Liabilities Net
2018 2018 2018
2019 US$’000 2019 US$’000 2019 US$’000
Company US$’000 (Restated) US$’000 (Restated) US$’000 (Restated)
Financial assets –
net profit Interest – – (73) (16,137) (73) (16,137)
Financial assets – other 175 111 – – 175 111
Tax losses recognised 1,589 3,590 – – 1,589 3,590
1,764 3,701 (73) (16,137) 1,691 (12,436)
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 101
Notes to the financial statements
for the year ended 31 December 2019 – continued
29. Deferred tax continued
Unrecognised deferred tax assets
2018
2019 US$’000
Group US$’000 (Restated)
Tax losses 15,031 14,754
Capitalised expenditure 32,764 32,764
47,795 47,518
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.
30. Leases
A new accounting standard, IFRS 16 leases, was adopted with effect from 1 January 2019. The standard requires leases which were
previously treated as operating leases to be recognised as a lease liability with the associated asset capitalised and treated as a
right of use asset. On 1 January 2019 US$3.1 million of leases were recognised as liabilities on adoption of the standard and
US$3.1 million capitalised as right of use assets. In 2019 depreciation on the right of use assets was US$0.3 million, operating lease
rentals decreased by US$0.3 million and a currency translation adjustment decreased by US$0.02 million leading to an increase in
operating profit of US$0.03 million. The interest charge on the associated leases was US$0.1 million and the aggregate impact of
IFRS 16 on profit before tax was a decrease of US$0.1 million. Lease payments in the year of US$0.3 million comprised principal of
US$0.2 million and interest of US$0.1 million.
Amounts recognised in the Statement of Financial Position
2019
Group & Company US$’000
Right of use asset (included within Property, plant and equipment)
Property leases
At 1 January 2019 3,050
Additions 231
Depreciation charge for the period (329)
Closing net carrying amount 2,952
Lease liability
Property leases
At 1 January 2019 3,050
Payments – principal (192)
Payments – interest (144)
Currency translation adjustment (24)
Interest 144
Closing net carrying amount 2,834
Current 333
Non-current 2,501
102 SAN LEON ANNUAL REPORT 2019
30. Leases continued
Amounts recognised in the Income Statement
2019
Group & Company US$’000
Right of use asset (Property leases included within Property, plant and equipment)
Property leases
Depreciation charge 329
Interest expense 144
Expenses relating to low-value leases 60
Total 533
31. 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. 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 seven
years and the option fee of US$381,000 is included in other receivables (Note 19) and is refundable when the Company either
exercises or terminates the option. Mr. Fanning was paid US$221,195 (2018: US$198,000) rent for the use of this property by the
Company. The property is being provided at a competitive rate and it is an arm’s length transaction.
The property is available for use by all staff and consultants requiring overnight accommodation while conducting business on
behalf of the Company.
Loan
A summary of the movement in the loan with Mr. Fanning is set out below:
US$’000
At 1 January 2019 727
Repayments by the Director during the year (727)
Interest on loan 1
Exchange rate adjustment (1)
At 31 December 2019 –
At 31 December 2019 the loan was fully repaid to the Company.
In 2018, Oisín Fanning was paid US$1,987,000 in respect of personal loan guarantees provided by him in 2017, on behalf of
the Company.
On 25 February 2019, Oisín Fanning was issued 5,590,270 ordinary shares in lieu of 80% of his salary for the period 1 September
2016 to 30 September 2018.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 103
Notes to the financial statements
for the year ended 31 December 2019 – continued
31. Related party transactions continued
Director change in Shareholding
On 11 May 2020 the Company was notified that Oisín Fanning, Chief Executive Officer of the Company, acquired 98,000,000
ordinary shares in the Company. Following the purchase, Oisín Fanning has an interest of 107,495,864 ordinary shares,
representing 23.89% of the issued share capital of the Company.
Discovery Energy Limited
The Company and Discovery Energy Limited had a common Director, Ewen Ainsworth. Discovery Energy Limited was paid
US$20,000 for amounts due for 2019 (2018: US$28,000) and disclosed as a pension payment. Ewen Ainsworth is the sole
Director and shareholder of Discovery Energy Limited. This company is no longer being used.
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 US$90,098 for amounts due for 2019 (2018: US$93,000). Please see
the Director’s emolument table on page 27 which includes the amount paid to Greenbay Energy Limited.
In June 2019, San Leon Energy plc entered into an agreement with Caledonian Properties Nigeria Limited (“Caledonian”),
a company owned by Mutiu Sunmonu, for the use of two properties in Lagos, Nigeria, in their entirety for two years from
1 July 2019. Caledonian was paid US$220,000 for the period 1 July 2019 to 30 June 2021 and is included in prepayments
(Note 19). It is common practice to pay such sums up-front in Nigeria.
The properties are being provided at a competitive rate and it is an arm’s length transaction.
One of the properties is used as an office and the other property is available for use by all staff and consultants requiring
accommodation while conducting business on behalf of the Company.
Linda Beal Consulting LLP
In 2018 Linda Beal Consulting LLP provided consultancy services to San Leon Energy plc. and was paid US$47,000 for these
services. There were no services provided in 2019.
Brandon Hill Capital Limited
Brandon Hill Capital Limited is a shareholder in the Company.
At 31 December 2017 there was a loan amount outstanding to Brandon Hill Capital Limited of US$213,000. This was repaid in
January 2018.
In 2018, the Company advanced a short-term loan to Brandon Hill Capital Limited of US$472,000. This loan was offset against the
loan arrangement fees below.
In 2018 the Company was notified of loan arrangement fees totalling US$1,386,000 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 at 31 December 2018 and
were paid in 2019.
In 2019, Brandon Hill Capital Limited is no longer considered to be a related party as they are no longer a significant shareholder.
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.
104 SAN LEON ANNUAL REPORT 2019
31. Related party transactions continued
The total cash consideration due to the Company for the sale of its 35% interest in TSH was US$9.0 million, of which US$4.5 million
was received in November 2016. The balance of 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 US$1.5 million payment of the
Amount Due. The Company was due to receive a further 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 US$3.6 million by 31 December 2018 and, provided
for expected credit losses of US$3.4 million and reversed accrued interest receivable in 2018 of US$0.2 million. As at 31 December
2019 this position has not changed.
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.
On 11 May 2020 the Company was informed that funds managed by Tosca Asset Management LLP had sold 98,000,000 ordinary
shares in the Company on 7 May 2020. On completion of the sale funds managed by Tosca Asset Management LLP held
228,771,927 ordinary shares, representing 50.85% of the issued share capital of the Company.
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. 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, a company incorporated in Nigeria.
Martwestern holds a 50% shareholding in 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 US$174.5 million in incremental amounts by issuing Loan Notes with a coupon of 17% (“Loan Notes”). Midwestern 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 and the holder of an indirect
economic interest in OML 18. 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 US$190.6 million. An expected credit loss of
US$9.7 million was recognised on 1 January 2018 on adoption of IFRS9, and reduced to US$5.5 million at 31 December 2018.
The expected credit loss was further reduced to US$2.0 million at 31 December 2019.
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.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 105
Notes to the financial statements
for the year ended 31 December 2019 – continued
31. 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 subsurface technical and management services
with estimated consideration for the services of US$6.0 million until the end of 2021.
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 US$39.6 million. All payments during 2017 were received by the due date and in
accordance with the terms of the Loan Notes.
2018
During 2018 San Leon received total payments under the Loan Notes totalling US$66.2 million. MLPL also entered into loan
agreements with third parties to enable it to make the repayments during 2018.
2019
During 2019 San Leon received total payments under the Loan Notes totalling US$43.2 million. MLPL used the loan agreements
entered into in 2018 to continue to make the repayments during 2019.
Key management
Key management is deemed to comprise the Board of Directors. The total remuneration paid to key management was as follows:
2018
2019 US$’000
US$’000 (Restated)
Salary and emoluments 2,579 1,780
Bonuses 637 862
Social welfare costs 289 242
Shares to be issued in lieu of salary – 756
Fees and consulting services 593 803
Termination payments 128 213
Pension 102 96
Benefits 33 33
Share-based payment charge on repricing of options issued to Directors 116 –
Share-based payment expense 492 194
4,969 4,979
106 SAN LEON ANNUAL REPORT 2019
31. 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 2019, the Company is owed US$103.2 million (2018: US$152.6 million) by its subsidiaries in respect of funds
advanced to them and expenses discharged by the Company on their behalf. An impairment provision of US$100.1 million (2018:
US$149.4 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 US$2.4 million (2018: US$11.5 million) to subsidiaries in respect of funds received by and services
provided to the Company.
US$’000
Loss allowance at 31 December 2018 (Restated) 149,434
Expected credit losses released (49,132)
Loss allowance at 31 December 2019 100,302
32. 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:
•
Financial liabilities: Amortised costs – trade and other payables and loans as described in Note 21;
•
Financial assets: Amortised cost – OML 18 as described in Note 17 and Trade and other receivables as described in Note 19;
•
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.
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 US Dollars, Euro, Sterling, Polish Zloty, Moroccan Dirhams and Canadian
Dollars. The US Dollar 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 2019 and 2018, the Group did not utilise either forward currency contracts or other derivatives to manage
foreign currency risk.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 107
Notes to the financial statements
for the year ended 31 December 2019 – continued
32. Financial instruments and financial risk management continued
At 31 December 2019, the Group’s principal exposure to foreign currency risk was as follows:
Denominated Denominated Denominated Denominated Denominated
in MAD
US$’000
in PLN
US$’000
in EUR€
US$’000
in CAD
US$’000
in GBP£
US$’000
Trade and other receivables
Trade and other payables
Provisions
Cash and cash equivalents
Total 2019
585
(553)
–
481
513
350
(2,666)
(56)
95
(2,277)
52
(33)
–
264
283
–
(6)
–
–
(6)
–
(250)
–
1
(249)
At 31 December 2018, the Group’s principal exposure to foreign currency risk was as follows:
Denominated Denominated Denominated Denominated Denominated
in MAD
US$’000
in PLN
US$’000
in GBP£
US$’000
in CAD
US$’000
in US$
US$’000
Financial assets – OML 18
Financial assets – Barryroe 4.5% net profit interest
Trade and other receivables
Trade and other payables
Provisions
Cash and cash equivalents
Total 2018 (Restated)
–
–
1,456
(1,309)
–
1,911
128,720
51,142
–
(1,239)
–
38,050
2,058 216,673
–
–
483
(565)
(702)
379
(405)
–
–
–
(21)
–
–
(21)
–
–
–
(362)
–
1
(361)
At 31 December 2019, the Company’s principal exposure to foreign currency risk was as follows:
Denominated Denominated Denominated Denominated Denominated
in MAD
US$’000
in GBP£
US$’000
in CAD
US$’000
in EUR€
US$’000
in PLN
US$’000
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Total 2019
695
(369)
471
797
3,373
(3,125)
86
334
–
–
–
–
–
(6)
–
(6)
–
–
1
1
At 31 December 2018, the Company’s principal exposure to foreign currency risk was as follows:
Denominated Denominated Denominated Denominated Denominated
in MAD
US$’000
in CAD
US$’000
in GBP£
US$’000
in US$
US$’000
in PLN
US$’000
Financial assets – OML 18
Financial assets – Barryroe 4.5% net profit interest
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Total 2018 (Restated)
–
–
1,451
(1,196)
1,793
128,720
51,142
–
(95)
38,028
2,048 217,795
–
–
–
–
161
161
–
–
–
–
–
–
–
–
–
–
1
1
108 SAN LEON ANNUAL REPORT 2019
32. Financial instruments and financial risk management continued
The euro exchange rates used in the preparation of the financial statements were as follows:
2019 2018
Average rate Closing rate Average rate Closing rate
Sterling 0.784092 0.757344 0.749145 0.781249
Euro 0.893276 0.890155 0.846773 0.873362
Polish Zloty 3.838961 3.789211 3.642308 3.756681
Canadian Dollars 1.326942 1.299448 1.295024 1.362882
Moroccan Dirhams 9.564350 9.534350 9.542323 9.542323
Sensitivity analysis
If the US Dollar increased by 1% in value against the above currencies, the Group’s loss for the year would decrease and equity at
year end would increase by US$23,734. If the US Dollar decreased by 1% in value against the above currencies, the Group’s loss for
the year would increase and equity at year end would decrease by US$23,971.
If the US Dollar increased by 1% in value against the above currencies, the Company’s profit for the year would decrease and
equity at year end would decrease by US$1,859. If the US Dollar decreased by 1% in value against the above currencies, the
Company’s profit for the year would increase and equity at year end would increase by US$1,877.
(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 2019 was US$40.9
million (2018: US$43.4 million).
Trade and other receivables
Within trade and other receivables there is no significant exposure to credit risk. 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 2019 are explained in Note 19 and management believes that the existing sums are still collectable.
OML 18
The OML 18 transaction comprised the 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, this has led 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 as follows.
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.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 109
Notes to the financial statements
for the year ended 31 December 2019 – continued
32. Financial instruments and financial risk management continued
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.
In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the expected credit loss and,
although this has been assessed as having increased significantly since initial recognition, it is not considered to have increased
during the year ended 31 December 2019.
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.
The Directors have considered the impact of Covid-19 on the Loan Notes and associated credit risk, which is tied to the
performance of the OML 18 asset. The field operations of OML 18 will necessarily be slowed by the taking of customary health
precautions, but as with most oil operations around the world, the Company are advised by Eroton that operations are continuing
on a reasonable basis. The impact of the current low oil price will likely result in the deferral of some operational and capital
expenditure, as is prudent to preserve working capital by Eroton. That is expected to delay some production increases from
drilling. Eroton’s income will also be affected by the lower oil price itself, although that is buffered to some extent by the deferral of
costs mentioned. The overall effect is likely to be some modest delay in receiving distributions from Eroton via MLPL. The Directors
do not expect a material effect on the risk profile of the Loan Notes.
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:
Group Company
2018 2018
2019 US$’000 2019 US$’000
US$’000 (Restated) US$’000 (Restated)
Euro 95 421 86 198
Sterling 481 1,911 471 1,793
US Dollar 35,856 38,050 35,830 38,027
Polish Zloty 264 379 – 161
Moroccan Dirhams 1 1 1 1
36,697 40,762 36,388 40,180
(c) Liquidity risk management
Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall due. The Group manages liquidity
risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flows and matching the
maturity profiles of financial assets and liabilities. Cash forecasts are produced to identify the liquidity requirements of the Group.
Surplus cash is placed on deposit in accordance with limits and counterparties agreed by the Board, with the objective to maximise
return on funds whilst ensuring that the short-term cash requirements of the Group are maintained.
All cash and cash equivalents are due on demand. All trade and other receivables and trade and other payables are due within
one month.
110 SAN LEON ANNUAL REPORT 2019
32. Financial instruments and financial risk management continued
The financial liabilities at 31 December 2019 are as follows:
Less than One to Two to Greater than
one year two years five years five years Total
Group US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other payables, excluding leases (Note 21) 5,073 – – – 5,073
Operating leases (Note 28) 340 337 1,011 1,910 3,598
Derivative (Note 22) 57 71 – – 128
5,470 408 1,011 1,910 8,799
Less than One to Two to Greater than
one year two years five years five years Total
Company US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other payables, excluding lease (Note 21) 4,261 – – – 4,261
Operating leases (Note 28) 337 337 1,011 1,910 3,595
Derivative (Note 22) 57 71 – – 128
4,655 408 1,011 1,910 7,984
The financial liabilities at 31 December 2018 (Restated) are as follows:
Less than One to Two to Greater than
one year two years five years five years Total
Group US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other payables (Note 21) 8,228 – – – 8,228
Derivative (Note 22) – 102 557 – 659
8,228 102 557 – 8,887
Less than One to Two to Greater than
one year two years five years five years Total
Company US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other payables (Note 21) 15,768 – – – 15,768
Derivative (Note 22) – 102 557 – 659
15,768 102 557 – 16,427
The contractual cash flows are equal to the carrying value for trade and other payables. Contractual cash flows from operating
leases once discounted at the incremental borrowing rate (Note 30) will then equate the carrying value.
The impact of the Covid-19 pandemic and certain geopolitical issues, have led to a sharp fall and continued volatility in the oil price.
This is not expected to have a significant impact on liquidity risk as San Leon is in a strong financial position with cash on hand,
after the payment of the special dividend in May 2020, of US$33.0 million. In addition, the impact on our indirect interest in OML
18 or upon the Loan Notes is expected to be minimal due to Eroton taking necessary steps to defer some operational and capital
expenditure and managing working capital.
(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.
SAN LEON ANNUAL REPORT 2019 111
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Notes to the financial statements
for the year ended 31 December 2019 – continued
32. Financial instruments and financial risk management continued
(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. During the year the Company obtained local statutory
approval to cancel all the Deferred Shares of €0.0001 each, resulting in the release of Share Capital of US$144.9 million, Share
Premium of US$459.7 million, a required Special Reserve of US$5.0 million and an increase in retained earnings of US$599.0
million. This enabled the Company to buyback shares to the value of US$31.5 million in the year. See Note 25 for further details.
The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued capital,
reserves and retained losses as disclosed in the consolidated statement of changes in equity.
The Group net debt and equity, and the net debt to equity ratio at 31 December 2019 was as follows:
Total Liabilities
Less: cash and cash equivalents
Adjusted net debt
Total equity
Adjusted net debt to equity ratio
2019
US$’000
8,091
36,697
2018
US$’000
(Restated)
22,051
40,762
(28,606) (18,711)
202,916 261,150
(0.14)
(0.07)
(f) Financial assets and liabilities by category
The following table sets out the carrying value of all the financial assets and liabilities held at 31 December 2019:
Group
Financial assets
OML 18# (Note 17)
Barryroe NPI (Note 17)
Unquoted shares (Note 17)
Trade receivables * (Note 19)
Cash and cash equivalents * (Note 20)
Other debtors * (Note 19)
Financial liabilities
Trade payables * (Note 21)
Other creditors * (Note 21)
Derivative (Note 22)
At 31 December 2019
Carrying
amount
Fair value
Level 3^
31 December 31 December 31 December 31 December 31 December
2019
US$’000
2019
US$’000
2019
US$’000
2019
US$’000
2019
US$’000
Level 1
Level 2
111,323
2,769
194
2
36,697
710
(1,608)
(158)
(128)
112,252
2,769
194
2
36,697
710
(1,608)
(158)
(128)
149,801
150,730
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
112,252
2,769
194
–
–
–
–
–
(128)
115,087
# The credit risk of the OML 18 loan has been assessed as having significantly increased since initial recognition, affecting the underlying determination of the fair value.
Therefore, the carrying amount arising from the application of the effective interest rate method is greater than 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.
112 SAN LEON ANNUAL REPORT 2019
32. Financial instruments and financial risk management continued
Company
Financial assets
OML 18# (Note 17)
Barryroe NPI (Note 17)
Cash and cash equivalents * (Note 20)
Other debtors * (Note 19)
Financial liabilities
Trade payables * (Note 21)
Other creditors * (Note 21)
Derivative (Note 22)
At 31 December 2019
Carrying
amount
Fair value
Level 3^
31 December 31 December 31 December 31 December 31 December
2019
US$’000
2019
US$’000
2019
US$’000
2019
US$’000
2019
US$’000
Level 2
Level 1
111,323
112,252
2,769
36,388
696
(329)
(71)
(128)
2,769
36,388
696
(329)
(71)
(128)
150,648
151,577
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
112,252
2,769
–
–
–
–
(128)
114,893
# There has been no change to the assumptions underlying the determination of fair value of the OML 18 loan since initial recognition. Therefore, the carrying amount
arising from the application of the effective interest rate method approximates to the fair value.
* The Group has not disclosed the fair value of financial instruments such as short-term receivables and payables, as it is considered that their carrying amounts are
a reasonable approximation of their fair values.
^ For detailed disclosures on the valuation techniques of Level 3 disclosures see the note referenced above.
During the period ended 31 December 2019, there were no significant changes in the business or economic circumstances that
affect the fair value of financial assets and liabilities, no reclassifications and no transfers between levels of the fair value hierarchy
used in measuring the fair value of the financial instruments.
The following table sets out the carrying value of all the financial assets and liabilities held at 31 December 2018:
Group
Financial assets
OML 18 (Note 17)
Barryroe NPI (Note 17)
Unquoted shares (Note 17)
Trade receivables* (Note 19)
Cash and cash equivalents* (Note 20)
Other debtors* (Note 19)
Financial liabilities
Trade payables* (Note 21)
Other creditors* (Note 21)
Derivative (Note 22)
At 31 December 2018
Carrying
amount
Fair value
Level 3^
31 December 31 December 31 December 31 December 31 December
2018
US$’000
(Restated)
2018
US$’000
(Restated)
2018
US$’000
(Restated)
2018
US$’000
(Restated)
2018
US$’000
(Restated)
Level 2
Level 1
128,720 128,720
51,142
2,625
38
40,762
1,097
(4,555)
(970)
(658)
51,142
2,625
38
40,762
1,097
(4,555)
(970)
(658)
218,201 218,201
–
–
–
–
–
–
–
–
–
–
– 128,720
–
–
–
–
–
–
–
–
51,142
2,625
–
–
–
–
–
(658)
– 181,829
* 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.
SAN LEON ANNUAL REPORT 2019 113
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Notes to the financial statements
for the year ended 31 December 2019 – continued
32. Financial instruments and financial risk management continued
Company
Financial assets
OML 18 (Note 17)
Barryroe NPI (Note 17)
Unquoted shares (Note 17)
Trade receivables* (Note 19)
Cash and cash equivalents* (Note 20)
Other debtors* (Note 19)
Financial liabilities
Trade payables* (Note 21)
Other creditors* (Note 21)
Derivative (Note 22)
At 31 December 2018
Carrying
amount
Fair value
Level 3^
31 December 31 December 31 December 31 December 31 December
2018
US$’000
(Restated)
2018
US$’000
(Restated)
2018
US$’000
(Restated)
2018
US$’000
(Restated)
2018
US$’000
(Restated)
Level 2
Level 1
128,720 128,720
51,142
2,625
16
40,180
860
(1,365)
(962)
(658)
51,142
2,625
16
40,180
860
(1,365)
(962)
(658)
220,558 220,558
–
–
–
–
–
–
–
–
–
–
– 128,720
–
–
–
–
–
–
–
51,142
2,625
–
–
–
–
(658)
– 181,829
* 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 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.
(g) Hedging
At 31 December 2019 and 31 December 2018, the Group and Company had no outstanding contracts designated as hedges.
33. Subsequent events
Share Buyback Programme
On 21 January 2020 the Company announced that it had completed the buyback programme initially announced on 18 October
2019 (the “Buyback Programme”). Under the Buyback Programme which commenced on 18 October 2019, the Company has
repurchased 5,709,101 Ordinary Shares at an aggregate value of US$2,041,900. Following cancellation of the shares repurchased
during the Programme, the total number of Ordinary Shares in issue with voting rights is 449,913,026.
MLPL Loan Note
The Company has received US$41.5 million in Loan Note repayments since 31 December 2019.
On 6 April 2020 the Company entered into an agreement amending the Loan Notes Instrument (the “Amendment”) between San
Leon and MLPL. Under the terms of the Amendment, the remaining balance payable is approximately US$82.1 million* at par value
(accounted for as US$79.5 million under IFRS). A further US$10.0 million is scheduled to be paid to the Company on or before 6
October 2020, with the balance of the Loan Notes receivable payable in three quarterly instalments, commencing July 2021 and
completing by December 2021. Due to the modification of the loan, it is expected that the amortised cost of the loan will change,
however this is considered to be a non-substantial change.
The balance will continue to accrue a coupon rate of 17% per annum until repaid. All other material terms of the Loan Notes
Instrument remain unchanged.
* Refer to Alternate Performance Measures on page 121 for full reconciliation of IFRS numbers and Alternative Performance Measures.
114 SAN LEON ANNUAL REPORT 2019
33. Subsequent events continued
Appointment of new Director
On 7 April 2020, Adekolapo Ademola joined the Company as a Non-Independent, Non-Executive Director on behalf of Midwestern
Oil and Gas Company Limited.
Special dividend
On 27 April 2020 the Company announced a special dividend of approximately US$33.0 million (£27.0 million), or 6 pence per
ordinary share.
Related Party change in shareholding of Company
On 11 May 2020 the Company was informed that funds managed by Tosca Asset Management LLP had sold 98,000,000 ordinary
shares in the Company on 7 May 2020. On completion of the sale funds managed by Tosca Asset Management LLP held
228,771,927 ordinary shares, representing 50.85% of the issued share capital of the Company.
On the same day, the Company was notified that Oisín Fanning, Chief Executive Officer of the Company, acquired 98,000,000
ordinary shares in the Company. Following the purchase, Oisín Fanning has an interest of 107,495,864 ordinary shares,
representing 23.89% of the issued share capital of the Company.
Resignation of Director
On 18 May 2020, Bill Higgs stepped down from the Board as an Independent Non-Executive Director.
Covid-19
Subsequent to year end, the oil price has been significantly affected due to the combined effects of Covid-19 affecting demand,
and quota disagreements within OPEC regarding how to deal with that reduction in demand, resulting in a period of excess supply.
It is not currently possible to predict what the extent of this development is, or for how long it may exist. It is therefore not
possible to quantify any potential financial impact.
34. Comparative amounts
Comparative amounts were regrouped, where necessary, on the same basis as in the current period.
35. Change in presentation currency
In restating the Group and Company financial statements for 2019, the reported information was converted to US Dollars from
Euro using the following procedures:
•
•
•
Assets and liabilities of operations with functional currencies other than US$ (including the Company for periods prior to
1 January 2019) are translated into US$ at closing rates of exchange. Trading results of such operations are translated into US$
at the rates of exchange prevailing at the dates of transaction or average rates where these are a suitable proxy. Differences
resulting from the retranslation on the opening net assets and the results for the period have been presented in the currency
translation reserve, a component within shareholders’ equity.
Share capital, share premium and other reserves are translated at the rate applicable on the date of the change being
1 January 2019.
Cumulative currency translation adjustments are presented as if the Group had always used US$ as the presentation currency
of its consolidated financial statements.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 115
Notes to the financial statements
for the year ended 31 December 2019 – continued
35. Change in presentation currency continued
Consolidated income statement
2018 2018
€’000 US$’000
Continuing operations
Revenue from contracts with customers 173 198
Cost of sales (83) (95)
Gross profit 90 103
Share of loss of equity accounted investments (12,441) (14,693)
Administrative expenses (14,208) (16,349)
(Loss) / profit on disposal of subsidiaries 379 (13,133)
Impairment / write off of exploration and evaluation assets (2,685) (3,074)
Decommissioning of wells 424 485
Expected credit losses (3,085) (3,532)
Loss from operating activities (31,526) (50,193)
Finance expense (2,111) (2,417)
Finance income 38,499 44,082
Expected credit losses 3,679 4,212
Fair value movements in financial assets 1,993 2,281
Profit / (loss) before income tax 10,534 (2,035)
Income tax (3,299) (3,777)
Profit / (loss) for the financial year 7,235 (5,812)
Profit / (loss) per share (cent) – total
Basic profit / (loss) per share 1.43 (1.15)
Diluted profit / (loss) per share 1.43 (1.15)
Consolidated statement of other comprehensive income
2018 2018
€’000 US$’000
Profit / (loss) for the year 7,235 (5,812)
Items that may be reclassified subsequently to profit or loss
Currency translation differences – subsidiaries 183 46
Currency translation differences – joint venture 2,241 –
Recycling of currency translation reserve on disposal of subsidiaries (34) 13,567
Fair value movements in financial assets 104 119
Deferred tax on fair value movements in financial assets (35) (39)
Total other comprehensive income 2,459 13,693
Total comprehensive profit for the year 9,694 7,881
116 SAN LEON ANNUAL REPORT 2019
35. Change in presentation currency continued
Consolidated statement of financial position
Assets
Non-current assets
Intangible assets
Equity accounted investments
Property, plant and equipment
Financial assets
Other non-current assets
Current assets
Inventory
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
Currency translation reserve
Fair value reserve
Retained earnings
2018
2017
€’000
US$’000
€’000
US$’000
–
48,096
1,715
–
55,070
1,964
2,501
58,296
2,398
2,864
69,763
2,745
109,062 124,876 117,901 134,998
180
206
180
206
159,053 182,116 181,276 210,576
237
2,132
50,315
35,600
272
2,440
57,611
40,762
88,284 101,085
282
4,347
61,785
8,131
74,545
323
4,976
70,743
9,311
85,353
247,337 283,201 255,821 295,929
131,529 150,600 131,529 150,600
418,049 478,666 418,049 478,666
13,079
1,833
(7,232)
69
14,977
2,099
14,177
80
16,152
2,081
(9,622)
110
18,496
2,382
(2,836)
(363)
(329,249) (399,449) (332,958) (385,710)
Total equity attributable to equity shareholders
228,078 261,150 225,341 261,235
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
575
10,834
11,409
7,186
–
664
–
7,850
19,259
659
12,404
13,063
426
7,538
7,964
488
8,630
9,118
8,228
15,807
17,895
–
760
–
8,988
22,051
4,146
1,563
1,000
22,516
30,480
4,747
1,789
1,145
25,576
34,694
247,337 283,201 255,821 295,929
SAN LEON ANNUAL REPORT 2019 117
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Notes to the financial statements
for the year ended 31 December 2019 – continued
35. Change in presentation currency continued
Company statement of financial position
Assets
Property, plant and equipment
Financial Assets
2018
2017
€’000
US$’000
€’000
US$’000
40
46
–
–
109,062 124,876 117,901 134,998
Financial assets – investment in subsidiaries
27,545
31,539
30,226
34,608
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
136,647 156,461 148,127 169,606
4,289
50,315
35,092
4,911
57,611
40,180
89,696 102,702
2,993
61,785
7,816
72,594
3,426
70,743
8,950
83,119
226,343 259,163 220,721 252,725
131,529 150,600 131,529 150,600
418,049 478,666 418,049 478,666
13,079
1,833
69
14,977
2,099
80
16,152
2,081
1,228
18,496
2,382
1,408
(363,422) (416,122) (382,063) (437,464)
Attributable to equity shareholders
201,137 230,300 186,976 214,088
575
10,861
11,436
659
12,436
13,095
13,770
15,768
–
13,770
25,206
–
15,768
28,863
426
7,572
7,998
21,601
4,146
25,747
33,745
488
8,670
9,158
24,732
4,747
29,479
38,637
226,343 259,163 220,721 252,725
Non-current liabilities
Derivative
Deferred tax liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Total liabilities
Total equity and liabilities
118 SAN LEON ANNUAL REPORT 2019
35. Change in presentation currency continued
Consolidated statement of cash flows
2018 2018
€’000 US$’000
Cash flows from operating activities
Profit / (loss) for the year – continuing operations 7,235 (5,812)
Adjustments for:
Depletion and depreciation 742 850
Finance expense 2,111 2,417
Finance income (38,499) (44,082)
Share-based payments charge 1,114 1,275
Foreign exchange (547) (552)
Income tax 3,299 3,777
Impairment of exploration and evaluation assets – continuing operations 2,685 3,074
Expected credit losses (594) (680)
Profit / (loss) on disposal of subsidiaries (384) 13,133
Decommissioning costs (424) (485)
Decommissioning payments (433) (496)
Fair value movements in financial assets (1,993) (2,281)
Decrease / (increase) in inventory 44 50
Decrease / (increase) in trade and other receivables (115) (132)
Increase / (decrease) in trade and other payables (7,631) (8,737)
Share of loss of equity-accounted investments 12,441 14,693
Tax paid (47) (54)
Net cash outflow from operating activities (20,996) (24,042)
Cash flows from investing activities
Expenditure on exploration and evaluation assets (184) (210)
Purchase of property, plant and equipment (66) (75)
Loans advanced 400 458
Loans issued to Directors (632) (724)
Interest on Director’s loan 2 2
Interest and investment income received 88 101
OML 18 Loan Notes payments received – principal 27,574 31,572
OML 18 Loan Notes payments received – interest 28,849 33,032
Net cash inflow from investing activities 56,031 64,156
Cash flows from financing activities
Repayment of other loans (4,565) (5,227)
Dissenting shareholder payment (42) (48)
Loans repaid to Directors (1,669) (1,911)
Interest and arrangement fees paid (1,963) (2,248)
Net cash (outflow) / inflow from financing activities (8,239) (9,434)
Net increase in cash and cash equivalents 26,796 30,680
Effect of foreign exchange fluctuation on cash and cash equivalents 673 771
Cash and cash equivalents at start of year 8,131 9,311
Cash and cash equivalents at end of year 35,600 40,762
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 119
Notes to the financial statements
for the year ended 31 December 2019 – continued
35. Change in presentation currency continued
Company statement of cash flows
Cash flows from operating activities
Profit 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
Fair value movements in financial assets
Expected credit losses
Foreign exchange
Income tax
Increase in trade and other receivables
Increase / (decrease) in trade and other payables
Tax (paid) / received
Net cash outflow from operating activities
Cash flows from investing activities
Advances to subsidiary companies
OML 18 Loan Notes payments received – principal
OML 18 Loan Notes payments received – interest
Loans advanced
Loans issued to Directors
Interest on Director’s loan
Interest and investment income received
Purchase of property, plant and equipment
Net cash inflow from investing activities
Cash flows from financing activities
Repayment of other loans
Loans repaid to Directors
Interest and arrangement fees paid
Net cash outflow 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
36. Approval of financial statements
The Financial Statements were approved by the Board on 24 June 2020.
120 SAN LEON ANNUAL REPORT 2019
2018
€’000
2018
US$’000
21,046
24,098
1
1
(38,499) (44,082)
2,107
454
5,400
(1,993)
(3,679)
(631)
3,233
(107)
(3,883)
(36)
2,413
520
6,183
(2,281)
(4,212)
(724)
3,702
(123)
(4,446)
(41)
(16,587) (18,992)
(4,836)
27,574
28,849
400
(632)
2
88
(41)
(5,537)
31,572
33,032
458
(724)
2
101
(47)
51,404
58,857
(4,565)
(1,669)
(1,959)
(8,193)
26,624
652
7,816
35,092
(5,227)
(1,911)
(2,243)
(9,381)
30,484
746
8,950
40,180
Alternative performance measures
The Group monitors the par value of the Loan Notes, which is a non-IFRS measure.
The Group believes that the disclosure of the par value of the Loan Notes will assist investors in evaluating the performance of the
underlying Loan Notes. Given that these cash metrics are used by management, they also give the investor an insight into how the
Group management review and monitor the Loan Notes on an ongoing basis.
A reconciliation from the value of the Loan Notes under IFRS 9 and the par value is provided below:
IFRS 9
IFRS 9
Amortised Cost Adjustment
US$’000*
US$’000
Par value
US$’000
Loan Notes at 31 December 2019
Interest accrued on Loan Notes (1 January 2020 to 6 April 2020)
Cash receipts (1 January 2020 to 6 April 2020)
Loan Notes at 6 April 2020
* The effective interest rate is 25% and the coupon rate is 17% (Note 17).
^ Made up of capital balance of US$108.4 million and accrued interest of US$10.3 million.
114,254
6,783
(41,500)
79,537
4,494 118,748^
(1,886)
–
4,897
(41,500)
82,145
SAN LEON ANNUAL REPORT 2019 121
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Registrars
Computershare Investor Services
(Ireland) Limited
3100 Lake Drive
Citywest Business Campus
Dublin 24
Public Relations
Tavistock
1 Cornhill
London EC3V 3ND
Plunkett Communications
62b York Road
Dun Laoghaire Co. Dublin
Registered Number
237825
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)
Lisa Mitchell (Chief Financial Officer)
appointed 30 June 2019
Ewen Ainsworth (Finance Director)
resigned 30 June 2019
Mark Phillips (Non-Executive Director)
Linda Beal (Non-Executive Director)
Bill Higgs (Non-Executive Director)
resigned 18 May 2020
Adekolapo Ademola (Non-Executive
Director) appointed 7 April 2020
Registered Office
2 Shelbourne Buildings
Crampton Avenue
Shelbourne Road
Ballsbridge
Dublin 4
Secretary
Raymond King
(resigned 17 January 2019)
Alan Campbell
(appointed 17 January 2019)
Auditor
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
Barclays Bank plc
Leicester
Leicestershire LE87 2BB
United Kingdom
Solicitors
Whitney Moore Solicitors
2 Shelbourne Buildings
Crampton Avenue
Shelbourne Road
Ballsbridge
Dublin 4
David M Turner & Co Solicitors
32 Lower Abbey Street
Dublin 1
Fieldfisher LLP
2 Swan Lane
London EC4R 3TT
Fladgate LLP
16 Great Queen Street
London WC2B 5DG
Nominated Advisor
and Joint Broker
Cantor Fitzgerald Europe
1 Churchill Place
Canary Wharf
London E14 5EF
Joint Stockbrokers
Whitman Howard Limited
First floor, Connaught House
1-3 Mount Street
London W1K 3NB
Brandon Hill Capital
1 Tudor Street
London EC4Y 0AH
122 SAN LEON ANNUAL REPORT 2019
Glossary
2C
AIM
AIM Rules
BCF or bcf
Bilton
B.V.
BVI
CPR
Eroton
US$’000
ESM
FSO
Group
LLP
Loan Notes
Ltd or limited
m
‘m
Martwestern
Midwestern
MLPL
MSA
mmbbL
Nomad
NNPC
NPI
PLC
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
United States Dollars, 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
A private limited company incorporated under the laws of England and Wales, Scotland, certain
Commonwealth countries and Ireland
Metres
Millions
Martwestern Energy Limited
Midwestern Oil and Gas Company Limited
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
Special purpose vehicle
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
SAN LEON ANNUAL REPORT 2019 123
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
124 SAN LEON ANNUAL REPORT 2019
Corporate statement
San Leon Energy plc (“San Leon” or the “Company”) is a
publicly listed energy company focused on Nigeria. The
Company currently holds a 10.58% indirect economic
interest in Oil Mining Lease 18 (“OML 18”), a producing
asset located onshore Nigeria.
The Company is aiming to use OML 18 as a platform to become a leading
independent production and exploration company focused on Nigeria
and West Africa – by securing and developing further high potential
asset opportunities that yield value to our shareholders.
01 Highlights
02
San Leon at a glance
04 Our strategy
44
45
46
Statement of Director’s responsibilities
Financial statements
Independent Auditor’s report
05 Overview / Corporate structure
52 Consolidated income statement
06 Chairman’s statement
53 Consolidated statement of other comprehensive income
08
Four expected cash flow sources
54 Consolidated statement of changes in equity
10 Chief Executive’s statement
56 Company statement of changes in equity
13 Corporate governance
14 Board of Directors
58 Consolidated statement of financial position
59 Company statement of financial position
16 Corporate governance statement
60 Consolidated statement of cash flows
24
27
Audit Committee report
61 Company statement of cash flows
Remuneration Committee report
62 Notes to the financial statements
30 Nomination Committee report
121 Alternative performance measures
31
Risk and Safety Committee report
122 Corporate information
32 Directors’ report
39 Corporate Social Responsibility
42 Country and industry overview
123 Glossary
124 Conversion
y
b
d
e
c
u
d
o
r
p
d
n
a
d
e
n
g
s
e
D
i
San Leon Energy plc
Head Office
3300 Lake Drive
Citywest Business Campus
Dublin 24
Ireland
Registered address
2 Shelbourne Buildings
Crampton Avenue
Shelbourne Road
Ballsbridge
Dublin 4
Ireland
sanleonenergy.com
S
a
n
L
e
o
n
E
n
e
r
g
y
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
9
An independent
oil and gas company
Annual Report 2019