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
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An independent
oil and gas company
Annual Report 2020
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% initial indirect economic interest in Oil Mining Lease 18
(“OML 18”), a producing asset located onshore Nigeria; and during
2020 acquired a 10% interest in Energy Link Infrastructure (Malta) Ltd
(“ELI”). ELI’s sole asset is the proposed new Alternative Crude Oil
Evacuation System (“ACOES”) constructed to provide a dedicated oil
export route from the OML 18 asset.
The Company is aiming to use its interest in 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.
Overview
Highlights
San Leon at a glance
Our strategy
1
2
4
5
Financial statements
46
Independent Auditor’s report
52 Consolidated income statement
53 Consolidated statement of other comprehensive income
Overview / Corporate structure
54 Consolidated statement of changes in equity
Strategic report
6
8
Chairman’s statement
Four expected cash flow sources
10 Chief Executive’s statement
Corporate governance
14 Board of Directors
16 Corporate governance statement
24
27
Audit and Risk Committee report
Remuneration Committee report
30 Nomination Committee report
31 Health and Safety Committee report
32 Directors’ report
39 Corporate Responsibility
44
Statement of Director’s responsibilities
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
119 Alternative performance measures
120 Corporate information
121 Glossary
122 Conversion
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Highlights
Corporate
Operational
• Completed the return of approximately US$33.8 million to
shareholders during the first half of 2020 delivering on the
Company’s commitment to shareholder returns.
• The Company entered into an agreement dated 6 April 2020
amending the existing Loan Notes Instrument (the
“Amendment”) between San Leon and Midwestern Leon
Petroleum Limited (“MLPL”). Under the terms of the Amendment,
US$40.0 million was received immediately by San Leon.
• On 3 August 2020 the Company provided a US$10.0 million loan
plus an additional US$5.0 million loan on 6 October 2020 and
acquired a direct 10% interest in Energy Link Infrastructure
(Malta) Ltd (“ELI”). ELI’s sole asset is the proposed new Alternative
Crude Oil Evacuation System (“ACOES”) constructed to provide a
dedicated oil export route (comprising a new pipeline together
with a Floating Storage and Offloading (“FSO”) vessel) from OML
18. Once commissioned, the system is expected, by Eroton, to
reduce the downtime and allocated pipeline losses to below 10%.
• On 1 September 2020, the Company announced that it had
conditionally agreed to invest US$7.5 million by way of a loan
to Decklar Petroleum Limited (“Decklar”), which is the holder of
a Risk Service Agreement (“RSA”) with Millenium Oil and Gas
Company Limited (“Millenium”) on the Oza marginal field, carved
out of OML 11, onshore Nigeria. Under the agreements, once
completed, the Company will also receive a 15% interest in
Decklar for a nominal amount paid. This transaction is still
awaiting final conditions precedents to complete.
• Board appointment process previously announced completed
with appointment of John Brown as Independent Non-Executive
Director and Chair of the Audit and Risk Committee and
Adekolapo Ademola as Non-Independent Non-Executive Director
on behalf of Midwestern Oil & Gas Company Ltd. Non-Executive
Directors, Mark Phillips, Bill Higgs and Linda Beal, left the Board
during 2020 and Alan Campbell has since stepped off the Board
in 2021 as part of a board restructure.
Financial
• Cash and cash equivalents as at 31 December 2020 of US$18.5
million (includes US$6.8 million restricted and held in escrow for
the Oza transaction) (31 December 2019: US$36.7 million).
• Cash and cash equivalents as at 18 June 2021 were US$14.8
million (includes Oza escrow of US$6.8 million).
• In the past 18 months US$47.3 million, of which US$46.5 million
relates to 2020 (31 December 2019: US$43.2 million) in
principal and interest payments has been received under the
MLPL Loan Notes.
• US$5.8 million has so far been paid of the US$10.0 million
due under the MLPL Loan Notes in September 2020, leaving
US$4.2 million still outstanding.
• A share repurchase programme of US$2.0 million of Company’s
shares was completed between October 2019 and January 2020.
• A special dividend of US$33.3 million was declared in May 2020,
giving a dividend yield of approximately 30% as at the date of
dividend announcement.
An update on OML 18 activity during 2020 is provided below:
• Oil delivered to the Bonny terminal for sales was approximately
21,100 barrels of oil per day (“bopd”) in 2020 (32,000 bopd in 2019)
and continues to be affected by combined losses and downtime of
approximately 35%. The 2020 figure has also been affected by
OPEC oil production quota restrictions, and some Covid-related
delays. Together, the losses, downtime, OPEC restrictions and
Covid-related delays have caused the majority of the difference
between gross production when there is minimal disruption to
production, and oil is received at Bonny terminal for sales.
• Gas sales averaged 32.7 million standard cubic feet per day
(“mmscf/d”) in 2020 after downtime (36.0 mmscf/d in 2019).
• Production downtime of 9% in 2020 was caused by third party
terminal and gathering system issues. This relates to days when
oil production was entirely shut down at OML 18. OPEC quota
restrictions on production also had an adverse effect on
production rates, however downtime and Covid-related delays
have meant these quotas at times have not been met. Such issues
in the third-party export system are expected to be substantially
resolved by the implementation of the new ACOES for the purpose
of transporting, storing and evacuating crude oil from OML 18
export Pipeline. The pipeline will run from within the OML 18
acreage to a dedicated FSO vessel in the open sea, approximately
50 kilometres offshore. Expected timing for the commencement
of operations is H2 of 2021. See ELI update below.
• Pipeline losses by the Bonny Terminal operator have increased
over the past year (31 December 2020: 28%; 31 December 2019:
22%), largely due to lower pipeline throughput as a result of
OPEC quota restrictions. In the longer term, the ACOES is
expected to reduce losses significantly.
• Eroton completed its three well drilling programme in early 2020,
with the final completion and flow of these wells impacted by
Covid-19. Lower oil prices for much of 2020 have led Eroton to
improve capital discipline and the prudent deferral of the next
drilling campaign, now expected to commence during 2022.
• Eroton has taken all appropriate precautions for its operations
and people, with regards to Covid-19 and we understand has
had no Covid-19 cases on OML 18.
ELI
• ELI has received approval from the President of Nigeria (acting
in his capacity as Minister for Petroleum Resources) for the FSO,
ELI Akaso, to be set up as an oil terminal.
• ELI is in advanced negotiations with other third party injectors
for use of its pipeline and terminalling facilities.
• Construction of the pipeline continues to progress and hook up
with ELI Akaso is expected to take place in the H2 2021.
Outlook 2021
• The commissioning of the ELI pipeline.
• Expected close out of Oza transaction.
• Continuing to position the Company for further transactions.
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SAN LEON ANNUAL REPORT 2020 1
San Leon at a glance
Considerable exploration potential exists across OML 18,
an asset which is larger than Bahrain
Material Assets
in Nigeria
10.58% Indirect Economic Interest
in OML 18
The 2016 Competent Persons 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 opposite.
Contingent resources and considerable
exploration potential also exist across
this 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.
10% equity investment in Energy
Link Infrastructure (Malta)
The Company also has a 10% equity
interest in Energy Link Infrastructure
(Malta) (“ELI”) – a company which owns
the ACOES project. The ACOES is being
constructed to provide a dedicated oil
export route from the OML 18 asset,
comprising a new pipeline from OML 18
and a floating storage and offloading
vessel (“FSO”). Once commissioned, the
system is expected by Eroton to reduce
the downtime and allocated pipeline
losses currently associated with the
Nembe Creek Trunk Line (“NCTL”), to
below 10%. In addition, it is anticipated
that the ACOES project will improve
overall well uptime.
The Board believes that the ACOES will
have a significant effect on the
operation of OML 18, primarily through
the reduction of downtime and losses
associated with the existing export
route. ELI, through its Nigerian
subsidiary, will earn fees for transporting
and storing crude oil from OML 18 and
potential third parties. As a shareholder
in ELI, San Leon stands to benefit from
what the Board considers could be a
very profitable operation in the
medium to long term.
2 SAN LEON ANNUAL REPORT 2020
NIGER
BURKINA
FASO
BENIN
N I G E
R
I
A
TOGO
Abuja
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
N
0
200km
OML 18
EQUATORIAL
GUINEA
Gross technical reserves before economic cut-off
OML 18
1P
2P
GABON
Oil + Condensate (mmstb^)
389
Gas (bscf*)
3,119
576
3,213
^ million stock tank barrels of oil. * billion standard cubic feet of gas.
3P
777
5,080
Aker Solutions, AGR, Maersk Drilling,
Keppel FELS, Aibel AS for the subsequent
development of Barryroe. In April 2021,
Providence has announced that it had
terminated the farm-out agreement with
SpotOn Energy for the Barryroe Licence
and is progressing arrangements for an
alternative funding package to finance
100% of the costs of the early
development scheme (“EDS”) for the
Barryroe licence (SEL 1/11).
Other assets
Ireland (Offshore) – Barryroe
San Leon holds a 4.5% Net Profit Interest
(“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)
announced during 2020 that it had
farmed out Barryroe, pending certain
conditions to be fulfilled. The Farmout
Agreement was entered into with
SpotOn Energy Limited, a
Norwegian-based resources company,
who have partnered with Schlumberger,
OML 18
OML 23
DEGEMA
Greater Port
Harcourt Swamp
Line (GPHSL)
BUGUMA
Port
Harcourt
Apara
GTS 4GTS 4
GTS 4
Gas Line
Gas Line
Gas Line
OML 2006
OML 2006
OML 2006
Ajokpori
Ebubu
Port Harcourt
Port Harcourt
Port Harcourt
Oil Refinery
Oil Refinery
Oil Refinery
OGONI
N’toreN’tore
N’tore
Chemicals
Chemicals
Chemicals
Onne
Dawes
Dawes
Dawes
Island
Island
Island
OML 11
Alakiri
East
Cawthorne
Channel
Hughes
Channel
Nembe
Creek
Trunk Line
(NCTL)
3. MPN Bonny
River Terminal
(Exxon Mobil)
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
OML 52
Bonny
Terminal
Buguma
Creek
Asaritoru
Orubiri
Idama
OML 55
Jokka
OML18
Alakiri
Bille
Eastern Gas
Gathering
System
(EGGS-1)
Krakama
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
OML 55
OML 55
OML 55
Akaso
YELLOW
ISLAND
GTS 4
Gas Line
OML 141
OML 55
Manifold
Flow Station
Oil Export Line
Gas Export Line
Main field Tie-in Lines
OML 74
OML 467
OML 72
Proposed
FSO location
SAN LEON ANNUAL REPORT 2020 3
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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.
4 SAN LEON ANNUAL REPORT 2020
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 & 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 has a 50%
shareholding in 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 a typical rate of ~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 2020 5
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Chairman’s statement
As we went into 2020, there had been significant turmoil
in the financial markets due to the impact of the Covid-19
pandemic. This, along with certain geopolitical issues, had
also led to a sharp fall and continued volatility in the oil
price, which continued for much of 2020.
During this sustained period of reduced
demand, San Leon continued to deliver
further shareholder returns. An additional
US$46.5 million was received in cash
from the loan notes mechanism relating
to its OML 18 investment during the year,
which enabled us to announce the
inaugural special dividend of US$33.3
million in April 2020.
On receipt of US$40.0 million in Loan
Note repayments (principal and interest)
in April 2020, the Company amended the
terms of the Loan Notes, extending the
term out to December 2021. The
Company anticipates the remaining
outstanding balance at 31 December
2020 of US$84.2 million, including
interest, to be repaid, however given the
issues around Covid-19, volatility in the
oil price and demand as well as short
term production issues at the asset level,
the Company is not confident of
repayments being received on time. This
has resulted in a credit impairment of the
Loan Notes due to uncertainty in timing
of these repayments.
The Company’s financial position enabled
it to take advantage of potential
value-adding opportunities, and I am
pleased to report that San Leon did so
during the second half of 2020, acquiring
an interest in ELI and announcing the
proposed Oza field investment.
Last year I reported that Eroton had
continued to drill its three-well campaign
and progressed the new oil export system.
The drilling campaign was successfully
completed during 2020, and the new oil
export system, ACOES, is expected to be
operational during H2 2021.
I continue to believe that we should not
expect significant long-term impacts
resulting from the sustained economic
downturn, to our indirect interest in OML
18 or the underlying asset, however we
have credit impaired the MLPL Loan
Notes due to these increased risks
previously mentioned. San Leon and
Eroton, the operator of OML 18,
continue to observe work from home
where possible for office employees,
while continuing to adjust field location
rotations and managing working capital.
Naturally, the operational deferrals,
OPEC production restrictions and
increased production downtime have
reduced production during 2020 and
have some natural delay in achieving
future production increases from new
well drilling. Alongside the revival in oil
prices post the reporting period, I expect
Eroton to start to consider when to
restart well operations with an aim to
boosting production on what we
consider to be a world-class asset.
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.
Our investment in ELI is expected to yield
attractive returns to the Company from
its loan plus equity component, and we
anticipate the ACOES and FSO will be
commissioned in the second half of
2021. We continue to finalise our
investment in the Oza marginal field,
within the broader OML 11 block,
onshore Nigeria. This is an existing field
with some production history, where we
believe workovers and new drilling can
release the asset’s expected inherent
value. Again, a relatively low-risk
investment with a cash sweep, combined
with an equity interest via the Risk
Service Provider on Oza, fits well with the
Company’s strategy to broaden its
portfolio in Nigeria using limited risk
investments with near-term targeted
cash flow. This transaction is still awaiting
final conditions precedents to complete.
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, the
6 SAN LEON ANNUAL REPORT 2020
US$47.3 m
US$47.3 million received since
the beginning of 2020.
importance for businesses and investors.
We constituted a formal Committee of
the Board during December 2020 to
oversee San Leon’s ESG strategy and
initiatives. This is an area to which San
Leon continues to be committed and our
focus in 2021 is in developing our own
ESG strategy, which the Company
anticipates will meet 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
which we have a presence. The Company
continued several initiatives during the
course of 2020 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. This is in addition to our
ongoing support of women-led small
enterprises in Nassarawa and Benue
States and the installation of motorised
water boreholes.
With its increasing technical involvement
in OML 18, relationships in-country,
additional investments in ELI and Oza
(yet to be completed), and funds
expected in the future, we believe San
Leon is well-positioned to continue to
realise value for shareholders from
Nigeria. With the stabilised oil price and
planned ACOES, we hope to see an
improvement in the short-term
production issues at the asset level, and
continue to monitor the situation closely.
Our strategy continues to include the
delivery of sustainable long-term returns
to shareholders. We aim to achieve this
through a combination of returns to
shareholders and also growth in our
asset base.
I look forward with confidence to
updating shareholders on the
achievement of these aims.
Mutiu Sunmonu
Chairman
28 June 2021
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operator, Providence Resources plc,
continues to work on a funding solution
which is expected by Providence to
conclude by the end of the third quarter
in time to meet drilling in 2022 and
progress development of the field.
The Company has nearly completed its
exit from Poland, with the small amount
of remaining activity being administrative.
The Company continues to hold certain
NPIs in relation to Polish licences.
The assets of NovaSeis are planned to be
sold as part of the Company’s exit from
Poland, with the majority of non-seismic
equipment having already been sold.
Staff welfare is of utmost importance to
us and as such at San Leon Energy plc
we have also been working remotely
whenever possible since March 2020 as
mandated by the different governments
in the countries in which we have a
presence. All employees and consultants
have continued to be actively engaged
regardless of the home working conditions.
As at 18 June 2021 San Leon had
unrestricted cash on hand of US$8.0
million, however given the issues around
Covid-19, volatility in the oil price and
demand as well as short term production
issues at the asset level, the Company is
not confident of repayments being
received on time. This has resulted in a
credit impairment of the Loan Notes due
to uncertainty in timing of repayments.
Our cash inflows have allowed the
Company not only to survive the on-going
market turmoil, but also to take advantage
of potential value-adding opportunities.
The Company continues to monitor the
situation and is managing its financial
position accordingly.
Director. Adekolapo brings a wealth of
experience across a variety of disciplines
with a strong focus on Nigeria. John
Brown was recently appointed as
Independent Non-Executive Director
and the Chair of the Audit and Risk
Committee. John brings 20 years of
international experience in the oil and
gas and related industries, including
10 years in West Africa. Following John’s
appointment and as part of a corporate
governance review conducted in
conjunction with its search for a new
non-executive director, Alan Campbell,
Director of Commercial & Business
Development, also stepped down from
the Board. I am grateful to Alan for
stepping down from his Board role at this
time as part of our corporate governance
Board restructuring, where there is now
an equal balance of three Non-Executive
Directors and three Executive Directors.
Alan was a key figure in San Leon’s
growth and transformation during his
time as a Director. He will remain a part
of the Company’s executive management
team and continue to contribute to
San Leon’s commercial and business
operations going forward. He also
remains as Company Secretary. The
Company would like to thank
Non-Executive Directors, Mark Phillips,
Bill Higgs and Linda Beal, who left the
Board during the period, for their service
and wish them well for the future.
During July, Allenby Capital Limited was
appointed as the Company’s Nominated
Adviser and Joint Broker. At the same
time, pursuant to the acquisition of
Whitman Howard Limited by Panmure
Gordon & Co (“Panmure Gordon”), the
Company appointed Panmure Gordon
as its Joint Broker.
During 2020, the Company appointed
Adekolapo Ademola as a Non-Executive
Environment, Social and Governance
(“ESG”) is an area of increasing
SAN LEON ANNUAL REPORT 2020 7
Four expected cash flow sources
Strong cash flow enabled the Company to complete
a share repurchase programme in January 2020 and paid
a US$33.3 million special dividend in May 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 2020, San Leon
had received total cash inflows of
US$195.6 million (interest and principal)
due under the terms of the Loan Note.
During 2021, further payments of US$0.8
million were received, bringing total cash
receipts to date to US$196.4 million,
leaving US$82.1 million* at par value
(before interest) (accounted for as
US$92.4 million under IFRS) outstanding
as of 18 June 2021.
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 the
remaining outstanding balance of the
Loan Notes, however due to short term
production issues on OML 18, the Board
is unable to assess the timing of when the
repayments will be made. Due to this
uncertainty in timing, the Company has
credit impaired the Loan Notes. Having
assessed the risk of non-payment, the
Board, although unsure of timing, still
anticipates that all Loan Note repayments
will continue to be made, 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
ELI loan note and interest
In August 2020 the Company announced
an investment of US$15.0 million in
Energy Link Infrastructure (Malta) Limited
(“ELI”), the company which owns the
Alternative Crude Oil Evacuation System
(“ACOES”) project. The investment
comprises a 10% equity interest in ELI
together with a US$15.0 million*
shareholder loan at a coupon of 14% per
annum (accounted for as US$16.4 million
under IFRS at 18 June 2021) over four
years, and repayable quarterly following
a one-year moratorium from the date of
investment. Repayments are expected
to commence from Q3 2021. Under the
terms of ELI’s senior debt facility, the
lender has a charge over all of the
company’s assets and, as further
security, each shareholder (including
San Leon Energy) has pledged their
shares to the lender. The terms of the
pledge are that the shares cannot be
transferred or otherwise utilised without
the lender’s consent.
2 Services
revenue
San Leon can provide 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 that with the current
sustained improvement in oil price, and
subject to OPEC quota restrictions,
drilling may recommence during 2022.
Current expectation of services income
is a continuation of the contract for its
subsurface technical input and leadership
once this drilling commences.
No income has yet been recognised for
technical services or under the Master
Services Agreement.
3 Indirect
equity interest
Eroton is the Operator of OML 18
while San Leon has a defined partner
role through its shareholding in MLPL.
San Leon provides technical support
to Eroton.
No dividend has been paid as yet by
MLPL. OML 18 cash flow has not been
as anticipated due to both operational
issues and the economic turmoil during
Covid-19 as well as the associated
volatility in oil price and impact on
planned well drilling and delays in the
ACOES project.
The majority of the 9% production
downtime in 2020 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 32,000 bopd during 2020
before that downtime, having also been
affected by OPEC production restrictions.
This downtime issue is being addressed
by the planned implementation of the
new ACOES export pipeline and Floating
Storage and Offloading (“FSO”) project,
which is due to be commissioned during
H2 2021. 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
Pipeline losses have been allocated to
all operators by the Bonny Terminal
operator. The 28% pipeline losses
(reducing 2020 field oil sales further to
approximately 21,000 bopd) have been
a significant burden on net oil sales.
In future, the ACOES 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.
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.
As a 10% shareholder in ELI, San Leon
stands to benefit from what the Board
considers can be a very profitable
operation in the medium to long term.
4 Barryroe net
profit interest
The Company’s 4.5% Net Profit Interest
in Barryroe oil field, offshore Ireland,
provides a zero cost potential future
cash stream.
At year end, the Company has increased
that fair value of the Net Profit Interest to
US$6.8 million.
* Refer to Alternate Performance Measures on page 119 for full reconciliation of IFRS numbers and Alternative Performance Measures.
8 SAN LEON ANNUAL REPORT 2020
Cash generation, our current portfolio of potential
sources for cash flow is:
NEAR TERM
MEDIUM TERM
LONG TERM
1
Loan
Notes
Payment
under
Loan Notes
structures.
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
Dividends
Dividend payments as a consequence of holding indirect
economic interests in producing assets.
4
Net Profit
Interest
4.5% Barryroe
Net Profit
Interest (through
potential income
or a potential
sale).
SAN LEON ANNUAL REPORT 2020 9
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Chief Executive’s statement
2020 saw operational progress at OML 18 in preparation
for its next stage of development, tempered by the
macroeconomic environment.
Eroton completed its three-well drilling
programme and the new oil export
system (Alternative Crude Oil Evacuation
and Storage system, or “ACOES”) had
continued to progress its implementation.
Following year end, the FSO has arrived in
Nigerian waters. Such operational activity,
together with expected future well work,
is we believe, the key to the anticipated
unlocking of further value for the
stakeholders in OML 18.
Both gross production at the wellhead
and sales oil volumes were lower than
expected. This was due to downtime;
allocated pipeline losses associated with
the use of the Nembe Creek Trunk Line
(“NCTL”); Covid-related operational
delays; prudent reduced operational
expenditure and capital expenditure
spending as a result of lower oil price;
and also, OPEC production quota
restrictions. Gross oil production, taking
out the effect of NCTL downtime,
(but after reductions for OPEC quota
production restrictions), was around
32,000 bopd. Sales oil, including the
effects of downtime and allocated losses,
and of OPEC quota production
restrictions, was around 21,000 bopd.
The most positive impact on OML 18
oil sales is expected to be Eroton’s
agreement with Energy Link
Infrastructure (Malta) Limited (“ELI”).
ELI is financing and constructing 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 11,000 bopd difference
between gross production, when the
pipeline is running, and average sales
oil. In addition, it is anticipated that the
ACOES and FSO project will greatly
improve overall well uptime.
San Leon continues to be 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 for new
wells. We believe that OML 18 is a world
class asset and one that we look forward
to developing further with our partners.
Additions to our asset base
I have previously been clear that San
Leon’s strong cash position, professional
relationships and technical capability
would be used to broaden our portfolio
of assets, particularly where market
forces make financial strength a
differentiator. To that end we were
pleased to announce our investment
in ELI.
The Company invested US$15.0 million
into ELI as a loan, whilst securing a 10%
equity interest in ELI. Repayments are
expected from 31 July 2021 adding to
our cash flow in the second half of the
year. It is anticipated that the pipeline
will be commissioned during the
second half of 2021 and we are pleased
to report that third party sales are
planned to commence during the
second half of 2021. It is expected that
Eroton volumes will commence during
H2 which will then complete the vital
role in optimising cash flow from
OML 18. The ELI investment is also
expected to be a value-adding asset for
Company shareholders as part of a
broader portfolio.
Additionally, San Leon also announced
an investment of US$7.5 million into
Decklar during 2020, which is still to
complete. This transaction involves
Decklar, as Risk Service Provider to the
operator of the Oza field, performing
workover and new well drilling to
develop the reserves and contingent
resources on what is a proven
producing field with existing
infrastructure. Under the terms of the
10 SAN LEON ANNUAL REPORT 2020
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financing, SLE have rights to a cash
sweep until the loan coupon is repaid,
with an option to purchase an additional
15% equity holding (30% in total) on the
same terms following the initial
development well. With near term
operations imminent, I look forward to
updating you after the first well results
are known and in relation to the
completion of the investment.
San Leon also notes the announcement
by Providence Resources plc that it has
terminated the farm-out agreement
with SpotOn Energy for the Barryroe
Licence and is progressing
arrangements for an alternative funding
package to finance 100% of the costs of
the early development scheme (“EDS”)
for the Barryroe licence (SEL 1/11). San
Leon retains a 4.5% Net Profit Interest
over the Barryroe field, one of the
largest undeveloped discoveries in
Western Europe, with independently
appraised 2C resources of 346 MMboe
and significant further resource
potential in additional reservoirs. The
Company continues to follow these
negotiations with interest.
Cash flow
The Company has four anticipated
sources of cash flow, as it builds its
portfolio in line with its stated strategy.
As of 31 December 2020, cash receipts
totalling US$195.6 million have come
from the repayment of MLPL Loan Notes,
including interest. The outstanding
balance payable as of 18 June 2021 is
US$93.2 million* at par value (US$92.4
million under IFRS), which continues to
accrue interest. Final payment of the
MLPL Loan Notes was anticipated by the
end of 2021, however due to issues
around Covid-19, volatility in the oil price
and demand as well as short-term
production issues on OML 18, the
Company believes this date is unlikely to
be met. The Company is still confident in
receiving all repayments and late
payment interest, however in line with
our accounting policy we have recognised
a credit impairment to reflect the
uncertainty around timing of repayments.
Repayments of loan notes from our
investment in ELI are due to commence
in July this year.
The Company will also generate income
from the provision of subsurface
technical services to Eroton which will
align with field development expected in
2022. 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. We are also hopeful of
future dividends from our equity interest
in ELI in the medium to long term.
* Refer to Alternate Performance Measures on page 119 for full reconciliation of IFRS numbers and Alternative Performance Measures.
SAN LEON ANNUAL REPORT 2020 11
Chief Executive’s statement continued
Corporate
Further shareholder returns were
provided in 2020 via the Company’s first
special dividend of US$33.3 million, in
line with the Company’s announced
policy. This follows on from share
repurchases of US$2.0 million over
October 2019 to January 2020.
ESG
As discussed in the Chairman’s
statement ESG is an area of 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
The Oil price was significantly impacted
for the majority of 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 presented the Company
with both risks and opportunities, and
we are delighted to see that the oil
priced has strengthened considerably in
2021. The opportunities taken to date
were the investment in and loan to ELI
and the expected finalisation of the
investment in Oza (still to complete).
it will put us in a position to continue
moving forward with our strategy and
capitalising on accretive opportunities.
The Company continues to monitor the
performance of OML 18, and is ready to
pursue any appropriate opportunities
that may arise in the current market.
I look forward to updating shareholders
with news of the impact of the ACOES
on OML 18, plans for operations on
OML 18 as we hopefully emerge from
macroeconomic issues, and how our
various expected cash flow streams are
performing. The Company is in a good
position, with several future cash
streams, and together with its
professional relationships and people,
I believe is well-positioned to grow and
add further value to shareholders.
The Company has cash in hand as at 18
June 2021 of US$14.8 million, and with
future loan note repayments, we believe
Oisín Fanning
CEO
28 June 2021
12 SAN LEON ANNUAL REPORT 2020
Corporate governance
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14 Board of Directors
16 Corporate governance statement
24
27
Audit and Risk Committee report
Remuneration Committee report
30 Nomination Committee report
31 Health and Safety Committee report
32 Directors’ report
39 Corporate Responsibility
44
Statement of Director’s responsibilities
SAN LEON ANNUAL REPORT 2020 13
Board of Directors
Mutiu Sunmonu
Non-Executive Chairman
Oisín Fanning
Chief Executive Officer
Joel Price
Chief Operating 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 ~US$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 Health and Safety Committee, Nomination and Remuneration
Committee’s, Member of Audit and Risk Committee. During the year Mr Sunmonu Chaired the Audit and
Risk and Remuneration Committees while recruitment of an additional Independent Non-Executive
Director occurred.
(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 Health and Safety Committee.
(Appointed 21 September 2016)
14 SAN LEON ANNUAL REPORT 2020
Lisa Mitchell
Chief Financial Officer
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 Fellow of CPA Australia (FCPA 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 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. Mr Ademola is also the CEO and
Executive Director of ELI.
Committee memberships: Invited to attend the Nomination Committee during the year.
(Appointed to Nominations Committee on 25 May 2021)
Adekolapo Ademola
Non-Executive Director
Background and experience:
Mr Brown has more than 20 years of international experience in the oil and gas and related
industries, including 10 years in West Africa. He is a Chartered Accountant (ICAS) and has acted as
Chief Financial Officer or Group Finance Director for numerous UK listed companies within the oil
and gas sector including Gulf Marine Services plc, Bowleven plc and Pittencrieff Resources plc.
Committee memberships: Chair of the Audit and Risk Committee, Member of the Nomination
and Remuneration Committees.
John Brown
Independent
Non-Executive Director
(Appointed 7 May 2021)
Previous Directors
Alan Campbell: Executive Director
(Appointed 21 September 2016, resigned 7 May 2021)
Bill Higgs: Independent Non-Executive Director
(Appointed 22 May 2018, resigned 18 May 2020)
Mark Phillips: Independent Non-Executive Director
(Appointed 21 September 2016, resigned 29 June 2020)
Linda Beal: Independent Non-Executive Director
(Appointed 16 January 2018, resigned 7 December 2020)
SAN LEON ANNUAL REPORT 2020 15
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Corporate governance statement
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
principal 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
and also the balance regarding
Non-Executive and Executive Directors.
During the year we were not compliant
regarding an appropriate balance
between Executive and Non-Executive
Directors and maintaining at least two
Independent Non-Executive Directors.
This situation arose as a result of timing
differences between the resignation and
appointment of Directors. We fully
consulted our Nominated Advisor on
this point, and informed the market it
was to be addressed. We have since
recruited an additional Independent
Non-Executive Director and rebalanced
the Board to rectify this. These are
highlighted in the respective sections
outlined below.
The Board
The Board is responsible for setting the
overall strategy of the business,
reviewing management performance
and ensuring the Group has sufficient
financial and human resources to meet
its objectives. It directs the Group’s
activities in an effective manner
through Board meetings and monitors
performance through timely and
relevant reporting procedures.
The Board plays a central role in
developing and maintaining the
Company’s culture and values by setting
the ‘tone from the top’, defining the
behaviours expected by the Board and
ensuring that ethical standards are
upheld. Thus, the Board aims for the
right balance between entrepreneurial
leadership and 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
for the majority of 2020 however from
December 2020 through May 2021 we
were not compliant. The recruitment
for an experienced Independent
Non-Executive Director to Chair the
Audit and Risk Committee was
undertaken and with the addition of
John Brown to the Board during May
2021 this was rectified. As part of a
corporate governance review conducted
in conjunction with its search for a new
non-executive director, Alan Campbell,
Director of Commercial & Business
Development, also stepped down from
the Board. This has facilitated a
rebalancing between Executive Directors
and Non-Executive Directors which,
following Mr Brown’s appointment, will
now be three of each. San Leon is
committed to high standards of
corporate governance and the Directors
believe that this reorganisation is an
important action to ensure the overall
structure and experience of the Board is
suitable in light of the Company’s
anticipated strategic growth plans.
At the date this Annual Report is
published, the Board comprises the
Chairman, three Executive Directors
and two Non-Executive Directors. The
Independent Non-Executive Directors
are Mutiu Sunmonu (appointed
21 September 2016) and John Brown
(appointed 7 May 2021). They are
considered independent of
management and any business or other
relationships which would interfere
with the exercise of their independent
judgement. 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. Mr Ademola is also CEO and
Executive Director of ELI. On 18 May
2020 Mr Bill Higgs resigned as a
Director, followed by Mr Mark Phillips
on 29 June 2020 and Ms Linda Beal
on 8 December 2020. All were
Independent Non-Executive Directors.
The following paragraphs set out the
Company’s compliance with the ten
principles of the QCA Code.
Establish a strategy and
business model which
promote long-term value
for shareholders
The 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
remains the indirect economic interest
16 SAN LEON ANNUAL REPORT 2020
in OML 18 – which the Directors
consider to be a world class asset
onshore Nigeria. Other Nigerian assets
include an equity interests in ELI.
The Company continues to seek to
monetise or otherwise dispose of
its non-core assets and in keeping
with that strategy.
Key challenges and risks around meeting
this strategy and mitigants are detailed
in the Director’s report on page 32.
These are namely:
•
financial risk around loan note
repayments;
•
partnership risk;
•
further Pandemics; and
•
commodity price 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.
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 upon the
availability of cash to distribute. 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$33.3 million), or
6 pence per ordinary share, with a
payment date in 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 at times
other Executive Directors meet with
current (and potential future) institutional
and retail shareholders and brokers to
update them on the Company’s progress.
During lockdown and with Covid-19
restrictions many meetings held were
via video-conferencing during 2020
and 2021.
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 Director
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 and Risk, Remuneration,
Nomination and Health and Safety
Committees are on-hand to answer
questions that may arise at the
meeting. The 2020 AGM was held via
teleconference due to Covid-19 travel
restrictions on 27 September 2020.
All Directors were in attendance with
Committee Chairs available to answer
any questions via email ahead of the
meeting, 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 at 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, discretionary
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
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SAN LEON ANNUAL REPORT 2020 17
Corporate governance statement
Continued
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 Sustainability
Section of the ESG 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.
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.
A risk management policy and
procedure has 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 and Risk Committee
quarterly. The Audit and Risk Committee
reports on its activities and make
recommendations to the Board as
appropriate.
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, three Executive Directors
and two 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, are Mutiu Sunmonu and John
Brown (appointed 7 May 2021) who 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 had a balanced and
diverse Board with the requisite skills
to build a successful, sustainable
Nigerian-focussed oil and gas business.
We have recently recruited John
Brown as Independent Non-Executive
Director and Chair of the Audit and
Risk Committee.
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 Company
advisors to allow them to ensure that
the Board complies with applicable
rules and procedures.
18 SAN LEON ANNUAL REPORT 2020
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.
Board meetings attendance in 2020
Maximum
possible Meetings
attendance attended
Mutiu Sunmonu 13 12
Oisín Fanning 13 13
Joel Price 13 13
Lisa Mitchell 13 13
Alan Campbell> 13 13
Adekolapo Ademola ~ 7 7
Linda Beal * 10 9
Mark Phillips ^ 8 7
Bill Higgs < 6 5
~ Appointed 7 April 2020.
* Resigned 7 December 2020.
^ Resigned 29 June 2020.
< Resigned 18 May 2020.
> Resigned 7 May 2021.
The Board Committees
Audit and Risk Committee
The Board has established four
separate committees: Remuneration
Committee, Audit and Risk Committee,
Nomination Committee, Health and
Safety Committee. In December 2020
the Environment and Social
Governance Committee (“ESG”) was
formally constituted and it is
anticipated it will report in through
the Health and Safety Committee.
Remuneration Committee
The Remuneration Committee consists
of the Chairman, and one Non-Executive
Director, John Brown, and is chaired by
Mutiu Sunmonu. During 2020, Mark
Phillips resigned from the Board and as
Chair of the Remuneration Committee
at which point Linda Beal assumed
the Chair role. On the subsequent
resignation of Linda Beal, Mutiu
Sunmonu assumed the Chair role.
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. During the year the
Remuneration Committee met and
discussed the following:
•
•
•
2019 Performance against agreed
metrics;
Agreed the 2019 cash bonus and
award to Executives; and
2020 Remuneration framework and
set Executive 2020 KPI’s.
Remuneration committee meetings
and attendance in 2020
Number of
Number of meetings
meetings attended
Mutiu Sunmonu (Chair) 4 4
Mark Phillips ^ 4 4
Linda Beal * 4 4
John Brown> Nil Nil
^ Resigned 29 June 2020.
* Resigned 7 December 2020.
> Appointed 7 May 2021.
The Audit and Risk Committee consists
of the Chairman, Mutiu Sunmonu and
John Brown, Independent Non-Executive
Director and Chair of the Committee
(appointed 7 May 2021). From 7
December 2020 to 6 May 2021
Mr Sunmonu assumed the Chair role
until the appointment of Mr Brown.
The duties of the Audit and Risk
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 and Risk 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
Audit and Risk Committee considered
the need for internal audit and based
on the size and scale of the Group’s
activities, combined with curtailment of
activities due to Covid-19, that the
outsourced internal audit reviews be
put on hold.
However, following the further
investments in ELI and the proposed
Decklar Petroleum investment during in
2020, the Committee recommended
that the internal audit plan for 2020
should be rescheduled for 2021.
During November 2020 this decision
was reviewed and an external firm have
been re-engaged with a view to
commencing four reviews during 2021.
For more details, please refer to the
Audit and Risk Committee report on
page 24.
The Audit and Risk Committee also
considers how to maintain an
appropriate relationship with the
Company’s auditors. The Audit and
Risk Committee approves any fees in
respect of non-audit services provided
by external auditors to safeguard the
external auditor’s independence
and objectivity.
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SAN LEON ANNUAL REPORT 2020 19
Corporate governance statement
Continued
Audit committee meetings and
attendance in 2020
Number of
Number of meetings
meetings attended
Mutiu Sunmonu ~ 5 5
Mark Phillips ^ 3 3
Linda Beal * 5 5
John Brown (Chair) > Nil Nil
^ Resigned 29 June 2020.
* Resigned 7 December 2020.
> Appointed 7 May 2021.
~ Assumed Chair role from 7 December 2020
to 6 May 2021.
Nomination Committee
The Nomination Committee consists of
the Chair, Mutiu Sunmonu, John Brown
(appointed 7 May 2021), Adekolapo
Ademola (appointed 25 May 2021)
and the Chief Executive Officer, Oisin
Fanning. 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 was one meeting
held during the year whereby the
committee led the process for a new
Board appointment and making
recommendations to the Board.
Nomination committee meetings
and attendance in 2020
Number of
Number of meetings
meetings attended
Mutiu Sunmonu (Chair) 1 Nil
Mark Phillips ^ 1 1
Oisín Fanning 1 1
Linda Beal * Nil Nil
Adekolapo Ademola~ Nil Nil
John Brown > Nil Nil
^ Resigned 29 June 2020.
* Resigned 7 December 2020.
~ Appointed 7 April 2020 and invited to attend
the Nomination Committee. Appointed to the
Nomination Committee on 25 May 2021.
> Appointed 7 May 2021.
Health and Safety Committee
The Health and Safety Committee
consists of the Chairman, Mutiu
Sunmonu and the Chief Operating
Officer, Joel Price. The Health 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 Health and Safety
Committee is also responsible for ethics
and corporate social responsibility.
Health and Safety committee
meetings and attendance in 2020
Number of
Number of meetings
meetings attended
Mutiu Sunmonu (Chair) 1 1
Joel Price 1 1
Bill Higgs < Nil Nil
< Resigned 18 May 2020.
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.
The Board believes that independence is
a matter of independence of mind,
judgement and integrity and that Mutiu
Sunmonu, John Brown and Adekolapo
Ademola are independent of
management. The Board considers their
ability to act independently to be
unaffected by participation in the
Company’s option scheme.
Mr Ademola is considered a
Non-Independent Non-Executive
Director, appointed on behalf of
Midwestern Oil & Gas Company Ltd.
Nomination Committee
The Nomination Committee is chaired by
Mutiu Sunmonu (Non-Executive
Chairman and Chair of the Remuneration
and Nomination Committee’s), with
Oisín Fanning (Chief Executive Officer)
and John Brown (appointed 7 May 2021)
members. During the year Mr Adekolapo
Ademola (Non-Independent
Non-Executive Director and Chair of the
Nomination Committee) was invited to
attend meetings and was formally
appointed to the Committee on 25 May
2021. 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.
Balance between Executive and
Non-Executive Directors
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 for the majority of 2020 however
from December 2020 through May 2021
we were not compliant. The recruitment
for an experienced Independent
Non-Executive Director to Chair the Audit
and Risk Committee was undertaken
increasing the number of Independent
Non-Executive Directors to two. The
Board currently comprises three
Executive Directors and three
Non-Executive Directors and is therefore
compliant. During the intervening period
until Mr Brown’s appointment the
Chairman assumed the role of Chair of
20 SAN LEON ANNUAL REPORT 2020
the committees that it was thought
appropriate for an Independent
Non-Executive to Chair.
Ensure that between them the
Directors have the necessary
up-to-date experience, skills
and capabilities
The Board members bring extensive
and diverse experience encompassing
operational, financial, African, European,
AIM and regulatory, commercial
expertise and large and developing
company experience.
The Chairman believes that the Board
should always have a suitable mix of
skills and competencies covering all
essential disciplines bringing a balanced
and diverse perspective that is beneficial
both operationally and strategically.
The Executive Directors bring significant
listed company, oil and gas operations and
financial, commercial and transactions
experience. The 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
Remuneration Committee sought
assistance from external advisors
regarding remuneration and incentive
packages for Executive Directors.
The Non-Executive Directors, at times,
provide internal advisory services
(Please see Related Parties Note 31).
The Company Secretary and advisors
assist 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.
Summary background and diversity of the Board
Background Diversity
Oil & gas/ Finance/ Non-UK/
Directors energy commercial Investor Female Irish
Mutiu Sunmonu 3 3 3 – 3
Oisín Fanning 3 3 3 – –
Joel Price 3 3 – – –
Lisa Mitchell ^ 3 3 3 3 3
Alan Campbell ** 3 3 – – –
Linda Beal * 3 3 – 3 –
Mark Phillips ^ – 3 3 – –
Bill Higgs < 3 3 – – –
Adekolapo Ademola ~ 3 3 3 – 3
John Brown# 3 3 3 – –
~ Appointed 7 April 2020.
* Resigned 7 December 2020.
^ Resigned 29 June 2020.
< Resigned 18 May 2020.
# Appointed 7 May 2021.
** Resigned 7 May 2021.
Evaluate Board performance
based on clear and relevant
objectives, seeking continuous
improvement
The Board considers that during the
majority of 2020 the combination of
Non-Executive and Executive Directors
was of sufficient competence and
experience to support the strategy and
development of the Company. We have
recently recruited an Independent
Non-Executive Director to Chair the
Audit and Risk Committee in order to
further strengthen and replace
resignations during the year.
The Chairman and Nomination
Committee will continue to review and
monitor the strength and objectivity of
the Board and seek improvement.
Please see the Nomination committee
report page 30 for activities performed
during the year.
Succession planning
Succession planning is currently
undertaken on an informal basis
by the CEO in consultation with the
Board. The Board is satisfied that this
is appropriate for this stage in the
Company’s development and will
continue to review its succession
planning.
Formal evaluation of
Board and Directors
There was no formal evaluation process
performed during 2020.
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. The Board continues to
review and strives to enhance all areas
of governance. The Board continues with
its commitment in attaining compliance
with the QCA code.
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SAN LEON ANNUAL REPORT 2020 21
Corporate governance statement
Continued
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.
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:
•
Share-dealing Code;
•
Anti-Bribery and Corruption Policy;
•
Whistle Blowing Policy; and
•
Health and Safety and Environmental
Protection Policies.
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 once every year or more often if
necessary and is communicated to all
employees. It was last reviewed in
December 2020 as part of the Audit and
Risk 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
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 Health 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. Please refer to the HS&E
committee report on page 31 for a list
of activities performed during the year.
Anti-Bribery and Corruption Policy
The Company’s Anti-Bribery and
Corruption Policy (“ABC”) 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 ABC 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 2020 as part of the Audit and
Risk Committee responsibilities. During
2020 the Audit and Risk Committee also
completed an independent review of the
ABC Policy and Procedures (see Audit and
Risk Committee report).
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
22 SAN LEON ANNUAL REPORT 2020
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;
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 and Risk
Committee report for a description of the
committee and the 2020 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 and Risk Committee,
Remuneration Committee, Nomination
Committee and Health and Safety
Committee (an ESG Committee was
formally constituted in December 2020);
details of their activities during 2020
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
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 CEO 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 and Risk,
Remuneration, Nomination, and Health
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
28 June 2021
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SAN LEON ANNUAL REPORT 2020 23
Audit and Risk Committee report
The Audit Committee comprises two
members, both of whom are
Independent Non-Executive Directors
including the Chair, John Brown who was
appointed on 7 May 2021 to replace
Linda Beal, and Mutiu Sunmonu who
are considered by the Board to have
recent and relevant financial experience.
The Audit and Risk 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. During 2020
Linda Beal (7 December 2020) and
Mark Phillips (29 June 2020) both
resigned from the Board and their
respective committees.
Roles and responsibilities
The main roles and responsibilities of
the Audit and Risk Committee are to:
•
•
•
•
•
•
monitor the integrity of the financial
statements, including review of the
accounting policies, key judgements
and estimates adopted in preparing
the financial statements, and any
formal announcements relating to
financial performance;
review and monitor the Company’s
financial reporting, internal control and
risk management systems to ensure
that effective risk management and
financial control frameworks have
been implemented;
make recommendations to the
Board in relation to the appointment,
reappointment or removal of the
external auditor and approve
engagement terms and fees of
the auditor;
review and monitor the scope of the
annual external audit;
review and monitor the independence
of the external auditor; and
consider the need for an internal
auditor.
Internal control and risk
management
San Leon has established terms of
reference for the Audit and Risk
Committee. This includes overview of
the identification, categorisation and
prioritisation of critical risks within the
business and allocation of responsibility
to its executives and senior managers.
The objectives of this risk management
policy are to:
•
•
•
provide a structured risk management
framework that will provide senior
management and the Board with
comfort that the risks confronting the
organisation are identified and
managed effectively;
create an integrated risk management
process owned and managed by the
Group’s personnel that is both
continuous and effective;
ensure that the management of risk is
integrated into the development of
strategic and business plans, and the
achievement of the Group’s vision
and values; and
•
ensure that the Board is regularly
updated with reports by the
Committee.
The Board also acknowledges its overall
responsibility for ensuring that the
Company has a system of internal
control in place that is appropriate. This
includes ensuring the implementation of
policies and procedures that address
risk identification and control, training
and reporting.
Management is responsible for efficient
and effective risk management across
the activities of the Group.
The Audit and Risk 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:
•
•
•
•
•
•
•
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 and Risk 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
24 SAN LEON ANNUAL REPORT 2020
annual review of compliance with the
Irish Companies Act 2014.
In order to ensure the independence
and objectivity of the external auditor,
the Audit and Risk 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.
Activities of the Audit
Committee
During 2020 the Audit Committee
considered the role of internal audit and
decided to pause the internal audit
reviews in 2020 based on the size and
scale of the Group’s activities, combined
with curtailment of activities due to
Covid-19 and the pandemic.
The internal audit role was reviewed
again in November 2020 and it was
considered appropriate to restart the
programme during 2021. The internal
audit role reports into the Audit and Risk
Committee and the main processes of
control to be reviewed during 2021
are detailed below:
•
•
Review of Procurement to Pay
processes;
Risk Register review and review of new
software implemented during 2020;
•
Payroll controls review; and
•
Treasury controls review.
The Audit and Risk Committee reviewed
the Corporate Risk Register at its
meeting on 8 June 2020 and again on
17 May 2021.
Other policies and procedures reviewed
or updated and implemented during
the year were:
•
Treasury policy;
•
Finance Position and Prospects
Procedures (“FPPP”); and
•
An Independent review of the
Anti-Bribery and Corruption Policy
and Processes and the Criminal
Finances Act.
2020 financial statements
The Audit and Risk Committee reviewed
the interim financial statements.
The Audit and Risk Committee reviewed
the planning of the 2020 audit and the
annual report. With regard to the
Group’s financial statements, the Audit
and Risk 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 and Risk Committee received
and considered memoranda from
management regarding these matters
and discussed these with the
external auditor.
The Audit and Risk Committee
determined that the key risks of
misstatement of the Group’s financial
statements related to the carrying value
of the Loan Notes and equity interest for
both MLPL and ELI and the Net Profit
Interest (NPI) on the Barryroe oil field
* Refer to Alternate Performance Measures on page 119 for full reconciliation of IFRS numbers and
Alternative Performance Measures.
and going concern. These matters were
discussed with management during
the year when the Committee
considered the interim financial
statements and in 2021 when the
Committee reviewed the 2020 Annual
report and financial statements.
Valuation of MLPL Loan Notes
and equity interest
At 31 December 2020 there was
US$82.1 million* at par value (US$84.2
million under IFRS) outstanding (before
interest) on the MLPL Loan Notes. The
value of the equity interest in MLPL at
31 December 2020 was US$43.8 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 13 and 17 of the
financial statements.
Valuation of ELI Loan Notes
and equity interest
At 31 December 2020 there was
US$15.0 million* at par value (US$15.4
million under IFRS) outstanding (before
interest) on the ELI Loan Notes. The
value of the equity interest in ELI at 31
December 2020 was US$0.3 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 13 and 17 of
the financial statements.
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SAN LEON ANNUAL REPORT 2020 25
Audit and Risk Committee report
Continued
than MLPL Loan Note receipts, and also
certain cost saving measures. The Audit
Committee considered that whilst there
may be uncertainty over the timing and
amount of future MLPL Loan Note
payments, their receipt is not required
given the cash flow forecast
assumptions (See Note 1) in order for
the Group to continue as a going
concern. Accordingly, 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 and
Risk Committee by:
John Brown
Audit and Risk Committee
28 June 2021
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
2020 was increased to US$6.8 million.
The Audit Committee adopted the
market-based valuation approach for
this investment as it considered it a
reasonable and appropriate method to
determine carrying value. It also noted
the announcement post balance date
that Providence Resources Ltd has
terminated the farm-out agreement with
SpotOn Energy for the Barryroe Licence
and is progressing arrangements for
an alternative funding package to
finance 100% of the costs of the early
development scheme (“EDS”) for the
Barryroe licence (SEL 1/11).
Going concern
The Audit Committee reviewed the
detailed cash flow forecast for the Group
and the Company for the period from 1
June 2021 to 31 December 2022, the
principal assumptions underlying the
cash flow forecast. This included a
review of various scenarios including the
availability of finance to the Group other
26 SAN LEON ANNUAL REPORT 2020
Remuneration Committee report
The Group’s policy on senior executive
remuneration is designed to attract and
retain individuals of the highest calibre
who bring relevant experience and
independent views to the development
of policy, strategic decisions and
governance of the Group.
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 CEO 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 2020 were as follows:
Salary & Fees & 2020
emoluments Bonus Pension services Benefits Total
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Mutiu Sunmonu # – – – 163 – 163
Oisín Fanning 1,334 593 – 68 26 2,021
Joel Price 448 193 33 68 8 750
Lisa Mitchell 448 193 33 68 7 749
Alan Campbell ** 448 193 33 68 3 745
Mark Phillips ^ – – – 33 – 33
Linda Beal * – – – 63 – 63
Bill Higgs < – – – 26 – 26
Adekolapo Ademola ~ – – – 50 – 50
2,678 1,172 99 607 44 4,600
< Resigned 18 May 2020.
^ Resigned 29 June 2020.
* Resigned 7 December 2020.
~ Appointed 7 April 2020.
# The Group has a consultancy agreement with Mutiu Sunmonu and Greenbay Energy Resources Limited and Mutiu Sunmonu and Caledonian Properties
Nigeria Limited. Please see Note 31 for further details.
** Resigned as Director 7 May 2021.
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SAN LEON ANNUAL REPORT 2020 27
Remuneration Committee report
Continued
Director emoluments and pension contributions, excluding share option arrangements, during the year ended
31 December 2019 were as follows:
Salary & Fees & 2019
emoluments Bonus Pension services Benefits Total
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Mutiu Sunmonu # – – – 153 – 153
Oisín Fanning 1,280 305 – 63 29 1,677
Joel Price 455 115 36 63 2 671
Lisa Mitchell ^ 196 102 16 31 – 345
Alan Campbell 455 115 36 63 2 671
Ewen Ainsworth *~> 321 – 14 31 – 366
Mark Phillips – – – 63 – 63
Linda Beal – – – 63 – 63
Bill Higgs – – – 63 – 63
2,707 637 102 593 33 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.
> Termination payment of US$127,836 is included within Salary & Emoluments
In addition to the emoluments above, in accordance with IFRS 2 share-based payments, a cost of US$418,048 (2019: US$491,635)
has been recognised in respect of share options granted to Directors. A total of US$Nil (2019: US$115,712) 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 2020, 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.
Number of Ordinary Shares
Director 22/06/21 31/12/19 01/01/20
Oisín Fanning 9,495,864 9,495,864 9,495,864
28 SAN LEON ANNUAL REPORT 2020
Share options
Details of share options granted to the Directors are as follows:
Options at Options at
01/01/20 Granted in year Lapsed in year 31/12/20 Exercise price Expiry date
Mutiu Sunmonu 1,000,000 – – 1,000,000 £0.45 20/09/23
Oisín Fanning # 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
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 22/03/28
Adekolapo Ademola ~ – 1,000,000 – 1,000,000 £0.45 22/03/28
# 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.
Mr Campbell stepped down from the Board on 7 May 2021.
> 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$344,332 of which
US$270,617 was recognised in 2019. The options have since been awarded on 23 March 2021.
~ On his appointment on 7 April 2020, 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 close
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$344,332. The options have
since been awarded on 23 March 2021.
< Resigned 18 May 2020.
^ Resigned 29 June 2020.
* Resigned 7 December 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:
Mutiu Sunmonu
Remuneration Committee Chair
28 June 2021
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SAN LEON ANNUAL REPORT 2020 29
Nomination Committee report
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 this.
The Board welcomed Adekolapo
Ademola who was appointed to the
board on 7 April 2020 as a
Non-independent Non-Executive
Director. During 2021 John Brown was
appointed to the Board as Independent
Non-Executive Director and Chair of
the Audit and Risk Committee, and
member of the Remuneration and
Nomination Committees.
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.
Given the importance and increased
focus on ESG since Covid-19, the ESG
Committee was formally constituted
in December 2020. Members of the
ESG committee are: Adekolapo
Ademola (Chair), Mutiu Sunmonu
and Lisa Mitchell.
In accordance with the Articles of
Association, Joel Price and Lisa Mitchell
retire from the Board by rotation and,
being eligible, offer themselves for
re-election.
Mutiu Sunmonu
Nomination Committee Chair
28 June 2021
The Committee conducted its business
through one meeting held in 2020.
Membership during the year comprised
of the Chairman Mutiu Sunmonu,
Adekolapo Ademola who was invited to
attend meetings, the Chief Executive
Officer Oisin Fanning, Mark Phillips
(resigned 29 June 2020) and Linda Beal
(resigned 8 December 2020). John
Brown was appointed on 7 May 2021.
Adekolapo Ademola was formally
appointed on 25 May 2021.
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 to regularly
review the 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 2020
Health and Safety Committee report
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.
Given the importance and increased
focus on ESG since Covid-19, the ESG
Committee was formally constituted in
December 2020. Members of the
ESG committee are: Adekolapo
Ademola (Chair), Mutiu Sunmonu
and Lisa Mitchell.
Mutiu Sunmonu
Health and Safety Committee Chair
28 June 2021
The Committee will govern the
Company’s ethics policy and code of
ethics to ensure ethical business practice.
Security
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 employees and
acknowledged. The Ethics and
Corporate Social Responsibility
policies are to be reviewed.
During 2020 the Health 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:
•
•
•
Report significant changes to the
operational risk profile of the business
as necessary;
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
operational risks for the business
are in place and functioning.
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.
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SAN LEON ANNUAL REPORT 2020 31
Directors’ report
for the year ended 31 December 2020
A special dividend was paid in May 2020 of US$33.3 million
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$0.8 million
have been made on behalf of MLPL and
received by the Company. There is
currently US$4.2 million (before late
payment interest) outstanding from the
US$10.0 million repayment due on
6 October 2020.
The Directors have considered the
impact of Covid-19, volatility in the oil
price and demand, OPEC quotas and
short-term production issues upon the
Company’s indirect interest in OML 18,
and upon the Loan Notes. The overall
effect is likely to delay the receipt of
distributions from MLPL. The Company
is monitoring the situation, and despite
being unable to predict the timing of
future Loan Note receipts, is confident
that the full repayment will be made.
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.
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 2020.
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, and a 10% interest in Energy
Link Infrastructure (Malta) Ltd (“ELI”).
ELI’s sole asset is the proposed new
Alternative Crude Oil Evacuation System
(“ACOES”) constructed to provide a
dedicated oil export route from the
OML 18 asset to a Floating Storage
and Offloading (“FSO”) vessel.
A detailed review of activities for the year
and future prospects of the Group is
contained in the Chairman’s Statement
and CEO’s Statement.
Results and dividends
The Group loss for the year after
providing for depreciation and taxation
amounted to a loss of US$11.9 million
(2019 Restated: loss of US$44.6 million).
Net assets of the Group at 31 December
2020 amounted to US$152.1 million
(2019 Restated: US$195.8 million).
Exploration & evaluation impairments /
write off totalled US$0.2 million in 2020
(2019: US$1.4 million). The Barryroe 4.5%
Net Profit Interest carrying value was
increased to US$6.8 million (2019:
US$2.8 million). A special dividend was
paid in May 2020 of US$33.3 million
(2019: US$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 and Risk 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 and Risk Committee’s
performance refer to the Audit and
Risk 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
32 SAN LEON ANNUAL REPORT 2020
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
and Risk 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
and Risk 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.
Further pandemics
•
Further lockdowns due to new
pandemics or continued Covid-19
escalation creating renewed
pressure on oil pricing.
•
Reduced income stream and
repayment of loan notes due
to this.
•
Strong financial discipline.
Increased
•
•
•
•
•
•
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.
Midwestern Oil and Gas Limited Loan Note
guarantee.
Partners in joint ventures are reputable with
significant experience and financial resources.
Continuous dialogue maintained with partners.
Increased
The Company has Board representation
throughout the ownership structure allowing
a transparent working relationship.
Continue to follow government advice and
lockdown measures whilst maintaining and
minimizing disruption to business.
New
•
Cash forecasting.
•
Remote working.
•
Continued close relationships with partners.
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SAN LEON ANNUAL REPORT 2020 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 Joint Ventures
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.
Increased
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.
Increased
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 2020
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.
Increased
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.
•
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.
FINANCIAL RISK
Commodity
price risk
Increased
•
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 Reserve Based Lending
facility debt, or inability to pay
dividends. The field could become
uneconomic and there would be
an inability to fund capital
development.
•
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.
•
Capital discipline and monitoring.
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SAN LEON ANNUAL REPORT 2020 35
Directors’ report
Continued
Risk
Detail
FINANCIAL RISK CONTINUED
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.
•
Insufficient funds at the Group
level to finance growth and pay
dividends.
REPUTATIONAL RISK
Bribery &
corruption
•
Reputational damage and
exposure to possible criminal
charges.
Mitigation
Year on year
change
•
•
Active dialogue maintained with financial
institutions and investors.
Increased
There is a significant population of investors
who are willing to invest in companies like
San Leon.
•
Management has a strong track record of
successful fundraisings.
•
Discretionary spend actively managed.
•
•
Continued engagement with partners and
lenders.
Maintain controls in relation to systems and
processes around spend and Delegation
of Authority.
•
Monthly reporting.
•
Forecasting.
•
Maintain financial discipline.
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
•
Lisa Mitchell, Chief Financial Officer
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
(resigned 7 May 2021)
•
•
•
•
•
Mark Phillips, Non-Executive Director
(resigned 29 June 2020)
Linda Beal, Non-Executive Director
(resigned 8 December 2020)
Bill Higgs, Non-Executive Director
(resigned 18 May 2020)
Adekolapo Ademola, Non-Executive
Director (appointed 7 April 2020)
John Brown, Independent Non-Executive
Director (appointed 7 May 2021)
In accordance with the Articles of
Association, Joel Price and Lisa Mitchell
retire from the Board by rotation and,
being eligible, offer themselves for
re-election.
36 SAN LEON ANNUAL REPORT 2020
Significant shareholders
The Company has been informed that, in addition to the interests of the Directors at 31 December 2020 (see Remuneration
Report), the following shareholders owned 3% or more of the issued share capital of the Company:
Percentage of issued share capital
22/06/21 31/12/20 31/12/19
Funds managed by Toscafund Asset Management LLP 72.63% 73.47% 72.41%
Midwestern Oil & Gas Company Limited 13.18% 13.18% 13.14%
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 2020 the Company completed the
repurchase of US$2.0 million of its own
shares 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
2020
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 # –
Total Poland –
Political donations
2018
Corporate # 40
Total Poland 40
# 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.
Charitable donations were made of
US$6,000.
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SAN LEON ANNUAL REPORT 2020 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
28 June 2021
38 SAN LEON ANNUAL REPORT 2020
Corporate Responsibility
Supporting Health, Education and Communities: Results from
our Corporate Responsibility policy in action are being seen
ESG & Sustainability
San Leon is committed to ensuring that
we operate our business in a way that is
sustainable and benefits the local
communities in which we have a
presence. Given the importance and
increased focus on ESG throughout the
pandemic, the ESG Committee was
formally constituted in December 2020
in order to guide the Company in the
development of its own ESG strategy in
2021, which the Company anticipates
will meet all the expectations of good
international industry practice.
The UN’s Sustainable Development
Goals (“SDGs”), a collection of 17 goals
designed to be a ‘blueprint to achieve a
better and more sustainable future for
all’ will be our chief framework by which
San Leon will develop its ESG strategy
and decide how we as a Company can
best contribute to helping the world
meet these goals by 2030.
Environmental
As a Company engaged in the
exploration and development of oil and
gas resources, care for the environment
is one of our key responsibilities and an
integral part of our business. San Leon
is committed to ensuring that the
Company complies with all relevant
environmental legislation, regulations
and approved practices to ensure that
our impact on the environment and
contribution to pollution is minimised.
In our environmental policy, San Leon
is committed to:
•
•
•
Comply with all relevant environmental
legislation, regulations and approved
codes of practice;
Protect the environment by striving to
prevent and minimise our contribution
to pollution of land, air, and water;
Seek to keep wastage to a minimum
and maximise the efficient use of
materials and resources;
•
Manage and dispose of all waste in
a responsible manner;
•
•
•
Provide training for our staff so that
we all work in accordance with this
policy and within an environmentally
aware culture;
Regularly communicate our
environmental performance to our
employees and other significant
stakeholders;
Develop our management processes
to ensure that environmental factors
are considered during planning and
implementation; and
•
Monitor and continuously improve
our environmental performance.
The policy statement is regularly
reviewed and updated, as necessary.
The management team endorses these
policy statements and is fully committed
to their implementation.
Social
San Leon 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.
San Leon is honoured and committed
to supporting health, education and
community projects in countries in
which we have a presence. The
Company wants to meet its social
responsibilities and contribute directly
to society when possible and where
we trust our contributions can have a
direct impact on the environment and
communities we seek to assist.
Above: Opening of Ogbagbala School, Kogi State.
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“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.”
Above: Food delivery over Christmas 2020.
SAN LEON ANNUAL REPORT 2020 39
Corporate Responsibility
Continued
Supporting education
While medical projects can 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. San Leon has supported
hundreds of young and vulnerable
people in education through direct
support and by funding the construction
of new schools in Nigeria.
One such project, a new six classroom
block in the Achusau school, in Benue
State, officially opened in October 2020.
While the whole community benefits
from the new classrooms, particularly
disadvantaged children are being
enrolled, as part of our investment,
who would in normal circumstances
not get an education.
San Leon also continues to support
education in other ways by:
•
•
•
covering tuition fees for third level
students;
providing the fees, books and school
clothes for orphans and vulnerable
children in Kojoli, Adamawa State in
the North-Eastern part of Nigeria; and
providing school fees, books, and exam
fees for children from poor homes
mostly in Makurdi and Idah areas.
new clinical laboratory and perimeter
fence to safeguard patients and workers.
It includes six hospital beds for overnight
stays and is open to anyone that
requires assistance. It is expected to
treat approximately 50 patients a day.
San Leon has been informed that it will
be a life-saving resource and an
immense relief to untold-of pain in the
surrounding communities, as many of
the people who are expected to attend
from the area will be malnourished
children, poverty stricken pregnant
women and vulnerable adults who not
only need medical attention but also
food that they may not be able to afford.
The Company has made a donation to
support some of these needs also.
The Bishops of the Province of Abuja,
which owns the building, have appointed
an experienced expert in hospital
management, Sr Joy-Jacob Nkiruka
DMMM, to manage the hospital and
she has worked with the diocese,
government and community to structure
and staff the centre and laboratory.
The laboratory itself has been equipped
to test for a wide range of conditions
including typhoid, malaria, hepatitis B
and C and HIV to assist in saving critical
time between diagnosis and treatment.
Above: St Luke’s Medical Centre, Kanshio
village, Benue State.
In Nigeria, for example, San Leon has
implemented a number of initiatives
including the building of a new medical
centre in Benue State, the provision of
educational support for disadvantaged
children and the construction of new
schools. This is in addition to our
ongoing training and support for small
women led enterprises and the
installation of motorized water supply
stations that can often transform
people’s daily lives and assist sustainable
living. San Leon has also helped many
impoverished and vulnerable families
by contributing food, shelter, clothing
as well as direct educational and
medical support.
St Luke’s Medical Centre,
Kanshio village, Benue State
San Leon is delighted to have been able
to support the opening of a new medical
centre in Kanshio village, Benue State, in
August 2020. The Company funded the
transformation of a derelict building into
a medical centre, which now includes a
We have been delighted to be part of this
project from its inception in 2019 to its
opening in August 2020, and we wish all
involved in this new facility great success
in providing healthcare to people in the
community long into the future.
Above: A new six classroom block in the
Achusau school, in Benue State.
40 SAN LEON ANNUAL REPORT 2020
Medical support
Education
We have been delighted to be part of St Luke’s Medical
Centre from its inception in 2019 to its opening in August
2020, we wish all involved in this new facility great success
in providing healthcare to people in the community.
While medical projects can 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.
St Luke’s Medical Centre
“The Medical Centre is treating an average of 50 people a day, the six
overnight beds are continuously in use, and the laboratory is constantly
diagnosing diseases and conditions on a daily basis such as malaria,
Hepatitis B and C, HIV/Aids, Pylori, Diabetes, Diarrhea, Meningitis etc.,
which nurses and doctors have been able to treat immediately with the
medicines provided. I cannot express how overjoyed people are by the
sheer relief this medical centre offers.”
Fr. Emmanuel Abuh, Trustee & Chairman – Deus Caritas Development Initiative.
Achusau school
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San Leon has supported hundreds of young and vulnerable people in
education through direct support and by funding the construction of new
schools in Nigeria. One such project, a new six classroom block in the
Achusau school, in Benue State, officially opened in October 2020. The
children pictured are the first to benefit from this life-changing initiative.
SAN LEON ANNUAL REPORT 2020 41
Corporate Responsibility
Continued
Supporting women-led
enterprise
The Company also supports the training
and establishment of small women-led
enterprises that can provide people with
a sustainable source of income. We have
funded the training of approximately
50 women from the states of Nassarawa,
Benue State, Enugu, Kogi, and
Gwagwalada in tailoring and each
woman was donated a sewing machine
to establish their own enterprise, noting
that crafting traditional African clothing
and other clothing is a sustainable
local business.
We have been told this support is
transforming lives given that many
women who before now were struggling
with obtaining the most basic necessity
of life, food, are now able to afford food
and educate their children. Some of
these women have also been busy
making school uniforms for the children
we have supported in education.
Similarly, we sponsored ten women who
completed scholarships at catering
schools in December 2020. We also
supported further women to start the
same programme in 2021. We hope that
some will go on to gain employment in
local private and commercial enterprises.
Alternatively, some would be capable
of setting up their own businesses with
some support, similar to those who
have set up tailoring businesses, as
referred to above.
Above: Ten women completed their San Leon
sponsored catering scholarships.
42 SAN LEON ANNUAL REPORT 2020
Water infrastructure projects
Through our presence in Nigeria, the
importance of water infrastructure in
communities and the onerous task that
many families face each day to gather
water has been made apparent to us.
This daily burden often falls on girls and
women who have to walk long distances
in search of water in streams and
unhygienic rivers for their families.
Following on from our successful water
projects in Mballom, Benue State and
Igwo-gwo in Kogi State, we completed
two further water projects in Yaikyo-
Kanshio community of Benue State and
Ochaja in Kogi State in 2020.
Above: Completed water project.
By providing motorised water boreholes
and storage tanks, the projects have not
only relieved the daily toil of getting
water for these communities and their
immediate neighbours where time saved
can be spent on education, work and
with families.
By seeking to help people across
communities, San Leon has been told it
has transformed the lives of children
and families. We hope, as part of our
Corporate Social Responsibility, that we
are positively benefiting society and
giving optimism, dignity and strength
to people trying to rebuild or better
their lives and by also focusing on
infrastructural projects, we hope we
will leave a positive lasting impact
on communities.
Broader responsibility
San Leon Energy actively seeks
community involvement, dialogue and
debate and we seek to maintain high
standards to ensure we meet our
broader responsibility towards
communities and the environments
we work in.
We welcome strict regulation and
monitoring of our activities by authorities.
We work with regulators and inspectors
to make sure we meet best practice in
our operations and implement best
communication processes.
We are happy to respond to any
questions or issues people raise and
believe dialogue at all levels increases
understanding and trust.
We have organised presentations,
community information events and site
visits to our operations. This gives
people first-hand experience of what we
are doing. It helps people understand
the role we play in an ever-increasing
interconnected world.
We have also been fortunate to provide
local employment and foster talent
through the investment we are making
in local economies. By investing in and
supporting local business, education,
health and employment, we believe
we are investing in all of us.
Governance
The Company seeks to maintain high
standards of corporate governance to
ensure the business 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 principles of the Quoted
Companies Alliance Corporate
Governance Code to make sure that
focus remains on the pursuit of medium
to long term value for shareholders and
Company stakeholders more broadly.
As part of this, we seek 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.
Women-led enterprise
We have funded the training of approximately 50 women
from the states of Nassarawa, Benue State, Enugu, Kogi,
and Gwagwalada in tailoring and each woman was
donated a sewing machine to establish their own
enterprise, as making traditional African clothing and
other clothing is a sustainable local business.
Water projects
Through our presence in Nigeria, it has been brought
home to us the importance of water infrastructure in
communities and the onerous task many families face
each day to gather water. This burden often falls on
girls and women who have to walk long hard distances
in search of water in streams and unhygienic rivers.
Supporting women-led enterprise
Our training support is transforming lives, given where many
women were struggling with obtaining the most basic
necessities of life are today able to afford food and educate
their children. Mrs Ester Igoma (left in the photo opposite),
was trained and provided with a sewing machine and now
employs two people in her growing enterprise.
Water infrastructure projects
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By providing motorised water boreholes and storage tanks, the projects have
relieved the daily toil of getting water for these communities and their immediate
neighbours where time saved can be spent on education, work and with families.
SAN LEON ANNUAL REPORT 2020 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 Rules, they are
required to prepare the Group financial
statements in accordance with IFRS as
adopted by the EU. The Directors have
elected to prepare the Company
financial statements in accordance with
IFRS as adopted by the EU and as
applied in accordance with the
Companies Act 2014.
Under company law the Directors must
not approve the Group and Company
financial statements unless they are
satisfied that they give a true and fair
view of the assets, liabilities and financial
position of the Group and Company
and of the Group’s profit or loss for
that year. In preparing each of the
Group and Company financial
statements, the Directors are
required to:
•
•
•
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 Group and 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 Group or Company or to
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 of the Group and Company and
the profit and loss of the Group and
which enable them to ensure that the
financial statements comply with the
provision 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 is
necessary to enable the preparation of
financial statements that are free from
material misstatement, whether due to
fraud or error, and have a general
responsible 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 2020
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
119 Alternative performance measures
120 Corporate information
121 Glossary
122 Conversion
SAN LEON ANNUAL REPORT 2020 45
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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 financial statements of San Leon Energy plc (“the Company”) and its consolidated undertakings (“the Group”)
for the year ended 31 December 2020 set out on pages 52 to 119, 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, 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 2020 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 and Loan Notes from Midwestern Leon
Petroleum Limited (“MLPL”)
We draw attention to note 13(i) and 17(i) to the financial statements concerning the uncertainty associated with the assessment of the
Group’s investment in and related Loan Notes due from MLPL. The Group’s investment in and related Loan Notes due from MLPL are
underpinned by the OML 18 oil field in Nigeria. Notwithstanding the performance of the Loan Notes in the year, there remains
significant uncertainty in relation to the quantum and timing of future 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. The consequences of the
significant uncertainty in relation to the Group and Company’s Loan Notes due from MLPL, impact on the Group and Company’s
assessment of their ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Director’s use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group’s and Company’s
ability to continue to adopt the going concern basis of accounting included considering the inherent risks to the Group’s and
Company’s business model and analysing how those risks might affect the Group’s and Company’s financial resources or ability to
continue operations over the going concern period.
The sensitivity we considered most likely to adversely affect the Group’s and Company’s future financial resources over the going
concern period is the significant uncertainty associated with quantum and timing of future cash flows associated with the MLPL
Loan Notes as highlighted by the Emphasis of Matter paragraph above. We considered various downside scenarios over the level
of available financial resources indicated by the Group’s forecasts. A key judgement in the downside scenarios is that there is
dependence on cash flows from other financial loan notes within the Group and availability of third party funding. We critically
assessed management’s assessment of the Group’s and Company’s ability to continue to adopt the going concern basis of
accounting and note that there were no risks identified that we considered were likely to have material adverse effect on the
Group’s and Company’s available financial resources over this period.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group or the Company’s ability to continue as a going concern for a
period of at least twelve months from the date when the financial statements are authorised for issue.
46 SAN LEON ANNUAL REPORT 2020
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
(unchanged from 2019):
Key audit matter
How the matter was addressed in our audit
Valuation of Midwestern Leon Petroleum Limited (“MLPL”) Loan Notes (US$68.9 million) and equity interest (US$43.8 million)
(refer to pages 66 to 72 (accounting policy) and pages 80 to 83 and 87 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 US$68.9 million (2019:
US$112.3 million) and equity interest
US$14.3 million (2019 restated: US$44.8
million) at 31 December 2020.
There are significant estimates and judgment
(forecasted cash flows and discount rate)
involved in determining the fair value of both
the Loan Notes and equity interest in MLPL.
This is both a Group and Company key
audit matter.
Our audit procedures included, but were not limited to:
•
•
•
•
•
•
•
•
•
Inspection of management’s fair value assessment models and accounting
papers highlighting the significant assumptions (forecasted 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 Notes to actual receipts in 2020 and to the date of signing the
financial statements;
Inspection of documentation supporting the amounts received and due
from MLPL under the Loan Notes;
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 Notes 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 including consideration of restatements
in relation to the prior year errors in the MLPL audited consolidated financial
statements for the year ended 31 December 2020; 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 of 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.
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SAN LEON ANNUAL REPORT 2020 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 (US$6.8 million)
(refer to pages 66 to 72 (accounting policy) and pages and 87 to 93 (financial disclosures))
The risk relates to the assessment of the
carrying value of the Barryroe NPI financial
asset of US$6.8 million (2019: US$2.8 million).
Assessing the fair value of the Group’s NPI
in Barryroe continues to be subject to
complexity and significant judgement
(market based approach and estimated
value of the NPI).
This is both a Group and Company key
audit matter.
Our audit procedures included, but 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 oil 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.
The fair value of the Barryroe NPI asset is estimated by management to be
US$6.8 million as at 31 December 2020 (2019: US$2.8 million) based on a fair
value model produced by management. This resulted in a fair value gain of
US$4.0 million recognised in the Consolidated and Company Statement of
Profit and Loss for the period ending 31 December 2020.
We consider the valuation technique and significant assumptions in
management’s model to be supportive of the valuation. All assumptions are
appropriately disclosed.
48 SAN LEON ANNUAL REPORT 2020
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 US$800,000 (2019: US$1,200,000). This has
been calculated using a benchmark of Group and Company total assets (of which it represents 0.5% (2019: 0.6%)), 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
US$40,000 (2019: US$60,000), 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.
Other information
The Directors are responsible for the preparation of the other information presented in the Annual Report together with the
financial statements. The other information comprises the information included in the Directors’ report, Group overview report,
Strategic report and Governance report.
The financial statements and our auditor’s report thereon do not comprise part of the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as
explicitly stated below, any form of assurance conclusion thereon.
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SAN LEON ANNUAL REPORT 2020 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 undertaken during the course of the audit, 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.
We have nothing to report in this regard.
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 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 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 http://www.iaasa.ie/Publications/Auditing-standards/
International-Standards-on-Auditing-for-use-in-Ire/Description-of-the-auditor-s-responsibilities-for.
50 SAN LEON ANNUAL REPORT 2020
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
28 June 2021
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SAN LEON ANNUAL REPORT 2020 51
Consolidated income statement
for the year ended 31 December 2020
2019
2020 US$’000
Notes US$’000 (Restated*)
Continuing operations
Revenue from contracts with customers 2 – 266
Cost of sales – (148)
Gross profit – 118
Share of loss of equity accounted investments 13 (1,139) (9,214)
Administrative expenses (14,918) (14,899)
Loss on disposal of subsidiaries 4 (1,044) (13,770)
Impairment / write off of exploration and evaluation assets 12 (196) (1,407)
Other income 3 – 1,400
Loss from operating activities (17,297) (37,772)
Finance expense 6 (131) (144)
Finance income 7 17,442 24,123
Expected credit losses 8 (13,692) 3,465
Fair value movements in financial assets 17 4,073 (48,373)
Loss before income tax (9,605) (58,701)
Income tax 10 (2,248) 14,079
Loss for the financial year (11,853) (44,622)
Loss per share (cent) – total
Basic loss per share 11 (2.63) (9.57)
Diluted loss per share 11 (2.63) (9.57)
* See Note 13 for details on restated amounts.
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
52 SAN LEON ANNUAL REPORT 2020
Consolidated statement of other comprehensive income
for the year ended 31 December 2020
2019
2020 US$’000
Notes US$’000 (Restated*)
Loss for the year (11,853) (44,622)
Items that may be reclassified subsequently to profit or loss
Currency translation differences – subsidiaries 26 83 (26)
Recycling of currency translation reserve on disposal of subsidiaries 26 1,044 13,870
Fair value movements in financial assets 17 (194) (2,625)
Deferred tax on fair value movements in financial assets 29 – 40
Total other comprehensive income 933 11,259
Total comprehensive loss for the year (10,920) (33,363)
* See Note 13 for details on restated amounts.
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
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SAN LEON ANNUAL REPORT 2020 53
Consolidated statement of changes in equity
for the year ended 31 December 2020
Other un- Share Attributable
Share Share denom- Currency based Shares to to equity
capital premium inated Special translation payment be issued Fair value Retained holders
reserve reserve reserve reserve reserve reserve reserve reserve earnings in Group
2019 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balance as at 1 January 2019 150,600 478,666 – – 10,777 14,977 2,099 80 (396,049) 261,150
Restatements*:
Share of loss of equity
accounted investments – – – – – – – – (1,058) (1,058)
Balance as at 1 January 2019 (Restated*) 150,600 478,666 – – 10,777 14,977 2,099 80 (397,107) 260,092
Total comprehensive income for year
Loss for the year (Restated*) – – – – – – – – (44,622) (44,622)
Other comprehensive income
Recycling of currency translation
reserve on disposal of subsidiaries – – – – 13,870 – – – – 13,870
Foreign currency translation
differences – subsidiaries – – – – (26) – – – – (26)
Fair value movements in financial assets – – – – – – – (2,625) – (2,625)
Deferred tax on fair value
movements in financial assets – – – – – – – 40 – 40
Total comprehensive income for year – – – – 13,844 – – (2,585) (44,622) (33,363)
Transactions with owners recognised
directly in equity
Contributions by and distributions to owners
Tender offer (Note 24) (144,871) (459,721) – 5,024 – – – – 599,568 –
Reduction of capital (Note 24) (576) – 576 – – – – – (30,512) (30,512)
Share buybacks (Note 24) (47) – 47 – – – – – (1,535) (1,535)
Share-based payment – – – – – 848 – – – 848
Issue of shares in lieu of salary 63 2,036 – – – – (2,099) – – –
Effect of share options exercised 3 96 – – – (72) – – 72 99
Effect of repricing of share options – – – – – 219 – – – 219
Effect of options expired – – – – – (1,680) – – 1,680 –
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) 127,544 195,848
* The balance at 1 January 2019 has been restated to account for the following:
The share of loss of equity accounted investments increased by US$1.1 million in 2018 resulting in a decrease in the Company’s equity by the same amount,
see Note 13 for full details.
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
54 SAN LEON ANNUAL REPORT 2020
Consolidated statement of changes in equity
for the year ended 31 December 2020 – continued
Other un- Share Attributable
Share Share denom- Currency based Shares to to equity
capital premium inated Special translation payment be issued Fair value Retained holders
reserve reserve reserve reserve reserve reserve reserve reserve earnings in Group
2020 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balance as at 1 January 2020 5,172 21,077 623 5,024 24,621 14,292 – (2,505) 127,544 195,848
Total comprehensive income for year
Loss for the year – – – – – – – – (11,853) (11,853)
Other comprehensive income
Foreign currency translation
differences – subsidiaries – – – – 83 – – – – 83
Recycling of currency translation
reserve on disposal of subsidiaries – – – – 1,044 – – – – 1,044
Fair value movements in financial assets – – – – – – – (194) – (194)
Deferred tax on fair value movements
in financial assets – – – – – – – – – –
Total comprehensive income for year – – – – 1,127 – – (194) (11,853) (10,920)
Transactions with owners recognised
directly in equity
Contributions by and distributions to owners
Tender offer (Note 24) – – – – – – – – – –
Dividend payment (Note 25) – – – – – – – – (33,251) (33,251)
Reduction of capital (Note 24) – – – – – – – – – –
Share buybacks (Note 24) (15) – 15 – – – – – (507) (507)
Share-based payment – – – – – 417 – – – 417
Issue of shares in lieu of salary – – – – – – – – – –
Effect of share options modified – – – – – 473 – – – 473
Effect of repricing of share options – – – – – – – – – –
Effect of options expired – – – – – (43) – – 43 –
Total transactions with owners (15) – 15 – – 847 – – (33,715) (32,868)
Balance at 31 December 2020 5,157 21,077 638 5,024 25,748 15,139 – (2,699) 81,976 152,060
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
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SAN LEON ANNUAL REPORT 2020 55
Company statement of changes in equity
for the year ended 31 December 2020
Other un- Share-
denom- Currency based Shares to
Share Share inated Special translation payment be issued Fair value Retained Total
capital premium reserve reserve reserve reserve reserve reserve earnings equity
2019 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balance as at 1 January 2019 150,600 478,666 – – – 14,977 2,099 80 (416,122) 230,300
Total comprehensive income
Profit for the year – – – – – – – – (12,284) (12,284)
Fair value movements
in financial assets – – – – – – – (2,625) – (2,625)
Deferred tax on fair value
movements in financial assets – – – – – – – 40 – 40
Total comprehensive income
for the year – – – – – – – (2,585) (12,284) (14,869)
Transactions with owners recognised
directly in equity
Contributions by and distributions to owners
Tender offer and reduction of
capital (Note 24) (144,871) (459,721) – 5,024 – – – – 599,568 –
Reduction of capital (Note 24) (576) – 576 – – – – – (30,512) (30,512)
Share buybacks (Note 24) (47) – 47 – – – – – (1,535) (1,535)
Share-based payment – – – – – 848 – – – 848
Issue of shares in lieu of salary 63 2,036 – – – – (2,099) – – –
Effect of share options exercised 3 96 – – – (72) – – 72 99
Effect of repricing of share options – – – – – 219 – – – 219
Effect of options expired – – – – – (1,680) – – 1,680 –
Total transactions with owners (145,428) (457,589) 623 5,024 – (685) (2,099) – 569,273 (30,881)
Balance at 31 December 2019 5,172 21,077 623 5,024 – 14,292 – (2,505) 140,867 184,550
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
56 SAN LEON ANNUAL REPORT 2020
Company statement of changes in equity
for the year ended 31 December 2020 – continued
Other un- Share-
denom- Currency based Shares to
Share Share inated Special translation payment be issued Fair value Retained Total
capital premium reserve reserve reserve reserve reserve reserve earnings equity
2020 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balance as at 1 January 2020 5,172 21,077 623 5,024 – 14,292 – (2,505) 140,867 184,550
Total comprehensive income
Loss for the year – – – – – – – – (9,946) (9,946)
Fair value movements in financial assets – – – – – – – – – –
Deferred tax on fair value movements
in financial assets – – – – – – – – – –
Total comprehensive income for the year – – – – – – – – (9,946) (9,946)
Transactions with owners recognised
directly in equity
Contributions by and distributions to owners
Tender offer and reduction of
capital (Note 24) – – – – – – – – – –
Dividend payment (Note 25) – – – – – – – – (33,251) (33,251)
Reduction of capital (Note 24) – – – – – – – – – –
Share buybacks (Note 24) (15) – 15 – – – – – (507) (507)
Share-based payment – – – – – 417 – – – 417
Issue of shares in lieu of salary – – – – – – – – – –
Effect of share options modified – – – – – 473 – – – 473
Effect of repricing of share options – – – – – – – – – –
Effect of options expired – – – – – (43) – – 43 –
Total transactions with owners (15) – 15 – – 847 – – (33,715) (32,868)
Balance at 31 December 2020 5,157 21,077 638 5,024 – 15,139 – (2,505) 97,206 141,736
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
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SAN LEON ANNUAL REPORT 2020 57
Consolidated statement of financial position
as at 31 December 2020
2019 2018
2020 US$’000 US$’000
Notes US$’000 (Restated*) (Restated*)
Assets
Non-current assets
Intangible assets 12 – – –
Equity accounted investments 13 44,102 44,798 54,012
Property, plant and equipment 14 3,294 4,344 1,964
Financial assets 17 17,846 2,963 124,876
Deferred tax asset 29 – 1,718 –
Other non-current assets 15 – – 206
65,242 53,823 181,058
Current assets
Inventory 18 183 180 272
Trade and other receivables 19 1,878 987 2,440
Financial assets 17 72,889 112,252 57,611
Cash and cash equivalents 20 18,510 36,697 40,762
93,460 150,116 101,085
Total assets 158,702 203,939 282,143
Equity and liabilities
Equity
Called up share capital 24 5,157 5,172 150,600
Share premium account 24 21,077 21,077 478,666
Other undenominated reserve 638 623 –
Special reserve 26 5,024 5,024 –
Share-based payments reserve 26 / 27 15,139 14,292 14,977
Shares to be issued reserve – – 2,099
Currency translation reserve 26 25,748 24,621 10,777
Fair value reserve 26 (2,699) (2,505) 80
Retained earnings 81,976 127,544 (397,107)
Total equity attributable to equity shareholders 152,060 195,848 260,092
Non-current liabilities
Lease liability 30 2,428 2,501 –
Derivative 22 9 128 659
Deferred tax liabilities 29 518 – 12,404
2,955 2,629 13,063
Current liabilities
Trade and other payables 21 3,631 5,406 8,228
Provisions 23 56 56 760
3,687 5,462 8,988
Total liabilities 6,642 8,091 22,051
Total equity and liabilities 158,702 203,939 282,143
* See Note 13 for details on restated amounts.
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
Oisín Fanning, Director Lisa Mitchell, Director
28 June 2021
58 SAN LEON ANNUAL REPORT 2020
Company statement of financial position
as at 31 December 2020
2020 2019
Notes US$’000 US$’000
Assets
Property, plant and equipment 14 2,612 3,066
Financial assets 17 6,842 2,769
Financial assets – investment in subsidiaries 16 31,539 31,539
Deferred tax asset 29 – 1,691
40,993 39,065
Current assets
Trade and other receivables 19 19,992 4,068
Financial assets 17 68,925 112,252
Cash and cash equivalents 20 18,145 36,388
107,062 152,708
Total assets 148,055 191,773
Equity and liabilities
Equity
Called up share capital 24 5,157 5,172
Share premium account 24 21,077 21,077
Other un-denominated reserve 638 623
Special reserve 26 5,024 5,024
Share-based payments reserve 26 / 27 15,139 14,292
Fair value reserve 26 (2,505) (2,505)
Retained earnings 97,206 140,867
Attributable to equity shareholders 141,736 184,550
Non-current liabilities
Lease liability 30 2,428 2,501
Derivative 22 9 128
Deferred tax liabilities 29 245 –
2,682 2,629
Current liabilities
Trade and other payables 21 3,637 4,594
3,637 4,594
Total liabilities 6,319 7,223
Total equity and liabilities 148,055 191,773
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
Oisín Fanning, Director Lisa Mitchell, Director
28 June 2021
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SAN LEON ANNUAL REPORT 2020 59
Consolidated statement of cash flows
for the year ended 31 December 2020
2019
2020 US$’000
Notes US$’000 (Restated*)
Cash flows from operating activities
Loss for the year – continuing operations (11,853) (44,622)
Adjustments for:
Depletion and depreciation 14 1,028 960
Finance expense 6 131 144
Finance income 7 (17,442) (24,123)
Share-based payments charge 890 1,069
Foreign exchange 113 (403)
Income tax expense 10 2,248 (14,079)
Impairment of exploration and evaluation assets – continuing operations 12 196 1,407
Expected credit losses 8 13,692 (3,465)
Loss on disposal of subsidiaries 4 1,044 13,770
Decommissioning payments 23 – (702)
Fair value movements in financial assets 17 (4,073) 48,373
(Increase) / decrease in inventory 18 (3) 92
(Increase) / decrease in trade and other receivables (897) 532
Decrease in trade and other payables (1,778) (3,876)
Share of loss of equity-accounted investments 13 1,139 9,214
Tax paid – (18)
Net cash outflow from operating activities (15,565) (15,727)
Cash flows from investing activities
Expenditure on exploration and evaluation assets 12 (196) (466)
Purchase of property, plant and equipment 14 – (82)
Lease – prepaid rental 30 – (231)
Loans repaid by Directors 31 – 727
Interest on Director’s loan 7 – 1
Interest and investment income received 7 47 278
Acquisition of ELI Equity Interest 17 (14,557) –
ELI Loan Notes 13 / 17 (443) –
OML 18 Loan Notes principal payments received 17 35,285 23,361
OML 18 Loan Notes interest payments received 17 11,215 19,885
Net cash inflow from investing activities 31,351 43,473
Cash flows from financing activities
Dividends paid 25 (33,251) –
Share buybacks (507) (32,048)
Proceeds from issue of shares – 99
Repayment of lease liability – principal (211) (192)
Interest paid 6 (131) (144)
Net cash outflow from financing activities (34,100) (32,285)
Net decrease in cash and cash equivalents (18,314) (4,539)
Effect of foreign exchange fluctuation on cash and cash equivalents 127 474
Cash and cash equivalents at start of year 20 36,697 40,762
Cash and cash equivalents at end of year 20 18,510 36,697
* See Note 13 for details on restated amounts.
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
60 SAN LEON ANNUAL REPORT 2020
Company statement of cash flows
for the year ended 31 December 2020
2020 2019
Notes US$’000 US$’000
Cash flows from operating activities
Loss for the year (9,946) (12,284)
Adjustments for:
Depletion and depreciation 14 358 343
Finance income 7 (16,646) (24,123)
Finance expense 131 144
Share-based payments charge 890 1,069
Impairment / (reversal of impairment) of investment in subsidiaries
and amounts due from Group undertakings 4,020 (6,943)
Fair value movements in financial assets 17 (4,073) 48,373
Expected credit losses 8 13,307 (3,465)
Foreign exchange 76 (678)
Income tax expense 1,937 (14,084)
(Increase) / decrease in trade and other receivables (926) 130
Decrease in trade and other payables (968) (2,403)
Tax paid – (18)
Net cash outflow from operating activities (11,840) (13,939)
Cash flows from investing activities
Advances to subsidiary companies (19,010) (2,160)
OML 18 Loan Notes principal payments received 17 35,285 23,361
OML 18 Loan Notes interest payments received 17 11,215 19,885
Loans repaid by Directors 31 – 727
Interest on Director’s loan 7 – 1
Interest and investment income received 7 47 278
Lease – prepaid rental 30 96 (231)
Purchase of property, plant and equipment 14 – (82)
Net cash inflow from investing activities 27,633 41,779
Cash flows from financing activities
Dividends paid 25 (33,251) –
Share buybacks (507) (32,048)
Proceeds of issue of shares – 99
Repayment on lease obligations (211) (192)
Interest paid 6 (131) (144)
Net cash outflow from financing activities (34,100) (32,285)
Net decrease in cash and cash equivalents (18,307) (4,445)
Effect of foreign exchange fluctuation on cash and cash equivalents 64 653
Cash and cash equivalents at start of year 20 36,388 40,180
Cash and cash equivalents at end of year 20 18,145 36,388
The accompanying notes on pages 62 to 118 form an integral part of these financial statements.
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SAN LEON ANNUAL REPORT 2020 61
Notes to the financial statements
for the year ended 31 December 2020
1. Accounting policies
San Leon Energy plc (“the Company”) is a company incorporated and domiciled in the Republic of Ireland. The Company’s ordinary
shares are admitted to trading on the AIM Market 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.
Statement of compliance
As required by AIM 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 2020 or were early adopted as indicated below.
New standards required by EU companies for the year ended 31 December 2020
The following new standards and amendments were adopted by the Group and the Company for the first time in the current
financial reporting period.
New standards and interpretations effective that were adopted
Standard IASB effective date EU effective date
Definition of material (Amendments to IAS 1 and IAS 8) 1 January 2020 1 January 2020
Amendments to References to the Conceptual Framework in IFRS Standards 1 January 2020 1 January 2020
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) 1 January 2020 1 January 2020
Definition of a Business (Amendments to IFRS 3) 1 January 2020 1 January 2020
The standards listed above, are effective from 1 January 2020 but they do not have a material effect on the Group’s financial statements.
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
Covid-19 Related Rent Concessions (Amendment to IFRS 16) 1 June 2020 1 June 2020
Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16) 1 January 2021 1 January 2021
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) 1 January 2022 1 January 2022
Annual Improvements to IFRS Standards 2018 – 2020 1 January 2022 1 January 2022
Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16) 1 January 2022 1 January 2022
Reference to the Conceptual Framework (Amendments to IFRS 3) 1 January 2022 1 January 2022
Classification of Liabilities as Current or Non-current (Amendments to IAS 1) 1 January 2023 1 January 2023
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts 1 January 2023 1 January 2023
Sale or Contribution of Assets between an Investor and its Associate or Effective date Effective date
Joint Venture (Amendments to IFRS 10 and IAS 28) deferred indefinitely deferred indefinitely
62 SAN LEON ANNUAL REPORT 2020
New standards that came into effect on 1 January 2021 will be applied in the year ending 31 December 2021 first reporting to
include these will be for the period ending 30 June 2021. The Directors do not believe that any of these standards will have a
significant impact on Group and Company reporting.
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 2021 to
31 December 2022.
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 2020 and the basis of the forecast for 2021 and 2022. 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 2020, Loan Note
payments totalling US$195.6 million of both principal and interest have been made on behalf of MLPL. Since the reporting date,
a further US$0.8 million has been received. Of the US$10.0 million due on 6 October 2020, a balance of US$4.2 million is still
outstanding. Quarterly repayments are due to start from July 2021.
•
Income from the provision of subsurface technical and management services of US$5.3 million in 2022.
•
Ongoing exploration and administrative expenditure from the Group’s existing activities are in line with current expectations
and commitments.
•
Repayments from ELI of loan notes of US$10.6 million during 2021 and 2022.
•
OZA deal finalised in June 2021, with repayments of Loan Notes in 2022 of US$2.2 million.
Given the Group’s well understood cost base, the principal uncertainty relates to the quantum and timing of receipt of interest and
capital repayments on the Loan Notes with MLPL. It was originally envisaged that the MLPL 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 considered the impact of the Covid-19 pandemic, the volatility in oil prices and demand, OPEC quotas, and
recent operational challenges being experienced by OML 18 upon the Company’s indirect interest in OML 18, and upon the Loan
Notes. The Directors are still confident in the operational potential and ultimately recovering the full amount of the outstanding
Loan Notes, however due to the above issues management recognise the uncertainty in timing of future cash flows and for this
reason the MLPL Loan Notes have been credit impaired.
The Directors have concluded, that whilst any MLPL Loan Note payments, if delayed or not received, represents an uncertainty,
the receipt of any further MLPL Loan Note payment(s) is not required given other expected cash inflows considered in the
assumptions, such as ELI Loan Note repayments, and mitigants such as the implementation of certain cost saving measures,
to continue for a period of at least 12 months from the date of approval of the financial statements.
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SAN LEON ANNUAL REPORT 2020 63
Notes to the financial statements
for the year ended 31 December 2020 – continued
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 2020.
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.
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)
Basis of consolidation
The financial information incorporates the financial information of the Company and entities controlled by the Group (its
subsidiaries). Control is defined as when the Group is exposed to or has the rights to variable returns from its investment with the
entity and has the ability to affect these returns through its power over the entity. The financial statements of subsidiaries are
included in the consolidated financial statements from the date control commences until the date that control ceases. Where
necessary, adjustments are made to the financial information of subsidiaries to bring their accounting policies into line with those
used by other members of the Group. Intra-group balances and any unrealised gains and losses or income or expenses arising
from intragroup transactions are eliminated in preparing the Group financial statements.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which
control is transferred to the Group. Control is defined as when the Group and Company have the rights to variable returns from
its investment with the entity and have the ability to affect these returns through its power over the entity. In assessing control,
the Group takes into consideration potential voting rights that currently are substantive.
64 SAN LEON ANNUAL REPORT 2020
1. Accounting policies continued
Acquisitions
The Group and Company measures goodwill at the acquisition date as:
•
the fair value of the consideration transferred; plus
•
the recognised amount of any non-controlling interests in the acquiree; plus, if the business combination is achieved in stages,
the fair value of the existing equity interest in the acquiree; less
•
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in
connection with a business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified
as equity, it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of
the contingent consideration are recognised in profit or loss.
Intangible assets – exploration and evaluation assets
Expenditure incurred prior to obtaining the legal rights to explore an area is recognised in profit or loss as incurred. All other
expenditure relating to licence acquisition, exploration, evaluation and appraisal of oil and gas interests, including an appropriate
share of directly attributable overheads, is capitalised on a licence by licence basis.
Exploration and evaluation assets are carried at cost until the exploration phase is complete or commercial reserves have been
discovered. The Group and Company regularly review the carrying amount of exploration and evaluation assets for indicators of
impairment and capitalised costs are written off where the carrying amount of assets may not be recoverable. Where commercial
reserves have been established and development is approved by the Board, the relevant expenditure is transferred to oil and gas
properties following assessment of impairment.
Impairment of non-financial assets
The carrying amounts of the Group’s assets are reviewed at each reporting date and, if there is any indication that an asset may
be impaired, its recoverable amount is estimated. The recoverable amount is the higher of its fair value less costs to sell and its
value in use.
Estimates of impairment are limited to an assessment by the Directors of any events or changes in circumstance that would
indicate that the carrying amount of the asset may not be recoverable.
Any impairment loss arising from the review is recognised in profit or loss to the extent the carrying amount of the asset exceeds
its recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided at rates calculated to
write off the cost less residual value of each asset over its expected useful life. The residual value is the estimated amount that
would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the
end of its useful life. The annual rate of depreciation for each class of depreciable asset is:
Office equipment 25% Straight line
Motor vehicles 20% Reducing balance
Plant and equipment 20% – 33% Straight line
Leased assets Shorter of the term of lease or useful life of the asset as defined under IFRS 16
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SAN LEON ANNUAL REPORT 2020 65
Notes to the financial statements
for the year ended 31 December 2020 – continued
1. Accounting policies continued
Inventories
Inventories are valued at the lower of cost and net realisable value.
Joint ventures
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.
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.
66 SAN LEON ANNUAL REPORT 2020
1. Accounting policies continued
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 (including receivables)
The Group recognises loss allowances for expected credit losses (“ECL’s”) 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 based on forward looking analysis where a range of outcomes have been considered taking into
account the size and timing of the contractual cash flows, the risk of late payment and the risk of default leading to less than full
recovery of the amounts due. Lifetime ECL is calculated the same way, but over the relevant period.
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, however are uncertain of the timing of when these obligations will be
met. The Company has therefore credit impaired the asset.
The Company has determined that ELI is likely to meet its credit obligations as evidenced by recent management information in
relation to San Leon’s interest in ELI.
Write-off
The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a
financial asset in its entirety or a portion thereof. The Group expects no significant recovery from the amount written off. However,
financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures
for recovery of amounts due.
iv. Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
On derecognition of a financial asset or financial liability, the difference between the carrying amount removed or extinguished
and the consideration received or paid is recognised in profit or loss.
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SAN LEON ANNUAL REPORT 2020 67
Notes to the financial statements
for the year ended 31 December 2020 – continued
1. Accounting policies continued
Decommissioning provision
A provision is made for decommissioning of oil and gas wells. The cost of decommissioning is determined through discounting the
amounts expected to be payable to their present value at the date the provision is recognised and reassessed at each reporting
date. This amount is regarded as part of the total investment to gain access to economic benefits and consequently capitalised as
part of the cost of the asset and the liability is recognised in provisions. Such cost is depleted over the life of the asset on the basis
of proven and probable reserves and charged to the Income Statement. The unwinding of the discount is reflected as a finance
cost in the Income Statement over the life of the field or well.
Taxation
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the Consolidated Income Statement
except to the extent that it relates to items recognised directly in Other Comprehensive Income or equity, in which case it is
recognised in Other Comprehensive Income or equity.
i. Current tax
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.
ii. Deferred tax
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.
Unrecognised deferred tax assets are reassessed as each reporting date and recognised to the extent that it has become
probable that future taxable profits will be available against which they can be used.
Deferred tax assets and liabilities are offset only if certain criteria are met.
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.
68 SAN LEON ANNUAL REPORT 2020
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 2020 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.
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SAN LEON ANNUAL REPORT 2020 69
Notes to the financial statements
for the year ended 31 December 2020 – continued
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.
Dividends
The Group has elected to classify cash flows from dividends paid as financing activities.
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.
Leases
As a lessee
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;
•
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.
70 SAN LEON ANNUAL REPORT 2020
1. Accounting policies continued
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.
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 Company 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
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SAN LEON ANNUAL REPORT 2020 71
Notes to the financial statements
for the year ended 31 December 2020 – 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
2020 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Total revenue – – – – – – – –
Impairment of exploration
and evaluation assets – – (196) – – – – (196)
Segment (loss) / profit
before income tax (2,093) – (196) 3,259 4,073 (59) (14,589) (9,605)
Property, plant and equipment 11 – – 575 2,708 – – 3,294
Equity accounted investments – – – 44,102 – – – 44,102
Segment non-current assets – – – 55,729 9,513 – – 65,242
Segment liabilities (83) (18) (804) (4) (3,279) (748) (1,706) (6,642)
# 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.
72 SAN LEON ANNUAL REPORT 2020
2. Revenue and segmental information continued
Total
Poland Morocco Albania Nigeria Ireland Spain Unallocated# US$’000
2019 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 (Restated*)
Total revenue 266 – – – – – – 266
Impairment of exploration
and evaluation assets (126) (150) (190) – – (941) – (1,407)
Segment (loss) / profit
before income tax (Restated*) (15,074) 1,134 (190) 17,565 (48,373) (1,014) (12,749) (58,701)
Property, plant and equipment 32 – – 1,476 2,836 – – 4,344
Equity accounted
investments (Restated*) – – – 44,798 – – – 44,798
Segment non-current
assets (Restated*) 32 – – 46,043 7,554 – 194 53,823
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.
* See Note 13 for details on restated amounts.
Revenue relates to the provision of seismic acquisition services in Poland.
3. Other income
2020 2019
Group US$’000 US$’000
Zag Licence – Bank Guarantee – 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$1.4
million to the Company. This bank guarantee had been previously fully provided for in the 2017 and 2018 financial statements.
4. Loss on disposal of subsidiaries
2020 2019
US$’000 US$’000
Other, recycling from equity to income statement (i) (1,044) (13,870)
Horizon Petroleum Ltd (ii) – 100
(1,044) (13,770)
(i) Other
In 2020 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 of the foreign operations has resulted in the realisation
of cumulative foreign currency losses of US$1.0 million (2019: US$13.9 million), that had previously been recognised in equity.
The realisation of the cumulative foreign currency losses does not impact the consolidated assets or liabilities.
(ii) Horizon Petroleum Ltd
In August 2019, sale and purchase agreements were completed for the sale of a 100% interest in two oil & gas concessions in
Poland, known as Bielsko-Biala and Cieszyn (together the “Primary Concessions”), and a 100% interest in two additional oil & gas
concessions in Poland, known as Prusice and Kotlarka, (together the “Secondary Concessions”) with Horizon Petroleum Ltd.
(‘Horizon’) (TSXV: HPL).
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SAN LEON ANNUAL REPORT 2020 73
Notes to the financial statements
for the year ended 31 December 2020 – continued
4. Loss on disposal of subsidiaries continued
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 as a contingent asset in Commitments and Contingencies (Note 28).
On completion of the sale, a US$100,000 advance received by the Company in 2017 as part of the Memorandum of
Understanding became non-refundable.
At 31 December 2020 and at the date of signing these accounts, the concessions have yet to be transformed and granted to Horizon.
5. Statutory information
(a) Group
2020 2019
US$’000 US$’000
The loss for the financial year is stated after charging:
Depreciation of property, plant, machinery and equipment 1,028 960
(Loss) / gain on foreign currencies (113) 403
Impairment of exploration and evaluation assets 196 1,407
Share-based payment charge 890 1,068
During the year, the Group (including its overseas subsidiaries) obtained the following services from KPMG, the Group Auditor:
Auditor’s remuneration
2020 2019
US$’000 US$’000
Fees paid to lead audit firm:
Audit of the Group financial statements 238 191
Audit of the subsidiary financial statements 69 62
Total 307 253
During the year, the Group (including its equity accounted investment) obtained the following audit services, excluding the
Group Auditor, KPMG:
2020 2019
US$’000 US$’000
Fees paid to other firms:
Audit of equity accounted investment 48 48
Total 48 48
74 SAN LEON ANNUAL REPORT 2020
5. Statutory information
(b) Company
2020 2019
US$’000 US$’000
The loss for the financial year is stated after charging:
Depreciation of property, plant, machinery and equipment 358 343
(Loss) / gain on foreign currencies (76) 678
Auditor’s remuneration – audit services 238 191
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$9.9 million (2019: a loss of US$12.3 million) has been recorded
in the Parent Company.
6. Finance expense
2020 2019
US$’000 US$’000
Interest on obligations for leases 131 144
7. Finance income
2020 2019
US$’000 US$’000
Total finance income on Loan Notes (Note 17) 17,276 23,313
Movement in fair value of derivatives (Note 22) 119 531
Deposit interest received 47 278
Interest on Director’s loan (Note 31) – 1
17,442 24,123
All interest income is in respect of assets measured at amortised cost.
8. Expected credit losses
2020 2019
US$’000 US$’000
OML 18 Loan Notes – impact of modification (Note 17) (5,857) –
OML 18 Loan Notes – net remeasurement of loss allowance (Note 17) (7,450) 3,465
ELI Loan Notes – initial recognition (Note 17) (385) –
(13,692) 3,465
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SAN LEON ANNUAL REPORT 2020 75
Notes to the financial statements
for the year ended 31 December 2020 – continued
9. Personnel expenses
Number of employees
The average monthly number of employees (including the Directors) during the year was:
2020 2019
Number Number
Directors 8 8
Administration 10 11
Technical 1 1
Seismic crew 1 4
20 24
Employment costs (including Directors)
2020 2019
US$’000 US$’000
Wages and salaries (excluding Directors) 1,437 1,625
Directors’ salaries 2,678 2,579
Directors’ bonuses 1,172 637
Social welfare costs 428 494
Directors’ fees and consultancy costs 607 593
Termination payments – 128
Share-based payment charge for options issued to Directors 418 492
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 71 35
Benefits (including Directors) 59 101
Directors’ pension 99 102
6,969 7,006
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$0.2 million (2019: US$0.1 million).
76 SAN LEON ANNUAL REPORT 2020
10. Income tax
2019
2020 US$’000
US$’000 (Restated*)
Current tax
Current year income tax 12 3
Deferred tax
Origination and reversal of temporary differences (Note 29) 893 2,006
Deferred tax movement in Barryroe NPI (Note 29) 1,343 (16,064)
Deferred tax movement on fair value of other financial assets, Quoted shares – (24)
Total income tax charge / (credit) 2,248 (14,079)
Deferred tax relating to items charged / credited to equity
Deferred tax movement on fair value of other financial assets, Unquoted shares – (40)
Total income tax charge / (credit) – (40)
* See Note 13 for details on restated amounts.
The difference between the total tax shown above and the amount calculated by applying the applicable standard rate of Irish
corporation tax to the loss before tax is as follows:
2019
2020 US$’000
US$’000 (Restated*)
Loss before income tax (9,605) (58,701)
Tax on loss at applicable Irish corporation tax rate of 25% (2019: 25%) (2,401) (14,675)
Effects of:
Tax effect at fair value adjustment 326 (3,870)
Prior year adjustment – (24)
Losses utilised in year (690) (2,006)
Expenses not deductible for tax purposes 2,559 4,771
Income tax withheld 13 3
Effect of different tax rates 2 –
Excess losses carried forward 2,439 1,722
Tax charge / (credit) for the year 2,248 (14,079)
* See Note 13 for details on restated amounts.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of previous years. Liabilities for uncertain tax treatments are
recognised in accordance with IFRIC 23 and are measured using either the most likely amount method or the expected value
method – whichever better predicts the resolution of the uncertainty.
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SAN LEON ANNUAL REPORT 2020 77
Notes to the financial statements
for the year ended 31 December 2020 – continued
11. Loss per share
Basic loss per share
Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average
number of ordinary shares in issue during the year as follows:
2019
2020 US$’000
US$’000 (Restated*)
Loss for the year (11,853) (44,622)
The weighted average number of shares in issue is calculated as follows:
2020 2019
Number Number
of shares of shares
In issue at start of year (Note 24) 451,303,014 500,256,857
Shares to be issued at start of year – 5,590,270
Effect of tender offer and buybacks in the year (1,332,865) (39,697,582)
Effect of shares issued and shares to be issued in the year – 195,890
Weighted average number of ordinary shares in issue (basic) 449,970,149 466,345,435
Basic loss per ordinary share (cent) (2.63) (9.57)
* See Note 13 for details on restated amounts.
Diluted loss per share
Diluted loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average
number of ordinary shares outstanding after adjustment for effects of all dilutive potential ordinary shares as follows:
2019
2020 US$’000
US$’000 (Restated*)
Loss for the year (11,853) (44,622)
The diluted weighted average number of shares in issue is calculated as follows:
2020 2019
Number Number
of shares of shares
Basic weighted average number of shares in issue during the year 449,970,149 466,345,435
Effect of share options and warrants in issue – –
449,970,149 466,345,435
Diluted loss per ordinary share (cent) (2.63) (9.57)
* See Note 13 for details on restated amounts.
The number of options which are anti-dilutive and have therefore not been included in the above calculations is 41,221,626
(2019: 39,559,074).
78 SAN LEON ANNUAL REPORT 2020
12. Intangible assets
Exploration
and evaluation
assets
Group US$’000
Cost and net book value
At 1 January 2019 –
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 –
Additions (ii) 196
Transfer from other non-current assets (Note 15) –
Write off / impairment of exploration and evaluation assets (196)
At 31 December 2020 –
(i) The following geographical exploration areas in the Group were impaired / written off during the year:
2020 2019
US$’000 US$’000
Spain – 941
Albania 196 190
Morocco – 150
Poland – 126
196 1,407
(ii) This is the net amount incurred by San Leon Energy and excludes amounts attributable to joint operating partners of US$Nil
in 2020 (2019: US$Nil).
The Directors have considered the carrying value at 31 December 2020 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 2020.
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SAN LEON ANNUAL REPORT 2020 79
Notes to the financial statements
for the year ended 31 December 2020 – continued
13. Equity accounted investments
2019 2018
2020 US$’000 US$’000
Group US$’000 (Restated*) (Restated*)
Cost and net book value
At 1 January 44,798 54,012 69,763
Additions (ELI) 443 – –
Share of loss of equity accounted investments (1,139) (9,214) (15,751)
At 31 December 44,102 44,798 54,012
The Group’s only joint venture entities and associates at 31 December 2020 were as follows:
Name Registered office Type % held
Midwestern Leon Petroleum Limited 5th Floor Barkly Wharf, Le Caudan Waterfront, Joint
Port Louis, Republic of Mauritius Venture 40%
Energy Link Infrastructure (Malta) Limited 260 Triq San Albert, Griza, GZR 1150, Malta Associate 10%
2020
A summary of the financial information of the equity investments is detailed below.
Midwestern Energy Link
Leon Infrastructure
Petroleum (Malta)
Limited (i) Limited (ii) Total
Equity Interest 40% 10%
US$’000 US$’000 US$’000
Loss from continuing operations (2,440) (2,804) (5,244)
Total comprehensive loss (2,440) (2,804) (5,244)
Non-current assets 198,948 147,922 346,870
Current assets (excluding cash) 286,687 167 286,854
Cash – 46,334 46,334
Non-current liabilities – (141,458) (141,458)
Current liabilities (376,082) (47,214) (423,296)
Net assets 109,553 5,751 115,304
Group’s interest in net assets of investee at 1 January 2020 44,798 – 44,798
Additions – 443 443
Share of loss (976) (163) (1,139)
Group’s interest in net assets of investee at 31 December 2020 43,822 280 44,102
80 SAN LEON ANNUAL REPORT 2020
13. Equity accounted investments continued
2019
A summary of the financial information of the equity investments is detailed below.
Midwestern Leon
Petroleum Limited (i)
Equity Interest 40%
US$’000
(Restated*)
Loss from continuing operations (23,035)
Total comprehensive loss (23,035)
Non-current assets 186,642
Current assets (excluding cash) 262,444
Non-current liabilities –
Current liabilities (337,091)
Net assets 111,995
Group’s interest in net assets of investee at 1 January 2019 54,012
Share of loss (3,204)
Restatement of share of loss * (6,010)
Group’s interest in net assets of investee at 31 December 2019 44,798
2018
A summary of the financial information of the equity investments is detailed below.
Midwestern Leon
Petroleum Limited (i)
Equity Interest 40%
US$’000
(Restated*)
Loss from continuing operations (35,046)
Total comprehensive loss (39,378)
Non-current assets 201,148
Current assets (excluding cash) 242,749
Non-current liabilities (48,259)
Current liabilities (260,608)
Net assets 135,030
Group’s interest in net assets of investee at 1 January 2018 69,763
Share of loss (14,693)
Restatement of share of loss * (1,058)
Group’s interest in net assets of investee at 31 December 2018 54,012
(i) Midwestern Leon Petroleum Limited
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 2020 reflects a share of the loss of MLPL being administrative
costs of US$9.7 million (2019: US$2.1 million), other income of US$nil (2019: US$7.2 million), net finance income / costs of US$3.3
million income (2019: US$5.5 million costs), profit on investment of US$12.2 million (2019: US$14.6 million loss (Restated*)), net
impairment losses on financial assets of US$0.3 million (2019: US$nil) and a tax charge of US$7.9 million (2019: US$8.0 million).
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SAN LEON ANNUAL REPORT 2020 81
Notes to the financial statements
for the year ended 31 December 2020 – continued
13. Equity accounted investments continued
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, US$5.0 million of a US$10.0 million repayment due on 6 October 2020 was still outstanding at year end,
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$54/bbl in 2021, US$57/bbl in 2022, 2023 and 2024
and a subsequent long term price US$62/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 of 30% over the same period and an
increase in the discount rate to 25%, 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.
* Restatements
Restatement adjustments have been made in the 2019 comparative to reflect the following misstatements in MLPL’s 100% owned
subsidiary Martwestern Energy Limited (“Martwestern”), who in turn owns 50% of Eroton, which is recognised in Martwestern as
an equity accounted investment:
•
•
•
Correction of the treatment of dividend received on equity investment which had been recognised as income, resulting in an
increase in the restated loss of US$2.5 million.
Share of restated total comprehensive loss of the investee (Eroton) due to the recognition of leases, resulting in an increase in
the restated loss of US$3.5 million.
Share of receivable impairment in investee (Eroton) not previously recognised in Martwestern, resulting in an increase in the
restated loss of US$1.1 million in 2018.
The earliest comparatives that required restatement for this error was in 2018.
The impact on the prior year financial statements is outlined below:
Income statement:
The impact of the restatement has resulted in the loss for the financial year increasing by US$6.0 million from a loss of US$38.6
million to a loss of US$44.6 million.
US$’000
Loss for the financial year ended 31 December 2019 as disclosed in the 2019 Annual Report (38,612)
Restatement of loss on equity accounted investments (6,010)
Restated loss for the financial year ended 31 December 2019 (44,622)
Basic and diluted loss per ordinary share (cent)
Basic and diluted loss per ordinary share (cent) for the financial year ended 31 December 2019
as disclosed in the 2019 Annual Report (8.28)
Restatement of basic and diluted loss per ordinary share (cent) attributable to increase in
loss on equity accounted investments (1.29)
Restated basic and diluted loss per ordinary share (cent) for the financial year ended 31 December 2019 (9.57)
82 SAN LEON ANNUAL REPORT 2020
13. Equity accounted investments continued
Statement of Financial Position:
The impact of the restatement has resulted in lower Equity accounted investments.
US$’000
Equity accounted investments as at 31 December 2019 as disclosed in the 2019 Annual Report 51,866
Restatement of 2018 loss on equity accounted investments (1,058)
Restatement of 2019 loss on equity accounted investments (6,010)
Restated Equity accounted investments for the financial year ended 31 December 2019 44,798
Cash flow statement:
The impact of the restatement has resulted in lower Equity accounted investments.
US$’000
Share of loss of equity-accounted investments for the ended 31 December 2019
as disclosed in the 2019 Annual Report (3,204)
Restatement of loss on equity accounted investments (6,010)
Restated share of loss of equity-accounted investments for the financial year ended 31 December 2019 (9,214)
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020 the Company acquired a 10% non-controlling interest in ELI (Malta) Limited (See Note 17(ii)). The movement during
2020 reflects a share of the loss of ELI being sales income of US$5.7 million, other income of US$0.1 million, cost of sales of
US$4.9 million and operating expenses including administrative costs of US$3.7 million.
San Leon does not have control over the entity, however it has been determined to have significant influence. On this basis, the
above interest is recognised as an equity accounted investment. Significant influence has been determined based on the Company
having 10% of voting rights, a board position and a Shareholder Agreement requiring a majority, and in some instances a super
majority (meaning 70% of votes are required to pass a resolution), to approve all operating decisions.
Under the terms of ELI’s senior debt facility, the lender has a charge over all of the company’s assets and, as further security, each
shareholder (including San Leon Energy) has pledged their shares to the lender. The terms of the pledge are that the shares
cannot be transferred or otherwise utilised without the lender's consent.
The Directors recognise that the future realisation of the equity accounted investment is dependent on completion of the pipeline
and subsequent throughput of oil from various customers.
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SAN LEON ANNUAL REPORT 2020 83
Notes to the financial statements
for the year ended 31 December 2020 – continued
14. Property, plant and equipment
Leased Plant & Office Motor
assets equipment equipment vehicles Total
Group US$’000 US$’000 US$’000 US$’000 US$’000
Cost
At 1 January 2019 – 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
Disposals – – (111) – (111)
Currency translation adjustment – 116 – (15) 101
At 31 December 2020 3,281 9,166 1,092 480 14,019
Depreciation
At 1 January 2019 – 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
Charge for the year 378 622 12 16 1,028
Disposals – – (111) – (111)
Currency translation adjustment – 122 16 (15) 123
At 31 December 2020 707 8,547 1,055 416 10,725
Net book values
At 31 December 2020 2,574 619 37 64 3,294
At 31 December 2019 2,952 1,247 65 80 4,344
84 SAN LEON ANNUAL REPORT 2020
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 2019 – 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
Transfer to other company within the Group (231) – – (231)
At 31 December 2020 3,050 548 82 3,680
Depreciation
At 1 January 2019 – 502 – 502
Charge for the year 329 12 2 343
At 31 December 2019 329 514 2 845
Charge for the year 330 12 16 358
Transfer to other company within the Group (135) – – (135)
At 31 December 2020 524 526 18 1,068
Net book values
At 31 December 2020 2,526 22 64 2,612
At 31 December 2019 2,952 34 80 3,066
15. Other non-current assets
Group Company
2020 2019 2020 2019
US$’000 US$’000 US$’000 US$’000
Deposits on Spanish oil and gas concession applications (i) – – – –
Deposits on Spanish oil and gas concessions (i) – – – –
– – – –
Group Company
2020 2019 2020 2019
US$’000 US$’000 US$’000 US$’000
At 1 January – 206 – –
Deposits retained by Ministry (i) – – – –
Transfer to intangible assets (i) (Note 12) – (206) – –
At 31 December – – – –
(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$0.2 million in relation to oil and gas concession applications that were withdrawn by the Company.
The deposits were transferred to intangible assets and then fully impaired by the Company.
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SAN LEON ANNUAL REPORT 2020 85
Notes to the financial statements
for the year ended 31 December 2020 – continued
16. Financial assets – Company
2020 2019
US$’000 US$’000
Investment in subsidiary undertakings at cost:
Balance at beginning and end of year 31,539 31,539
San Leon Energy Nigeria B.V. holds the equity interest in MLPL. As per Note 13(i), the Group identified potential impairment
indicators with respect to the equity interest. These same indicators are also impairment indicators for the Company’s holding in
San Leon Energy B.V. The same tests as detailed in Note 13(i) were carried out to assess the carrying value of the Company’s
investment in its subsidiary and the analysis identified that the carrying value of the investment in MLPL is not impaired.
At 31 December 2020, the Company had the following principal subsidiaries, all of which are wholly owned through holding all
of the issued ordinary shares of the entities:
Country of
Name Registered office Principal activities Incorporation
Directly held:
San Leon Energy B.V. de Ronge 16, 1852 XB Heiloo Holding company Netherlands
The Netherlands
San Leon Services Limited 12 Castle Street Service company Jersey
St. Helier, Jersey, JE2 3RT
San Leon Energy Nigeria B.V. de Ronge 16, 1852 XB Heiloo Holding company Netherlands
The Netherlands
San Leon Energy Financing Limited 2 Shelbourne Buildings, Financing company Ireland
Crampton Avenue,
Shelbourne Road,
Ballsbridge, Dublin 4
San Leon Holdings Limited 27/28 Eastcastle Street, Holding company England
London, England,
W1W 8DH
Indirectly held:
San Leon Nigeria Limited No. 801, Service company Nigeria
Eden Heights,
6 Elsie Femi Pearse Street,
Victoria Island,
Lagos, Nigeria
San Leon Energy (UK) Limited 27/28 Eastcastle Street, Service company England
London, England, W1W 8DH
San Leon Energy Eli Limited 27/28 Eastcastle Street, Holding company England
London, England, W1W 8DH
San Leon Energy Oza Limited 27/28 Eastcastle Street, Holding company England
London, England, W1W 8DH
A full list of subsidiaries will be annexed to the Annual Report of the Company to be filed with the Irish Registrar of Companies.
86 SAN LEON ANNUAL REPORT 2020
17. Financial assets
Barryroe 4.5%
net profit Unquoted
OML 18 (i) ELI (ii) interest (iii) shares (iv) (viii)
US$’000 US$’000 US$’000 US$’000
Amortised Amortised FVOCI – equity Total
Group cost cost FVTPL instrument US$’000
Cost / Valuation
At 1 January 2019 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
Net fair value of acquisition of ELI Loan Notes – 14,557 – – 14,557
Finance income 16,480 796 – – 17,276
Loan Notes receipts – principal (35,285) – – – (35,285)
Loan Notes receipts – interest (11,215) – – – (11,215)
Lifetime ECL – credit-impaired # (15,309) – – – (15,309)
Impairment of unquoted shares,
Other comprehensive income – – – (194) (194)
Fair value movement, Income statement – – 4,073 – 4,073
At 31 December 2020 68,925 15,353 6,842 – 91,120
Expected Credit Loss Provision
At 1 January 2019 and 31 December 2019 – – – –
New financial asset acquired * (385) – – (385)
At 31 December 2020 (385) – – (385)
# See OML18 ECL table below.
* See ELI ECL table below.
Higher risk
assets not
Performing credit impaired Credit impaired
Expected Credit Loss – OML 18 12-month ECL Lifetime ECL Lifetime ECL Total
At 1 January 2019 – (5,467) – (5,467)
Net remeasurement of loss allowance – 3,465 – 3,465
At 31 December 2019 – (2,002) – (2,002)
Impact of modification – (5,857) – (5,857)
Net remeasurement of loss allowance – (7,450) – (7,450)
Transfer to lifetime ECL – credit-impaired – 15,309 (15,309) –
At 31 December 2020 – – (15,309) (15,309)
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SAN LEON ANNUAL REPORT 2020 87
Notes to the financial statements
for the year ended 31 December 2020 – continued
17. Financial assets continued
Higher risk
assets not
Performing credit impaired Credit impaired
Expected Credit Loss – ELI 12-month ECL Lifetime ECL Lifetime ECL Total
At 1 January 2019 and 31 December 2019 – – – –
New financial assets originated (385) – – (385)
At 31 December 2020 (385) – – (385)
Barryroe 4.5%
net profit Unquoted
OML 18 (i) ELI (ii) interest (iii) shares (iv) (viii)
US$’000 US$’000 US$’000 US$’000
Amortised Amortised FVOCI – equity Total
cost cost FVTPL instrument US$’000
Book value at 31 December 2020 68,925 14,968 6,842 – 90,735
Current 68,925 3,964 – – 72,889
Non-current – 11,004 6,842 – 17,846
Book value at 31 December 2019 112,252 – 2,769 194 115,215
Current 112,252 – – – 112,252
Non-current – – 2,769 194 2,963
Net Profit Interests (Poznan, v) (Gora, vi) (Liesa, vii): These NPIs have a nil value from acquisition.
Barryroe 4.5%
net profit Unquoted
OML 18 (i) interest (iii) shares (iv)
US$’000 US$’000 US$’000
Amortised FVOCI – equity Total
Company cost FVTPL instrument US$’000
Cost / Valuation
At 1 January 2019 134,187 51,142 2,625 187,954
Finance income 23,313 – – 23,313
Loan Notes receipts – principal (23,361) – – (23,361)
Loan Notes receipts – interest (19,885) – – (19,885)
Impairment of unquoted shares – – (2,625) (2,625)
Fair value movement, Income statement – (48,373) – (48,373)
At 31 December 2019 114,254 2,769 – 117,023
Finance income 16,480 – – 16,480
Loan Notes receipts – principal (35,285) – – (35,285)
Loan Notes receipts – interest (11,215) – – (11,215)
Lifetime ECL – credit-impaired # (15,309) – – (15,309)
Impairment of unquoted shares – – – –
Fair value movement, Income statement – 4,073 – 4,073
At 31 December 2020 68,925 6,842 – 75,767
Expected Credit Loss Provision
At 1 January 2019, 31 December 2019 and 31 December 2020 – – –
# See OML18 ECL table below.
88 SAN LEON ANNUAL REPORT 2020
17. Financial assets continued
Higher risk
assets not
Performing credit impaired Credit impaired
Expected Credit Loss – OML 18 12-month ECL Lifetime ECL Lifetime ECL Total
At 1 January 2019 – (5,467) – (5,467)
Net remeasurement of loss allowance – 3,465 – 3,465
At 31 December 2019 – (2,002) – (2,002)
Impact of modification – (5,857) – (5,857)
Net remeasurement of loss allowance – (7,450) – (7,450)
Transfer to lifetime ECL – credit-impaired – 15,309 (15,309) –
At 31 December 2020 – – (15,309) (15,309)
Barryroe 4.5%
net profit Unquoted
OML 18 (i) interest (iii) shares (iv)
US$’000 US$’000 US$’000
Amortised FVOCI – equity Total
Company cost FVTPL instrument US$’000
Book value at 31 December 2020 68,925 6,842 – 75,767
Current 68,925 – – 68,925
Non-current – 6,842 – 6,842
Book value at 31 December 2019 112,252 2,769 – 115,021
Current 112,252 – – 112,252
Non-current – 2,769 – 2,769
(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.
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$174.5 million plus the 17% coupon once certain conditions have been met and using an agreed distribution mechanism.
Through its wholly owned subsidiary, San Leon Nigeria B.V., the Company is also a beneficiary of any dividends that will be paid
by MLPL as a 40% shareholder in MLPL but the Loan Notes repayments must take priority over any dividend payments made to
the MLPL shareholders.
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SAN LEON ANNUAL REPORT 2020 89
Notes to the financial statements
for the year ended 31 December 2020 – continued
17. Financial assets continued
The fair value assessment of the Loan Notes on acquisition was calculated as follows:
Total
US$’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 Nil
rate of interest of 8% above the
coupon rate of 17%.
• MLPL ability to generate cash flows
for timely repayment.
• Loan Notes are repayable in
full by 31 December 2021
(2019: 30 September 2020).
* Day 1 and considered appropriate at 31 December 2020.
The business model for the MLPL loan is to hold to collect. The Loan Notes are accounted for at amortised cost.
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.
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). Under the terms of the Agreement, US$10.0 million was due to 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 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 Agreement with MLPL was accounted for as a modification of the financial asset which did not give rise to derecognition.
A loss of US$2.5 million was recognised in respect of the change in present value of the revised cash flows discounted at the
original effective interest rate.
During 2020 San Leon received total payments under the Loan Notes of US$46.5 million (2019: US$43.2 million). The payments
received during 2020 represent principal of US$35.3 million (2019: US$23.3 million) and interest of US$11.2 million (2019: US$19.9
million) on the Loan Notes repaid. As at 31 December 2020 there was US$84.2 million in principal and interest (2019: US$114.3
million), due under the Loan Notes. As at 31 December 2020, US$5.0 million was outstanding from the US$10.0 million due to be
repaid on 6 October 2020. Since then, US$0.8 million of the balance outstanding has been received.
* Refer to Alternate Performance Measures on page 119 for full reconciliation of IFRS numbers and Alternative Performance Measures.
90 SAN LEON ANNUAL REPORT 2020
17. Financial assets continued
The Directors of San Leon have considered the credit risk of the Loan Notes at 31 December 2019 and 31 December 2020.
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. At 31 December 2019 a provision for the lifetime expected credit loss of the Loan Notes had
been recognised. In 2020, issues such as the impact of the Covid-19 pandemic on the global economy, the volatility in oil prices
and demand, OPEC quotas, and recent operational challenges experienced by OML 18 resulted in a significant loss being recorded
in MLPL at 31 December 2020. This, along with ongoing production issues at the field has impacted the financial strength of
MLPL, particularly in respect of short-term liquidity.
In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the expected credit loss. This
was assessed as having increased significantly since initial recognition, and is now considered to have increased further during the
year ended 31 December 2020.
Management are still confident in the operational potential of OML 18 and ultimately recovering the full amount of the outstanding
Loan Notes, however due to the above issues management are unable to determine the timing of future cash flows and for this
reason the Loan Notes are now considered credit impaired.
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. The Directors have considered the credit risk of MLPL, in particular in
light of the Covid-19 pandemic and the resultant impact on the oil price and demand, as well as ongoing short term production issues.
As a result, the credit risk has been determined to have increased since 31 December 2019 and the Loan Notes are now considered to
be impaired. In previous periods an annualised expected credit loss of 3.11% was applied to the amount outstanding on the Loan
Notes. This rate was determined on the basis of long-term historical default rates of loans originated in similar geography and industry.
A default rate determined by reference to historical default rates has been determined to be less appropriate in the current
environment as a result of the uncertainty created by the Covid-19 pandemic and ongoing operational issues. In addition, the change in
profile of the repayments due under the Loan Notes, arising as a result of the amendments to the Loan Notes agreed in April 2020,
means that an expected default risk taking into account the timing of the payments is now also appropriate. An impairment has been
estimated based on a forward looking analysis where a range of outcomes has been considered taking into account the size and timing
of the contractual cash flows, the risk of late payment and the risk of default leading to less than full recovery of the amounts due in
respect of the Loan Notes. The Directors have considered the possible scenarios and used their judgement to estimate a weighted
average outcome of these scenarios. The impairment is calculated as the difference between the present value of the weighted
average of possible outcomes (discounted at the effective interest rate of the Loan Notes) and the present value of the contractual
cash flows. This has then been compared to publicly available macroeconomic data of default rates by geography and industry.
As at 31 December 2020 the Loan Notes are considered credit impaired. The expected credit loss of US$15.3 million (2019:
US$2.0 million) has been presented net with the amortised cost of the Loan Notes.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020, the Company acquired an indirect economic interest in the Alternate Crude Oil Evacuation System (“ACOES”) project.
The interest was acquired through the direct investment in Energy Link Infrastructure (Malta) Limited (“ELI”), a company
incorporated in Malta, which owns the ACOES project through its 100% owned subsidiary Energy Link Infrastructure (Nigeria)
Limited, a company incorporated in Nigeria.
The investment comprises a 10% equity interest in ELI together with a US$15.0 million shareholder loan at a coupon of 14% per
annum over 4 years, and repayable quarterly following a one year moratorium from the date of investment. Funds were provided to
ELI in two tranches with the first US$10.0 million tranche being paid in August, and the second tranche of US$5.0 million on 6 October
2020, being half of the funds due from Midwestern Leon Petroleum Limited as part of the repayment of the MLPL Loan Notes.
The fair value assessment of the Loan Notes on acquisition was calculated as follows:
Total
US$’000
Total consideration 15,000
Fair value of Loan Notes attributable to equity investment # (443)
Net fair value of Loan Notes 14,557
# 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 2%
above the coupon rate of 14% over the term of the Loan Notes, giving an effective interest rate of 16%.
SAN LEON ANNUAL REPORT 2020 91
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Notes to the financial statements
for the year ended 31 December 2020 – continued
17. Financial assets continued
The key information relevant to the fair value of the Loan Notes on the date they were initially recognised is as follows:
Inter-relationships between the unobservable
Valuation technique Significant unobservable inputs* inputs and fair value measurements
Discounted cash flows • Discount rate 16% based on a market Nil
rate of interest of 2% above the
coupon rate of 14%.
• ELI ability to generate cash flows
for timely repayment.
• Loan Notes are repayable in full
by 6 October 2021.
* Day 1 and considered appropriate at 31 December 2020.
The intention for the ELI loan is to hold to collect.
The credit risk is managed via various undertakings, such as representations, warranties and covenants and the ability for a
preferential distribution should some warranties be breached. These are described further in Note 31. Given the nature and stage
of the asset the main credit risk is regarded as the timing of payments by ELI Malta which is dependent on dividend distributions
by ELI Nigeria rather than being unable to pay the total quantum due under the Loan Notes. Currently the Loan Notes are in good
standing with the first repayment due on 31 July 2021.
During 2020 San Leon was not due any contractual repayments of the Loan Notes. As at 31 December 2020 there was
US$15.4 million in principal and interest, due under the Loan Notes.
The Directors of San Leon have considered the credit risk of the Loan Notes at 31 December 2020. Both tranches of the Loan
Notes were issued in H2 2020, with a one year repayment holiday. The first repayment due is on 31 July 2021 and therefore the
Loan Notes are currently in good standing. Despite some project delays due to the impacts of Covid-19, it is not expected that this
would impact the ability of ELI to make Loan Note repayments, with current projections indicating that all debt will be serviced in
accordance with contract expectations. The Directors do not consider the credit risk has significantly increased since initial
recognition, and a provision for a 12-month expected credit loss of the Loan Notes has been recognised.
In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the expected credit loss and,
this has been assessed as not having increased significantly since initial recognition. A factor that has been considered to reduce
overall credit risk is a guarantee from ELI Nigeria, who guarantee all payment obligations of ELI Malta.
An expected credit loss provision has been estimated based on a forward looking analysis where a range of outcomes has been
considered taking into account the size and timing of the contractual cash flows, the risk of late payment and the risk of default
leading to less than full recovery of the amounts due in respect of the Loan Notes. The Directors have considered the possible
scenarios and used their judgement to estimate a weighted average outcome of these scenarios. The ECL provision is calculated
as the difference between the present value of the weighted average of possible outcomes (discounted at the effective interest
rate of the Loan Notes) and the present value of the contractual cash flows. This has then been compared to publicly available
macroeconomic data of default rates by geography, industry and rating.
The Company determined that the expected credit loss provision of US$0.4 million, being 2.6% of the balance at acquisition was
appropriate.
(iii) Barryroe – 4.5% Net Profit Interest
SLE holds a 4.5% Net Profit Interest in the Barryroe (“Barryroe NPI”) oil field at fair value through profit and loss under IFRS 9.
In 2019 a market-based valuation approach was adopted, using the price of the publicly listed shares of Providence Resources plc
(“Providence”) (operator and holder of an 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.
92 SAN LEON ANNUAL REPORT 2020
17. Financial assets continued
The 2020 announcements by Providence in relation to Standard Exploration Licence 1/11 which contains the Barryroe oil
accumulation indicated that a partner for the project had now been found, which had reduced project risk around both funding
and timing of the potential development of the asset.
Given the latest announcements, the Directors have reviewed the modelling assumptions and consider it reasonable and
appropriate to continue to use a market based approach to increase the Barryroe carrying value by US$4.0 million (2019:
impairment of US$48.4 million) to US$6.8 million to reflect their estimate of the impact of these risks to the future cash flows on
the value of the asset.
The key information relevant to the fair value of the Barryroe 4.5% net profit interest is as follows:
Inter-relationships between the unobservable
Valuation technique Significant unobservable inputs inputs and fair value measurements
Market based approach using • Estimated value of NPI as The estimated fair value would
share price of Operator percentage of total field NPV 9.5% increase / (decrease) if:
(Providence) (2019: 9.5%)
• US Dollar exchange rate
increased / (decreased)
(iv) Ardilaun Energy Limited
As part of the consideration for the sale of Island Oil & Gas Limited to Ardilaun Energy Limited (“Ardilaun”) in 2014 Ardilaun agreed
to issue shares equivalent to 15% of the issued share capital of Ardilaun to San Leon. The original fair value of the 15% interest in
Ardilaun was based on a market transaction in Ardilaun shares.
The Directors have considered the carrying value of this interest at 31 December 2020 and given the length of time to obtain Irish
government approval for the transaction, the Directors feel it is prudent to continue to carry the 15% of Ardilaun shares still to be
issued to San Leon at a value of US$Nil (2019: US$Nil).
(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% Net Profit Interest (“NPI”). Until
active development commences a nil value has been placed on the NPI. There has been no change in 2020.
(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. There has been no change in 2020.
(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% NPI. Until active development
commences a nil value has been placed on the NPI. There has been no change in 2020.
(viii) Gemini Resources Limited
In 2019, San Leon converted a debtor of US$192,607 due from Gemini Resources Limited (“Gemini”) into 54,818 fully paid
ordinary shares in Gemini.
(ix) Amedeo Resources plc
At 31 December 2020, the Company holds 213,512 ordinary shares at a market value of US$Nil (2019: US$Nil). The value of the
investment was written down to nil in 2018 due to the shares of Amedeo Resources plc being de-listed.
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SAN LEON ANNUAL REPORT 2020 93
Notes to the financial statements
for the year ended 31 December 2020 – continued
18. Inventory
Group Company
2020 2019 2020 2019
US$’000 US$’000 US$’000 US$’000
Spare parts and consumables 183 180 – –
Spare parts include drilling equipment and consumables utilised by the Group’s seismic services company.
19. Trade and other receivables
Group Company
2020 2019 2020 2019
US$’000 US$’000 US$’000 US$’000
Amounts falling due within one year:
Amounts owed by Group undertakings (i) – – 122,417 103,236
Expected credit loss on amounts owed by Group undertakings (i) – – (104,240) (100,059)
Net amounts owed by Group undertakings – – 18,177 3,177
Trade receivables 2 2 – –
Corporation tax refundable 39 52 48 52
VAT and other taxes refundable 88 134 28 63
Other debtors (ii) 4,264 4,242 726 696
Expected credit loss on other debtors (ii) (3,532) (3,532) – –
Prepayments (iii) 1,017 89 1,013 80
1,878 987 19,992 4,068
(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$6.9 million (2019: US$6.2 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 2020, the Company is owed US$122.4 million (2019: US$103.2 million) by its subsidiaries in respect of funds
advanced to them and expenses discharged by the Company on their behalf. An impairment provision of US$104.2 million
(2019: US$100.1 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 2020.
The remaining other debtors consists of rent deposits and similar receivables.
(iii) Prepayments includes an amount of US$0.8m in relation to the Oza deal, detailed in Subsequent Events (Note 33).
94 SAN LEON ANNUAL REPORT 2020
20. Cash and cash equivalents
Group Company
2020 2019 2020 2019
US$’000 US$’000 US$’000 US$’000
Cash and cash equivalents 11,757 36,197 11,392 35,888
Solicitor client account (i) 6,753 500 6,753 500
18,510 36,697 18,145 36,388
(i) Solicitor client account at 31 December 2020 represents monies held on behalf of the Company by Adepetun Caxton-Martins Agbor & Segun in relation to the
Oza deal, detailed in Subsequent Events (Note 33) (2019: David M. Turner & Company Solicitors).
21. Trade and other payables
Group Company
2020 2019 2020 2019
US$’000 US$’000 US$’000 US$’000
Current
Trade payables 719 1,608 187 329
Amounts owed to Group undertakings (i) – – 2,413 2,401
PAYE / PRSI 295 215 136 116
Other creditors 36 158 2 71
Accruals 2,248 3,092 566 1,344
Current portion of lease 333 333 333 333
3,631 5,406 3,637 4,594
(i) Amounts owed to Group undertakings are interest free and repayable on demand (Note 31).
22. Derivative
Group Company
2020 2019 2020 2019
US$’000 US$’000 US$’000 US$’000
Non-current
Derivative 9 128 9 128
9 128 9 128
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SAN LEON ANNUAL REPORT 2020 95
Notes to the financial statements
for the year ended 31 December 2020 – continued
22. Derivative continued
The key inputs into the valuation model are as follows:
Inter-relationships between the unobservable
Valuation technique Significant unobservable inputs inputs and fair value measurement
Black-Scholes model Option strike price of £0.30 to £0.45 The estimated fair value would
(2019: £0.30 to £0.60) increase / (decrease) if:
Average maturity of 0 to 1 year The share price increased /
(2019: 1 to 2 years) (decreased)
Risk-free interest rate of 0.055% Sterling exchange rate
(2019: 0.055%) increased / (decreased)
Share price volatility of 62% The risk free interest rate
(2019: 62%) increased / (decreased)
The derivative is in relation to options and warrants that were issued in connection with financing provided to the Company
between 2016 and 2018.
23. Provisions for liabilities
Decommissioning
Group US$’000
At 1 January 2019 760
Currency translation adjustment (2)
Paid during the year (702)
At 31 December 2019 56
Currency translation adjustment –
Paid during the year –
At 31 December 2020 56
Current 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.
96 SAN LEON ANNUAL REPORT 2020
24. 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$’000
Authorised equity
At 1 January 2019 2,847,406,025 1,265,259,397,525 177,475
At 31 December 2019 2,847,406,025 – 177,475
At 31 December 2020 2,847,406,025 – 177,475
Issued, called up and fully paid:
Number of Number of
New Ordinary Deferred Share Share
shares Ordinary shares capital premium
€0.01 each €0.0001 each US$’000 US$’000
At 1 January 2019 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
Share buybacks (1,389,988) – (15) –
At 31 December 2020 449,913,026 – 5,157 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.
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SAN LEON ANNUAL REPORT 2020 97
Notes to the financial statements
for the year ended 31 December 2020 – continued
24. Share capital – Group and Company continued
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”).
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 2020 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.
25. Dividends paid
In May 2020, the Company returned a special dividend to its shareholders of £0.06 per share, totalling US$33.3 million (£27.0 million).
98 SAN LEON ANNUAL REPORT 2020
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$1.0 million (2019: US$13.9 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 24, 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.
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$891,263 (2019: US$1,068,601) includes the charge for options issued to the Directors of US$418,048
(2019: US$607,635) and shares to be issued to Directors of US$Nil (2019: US$Nil).
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SAN LEON ANNUAL REPORT 2020 99
Notes to the financial statements
for the year ended 31 December 2020 – continued
27. Share-based payments continued
The movement on outstanding share options and warrants during the year was as follows:
2020 2019
Weighted Weighted
Number average Number average
of options / exercise of options / exercise
warrants price warrants price
Balance at beginning of the financial year 40,559,075 £0.400 39,035,025 £0.620
Granted during the financial year 1,000,000 £0.450 2,000,000 £0.450
Modified during the financial year * – £0.393 – £0.450
Expired or cancelled during the financial year (337,448) £0.592 (225,950) £9.337
Exercised during the financial year – – (250,000) £0.300
Balance at end of the financial year 41,221,627 £0.397 40,559,075 £0.400
Exercisable at end of the financial year 41,221,627 £0.397 40,559,075 £0.400
The range of exercise prices of outstanding options/warrants at year end is £0.25 to £0.45 (2019: £0.25 to £0.60).
* On 26 February 2020 the Company repriced 1,500,000 options from £0.45 to £0.35, the expiry date of these options was also
extended from 26 February 2020 by 4 years to 26 February 2024. The resulting charge for the year was US$326,581.
* On 2 October 2020 the Company extended the expiry date of 2,222,222 options by 5 years to 2 October 2025. This resulted
in a charge for the year of US$146,635.
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 2020 is 2.94 years
(2019: 3.53 years).
During the current year no options were exercised (2019: 250,000 options at £0.25).
The following table illustrates the number, exercise price and expiry date of share options and warrants remaining at year end.
Type Number Exercise price Year of expiration
Options 10,000 £0.45 2021
Warrants 300,000 £0.30 2021
Warrants 750,000 £0.45 2021
Options 6,750,000 £0.45 2022
Options 10,625,000 £0.45 2023
Warrants 10,000,000 £0.25 2023
Warrants 4,939,405 £0.45 2023
Options 1,500,000 £0.35 2024
Options 125,000 £0.45 2024
Options 3,222,222 £0.45 2025
Options 1,000,000 £0.45 2026
Options 2,000,000 £0.45 2027
Total 41,221,627
100 SAN LEON ANNUAL REPORT 2020
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 2020 and 2019, and the repricing of the options in 2019:
2020 2019
Weighted average fair value of options granted during year £0.25 £0.20
Weighted average share price of options at date of grant £0.39 £0.28
Dividend yield 0.00% 0.00%
Exercise price £0.45 £0.45
Expected volatility 72% 48% – 90%
Risk-free interest rate 0.55% 0.55% – 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
2020 2019
Group US$’000 US$’000
Payable:
Within one year 369 340
Between one and five years 1,472 1,348
Over five years 1,718 1,910
3,559 3,598
Total Total
2020 2019
Company US$’000 US$’000
Payable:
Within one year 369 337
Between one and five years 1,472 1,348
Over five years 1,718 1,910
3,559 3,595
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SAN LEON ANNUAL REPORT 2020 101
Notes to the financial statements
for the year ended 31 December 2020 – continued
28. Commitments and contingencies continued
(b) Decklar Petroleum Limited
On 1 September 2020, the Company announced that it had conditionally agreed to invest US$7.5 million by way of a loan to
Decklar Petroleum Limited, who is the holder of a Risk Service Agreement with Millenium Oil and Gas Company Limited on the
Oza marginal field, carved out of OML 11, onshore Nigeria. Under the agreements, if completed, the Company will also receive a
15% interest in Decklar for a nominal amount paid. This transaction is still awaiting final conditions precedents to complete.
(c) Exploration, evaluation and development activities
The Group has commitments of US$Nil (2019: US$Nil) in the year ended 31 December 2020 to contribute to its share of
exploration and evaluation expenditure in respect of exploration licences and concessions held.
(d) Horizon Petroleum Ltd
The Group has a contingent asset, the consideration is in aggregate of US$2.0 million in relation to the sale completed in August
2019 to Horizon Petroleum Ltd. outlined in Note 4.
29. Deferred tax
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
2020 2019 2020 2019 2020 2019
Group US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Financial assets – IFRS 9 – – (1,416) (73) (1,416) (73)
Financial assets – other 175 175 – – 175 175
Unrealised exchange difference – – (4) – (4) –
Interest not taxable until received – – (199) – (199) –
Tax losses recognised 926 1,616 – – 926 1,616
1,101 1,791 (1,619) (73) (518) 1,718
2020 2019
US$’000 US$’000
At 1 January 1,718 (12,404)
Deferred tax on fair value movements in financial assets IFRS 9, Barryroe NPI (Note 10) (1,343) 16,064
Origination and reversal of temporary differences (Note 10) (893) (2,006)
Deferred tax on fair value of other financial assets, Quoted shares – 64
At 31 December (518) 1,718
Assets Liabilities Net
2020 2019 2020 2019 2020 2019
Company US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Financial assets – net profit Interest – – (1,416) (73) (1,416) (73)
Financial assets – other 175 175 – – 175 175
Tax losses recognised 996 1,589 – – 996 1,589
1,171 1,764 (1,416) (73) (245) 1,691
102 SAN LEON ANNUAL REPORT 2020
29. Deferred tax continued
Unrecognised deferred tax assets
2020 2019
Group US$’000 US$’000
Tax losses 8,631 15,031
Capitalised expenditure 33,101 32,764
41,732 47,795
Deferred tax assets have not been recognised in respect of the above items because it is not probable that future taxable profits
will be available against which the Group can utilise these losses.
30. Leases
Statement of Financial Position
2020 2019
Group US$’000 US$’000
Right of use asset (included within Property, plant and equipment)
Property leases
At 1 January 2,952 3,050
Additions – 231
Depreciation charge for the period (378) (329)
Closing net carrying amount 2,574 2,952
Lease liability
Property leases
At 1 January 2,834 3,050
Payments – principal (211) (192)
Payments – interest (131) (144)
Currency translation adjustment 138 (24)
Interest 131 144
Closing net carrying amount 2,761 2,834
Current 333 333
Non-current 2,428 2,501
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SAN LEON ANNUAL REPORT 2020 103
Notes to the financial statements
for the year ended 31 December 2020 – continued
30. Leases continued
2020 2019
Company US$’000 US$’000
Right of use asset (included within Property, plant and equipment)
Property leases
At 1 January 2,952 3,050
Additions – 231
Transfer to other company within the Group (96) –
Depreciation charge for the period (330) (329)
Closing net carrying amount 2,526 2,952
Lease liability
Property leases
At 1 January 2,834 3,050
Payments – principal (211) (192)
Payments – interest (131) (144)
Currency translation adjustment 138 (24)
Interest 131 144
Closing net carrying amount 2,761 2,834
Current 333 333
Non-current 2,428 2,501
Income Statement
2020 2019
Group US$’000 US$’000
Right of use asset (included within Property, plant and equipment)
Property leases
Depreciation charge 378 329
Interest expense 131 144
Expenses relating to low-value leases – 60
Total 509 533
2020 2019
Company US$’000 US$’000
Right of use asset (included within Property, plant and equipment)
Property leases
Depreciation charge 330 329
Interest expense 131 144
Expenses relating to low-value leases – 60
Total 461 533
104 SAN LEON ANNUAL REPORT 2020
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$409,000 is included in other receivables (Note 19) and is refundable when the Company either
exercises or terminates the option. Mr. Fanning was paid US$215,999 (2019: US$221,195) rent for the use of this property during
the year by the Company.
The property is available for use by all staff and consultants requiring overnight accommodation while conducting business on
behalf of the Company.
Shares issued in lieu of salary
On 25 February 2019, Mr. 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.
Director change in Shareholding
On 11 May 2020 the Company was notified that Mr. Fanning, Chief Executive Officer of the Company, acquired 98,000,000
ordinary shares in the Company. Following the notification, Mr. Fanning had an interest of 107,495,864 ordinary shares,
representing 23.89% of the issued share capital of the Company.
On 23 December 2020 the Company announced that it had been informed that Mr. Fanning had been unable to secure the
necessary funding for the above share purchase. Consequently, settlement of the share purchase did not occur. Following this,
Mr. Fanning owns 9,495,864 ordinary shares in the Company, representing 2.1% of the issued share capital of the Company.
Greenbay Energy Resources Limited
San Leon Energy plc and Greenbay Energy Limited have a common Director, Mr. Mutiu Sunmonu. San Leon has a consultancy
agreement with Greenbay Energy Limited which was paid US$95,181 for amounts due for 2020 (2019: US$90,098). 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 Mr. 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$231,000 for the period 1 July 2019 to 30 June 2021 of which US$115,500 relates to 2020 (2019:
US$57,750 for the period 1 July to 31 December). 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.
Palomar Natural Resources (Netherlands) B.V. / NSP Investments Holdings Ltd
On 18 November 2016, the Company announced the sale of its (i) 35% interest in TSH Energy Joint Venture B.V. (TSH) and (ii) 35%
interest in Poznan Energy B.V. (Poznan) to Palomar Natural Resources (Palomar). This divested the Company’s interest in the
Rawicz and Siekierki fields respectively. A 10% net profit interest was retained in the Poznan assets. Palomar is regarded as a
related party as it already held the remaining interest in both TSH and Poznan.
The total cash consideration due to the Company for the sale of its 35% interest in TSH was 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
2020 this position has not changed.
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SAN LEON ANNUAL REPORT 2020 105
Notes to the financial statements
for the year ended 31 December 2020 – continued
31. Related party transactions continued
Toscafund Asset Management LLP
Toscafund Asset Management LLP (“Toscafund”) is a related party on the basis that funds managed by Toscafund hold a
substantial shareholding in San Leon Energy plc and the substantive transactions which the parties entered into during 2016
and as more fully described below detailing the purchase of the indirect interest in OML 18.
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. This sale was not completed and
on 22 December 2020 the Company was informed that funds managed by Tosca Asset Management LLP held 330,570,719
ordinary shares in the Company at that date.
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 and any other debt 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$2.0 million was recognised at 31 December 2019. Due to uncertainty around the timing of repayments, the Company has
impaired the Loan Notes, netting the expected credit loss of US$2.0 million against the gross amortised value and recognising an
impairment charge of US$15.8 million at 31 December 2020.
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.
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.
106 SAN LEON ANNUAL REPORT 2020
31. Related party transactions continued
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 B.V. 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 2022.
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 loan agreements
similar to those entered into in 2018 to continue to make the repayments during 2019.
2020
During 2020 San Leon received total payments under the Loan Notes totalling US$46.5 million. MLPL used loan agreements
similar to those entered into in 2019 to continue to make the repayments during 2020.
Key management
Key management is deemed to comprise the Board of Directors. The total remuneration paid to key management was as follows:
2020 2019
US$’000 US$’000
Salary and emoluments 2,678 2,579
Bonuses 1,172 637
Social welfare costs 282 289
Fees and consulting services 607 593
Termination payments – 128
Pension 99 102
Benefits 44 33
Share-based payment charge on repricing of options issued to Directors – 116
Share-based payment expense 418 492
5,300 4,969
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SAN LEON ANNUAL REPORT 2020 107
Notes to the financial statements
for the year ended 31 December 2020 – continued
31. Related party transactions continued
Company
Transactions with subsidiaries and associates
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 2020, the Company is owed US$122.4 million (2019: US$103.2 million) by its subsidiaries in respect of funds
advanced to them and expenses discharged by the Company on their behalf. An impairment provision of US$104.2 million (2019:
US$100.1 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 (2019: US$2.4 million) to subsidiaries in respect of funds received by and services
provided to the Company.
US$’000
Loss allowance at 31 December 2019 100,059
Expected credit losses released 4,181
Loss allowance at 31 December 2020 104,240
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 – Financial assets 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; and
•
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, and Moroccan Dirhams. 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 2020 and
2019, the Group did not utilise either forward currency contracts or other derivatives to manage foreign currency risk.
108 SAN LEON ANNUAL REPORT 2020
32. Financial instruments and financial risk management continued
At 31 December 2020, the Group’s principal exposure to foreign currency risk was as follows:
Denominated Denominated Denominated Denominated Denominated
in GBP£ in EUR€ in PLN in CAD in MAD
US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other receivables 810 261 30 – –
Trade and other payables (427) (1,861) (27) – –
Provisions – (56) – – –
Cash and cash equivalents 1,332 208 115 – 1
Total 2020 1,715 (1,448) 118 – 1
At 31 December 2019, the Group’s principal exposure to foreign currency risk was as follows:
Denominated Denominated Denominated Denominated Denominated
in GBP£ in US$ in PLN in CAD in MAD
US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other receivables 585 350 52 – –
Trade and other payables (553) (2,666) (33) (6) (250)
Provisions – (56) – – –
Cash and cash equivalents 481 95 264 – 1
Total 2019 513 (2,277) 283 (6) (249)
At 31 December 2020, the Company’s principal exposure to foreign currency risk was as follows:
Denominated Denominated Denominated Denominated Denominated
in GBP£ in EUR€ in PLN in CAD in MAD
US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other receivables 808 3,398 – – –
Trade and other payables (225) (2,908) – – –
Cash and cash equivalents 1,134 172 – – 1
Total 2020 1,717 662 – – 1
At 31 December 2019, the Company’s principal exposure to foreign currency risk was as follows:
Denominated Denominated Denominated Denominated Denominated
in GBP£ in US$ in PLN in CAD in MAD
US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other receivables 695 3,373 – – –
Trade and other payables (369) (3,125) – (6) –
Cash and cash equivalents 471 86 – – 1
Total 2019 797 334 – (6) 1
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SAN LEON ANNUAL REPORT 2020 109
Notes to the financial statements
for the year ended 31 December 2020 – continued
32. Financial instruments and financial risk management continued
The euro exchange rates used in the preparation of the financial statements were as follows:
2020 2019
Average rate Closing rate Average rate Closing rate
Sterling 0.778085 0.732646 0.784092 0.757344
Euro 0.873668 0.814930 0.893276 0.890155
Polish Zloty 3.887568 3.715834 3.838961 3.789211
Canadian Dollars 1.338696 1.273979 1.326942 1.299448
Moroccan Dirhams 9.237400 8.910443 9.564350 9.534350
Sensitivity analysis
If the US Dollar increased 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$3,773. If the US Dollar decreased 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$3,810.
If the US Dollar increased by 1% in value against the above currencies, the Company’s loss for the year would increase and equity
at year end would decrease by US$23,560. If the US Dollar decreased by 1% in value against the above currencies, the Company’s
loss for the year would decrease and equity at year end would increase by US$23,795.
(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 OML 18 and ELI.
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 2020
was US$20.6 million (2019: US$37.9 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 2020 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
further loan 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
previously 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.
110 SAN LEON ANNUAL REPORT 2020
32. Financial instruments and financial risk management continued
MLPL is expected to repay all interest and principal due under the loan agreement, however it is currently experiencing short term
cash flow issues which makes it challenging to predict when repayments will be made. The increase in credit risk is due to the
uncertainty in timing of when Loan Note repayments are received. It 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 credit impairment.
This risk has previously been assessed as having increased significantly since initial recognition, and is considered to have
increased further during the year ended 31 December 2020.
As the asset is determined to be credit-impaired, the lifetime expected credit loss has been presented net against the gross
carrying value of the Loan Notes balance 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 credit impairment for this asset is set out in Note 17.
The Directors have considered the impact of Covid-19, the impact on oil price and demand and short term production issues on
the Loan Notes and associated credit risk, all of which are tied to the performance of the OML 18 asset. The short term production
issues are expected to delay Eroton’s ability to return to full production and benefit from the recovery in the oil price, with the
overall effect likely to be short term cash flow issues resulting in a delay in receiving distributions from Eroton via MLPL. The
Directors have therefore concluded that the risk profile of the Loan Notes has increased.
In the opinion of the Directors there is currently no difference between the carrying amount of the MLPL loan net of the provision
and its fair value.
The following table provides information about the exposure to credit risk and expected credit losses of the OML 18 Loan Notes
as at 31 December 2020.
Gross Impairment
Weighted carrying loss
average amount allowance Credit
Equivalent to Moody’s credit rating loss rate US$000 US$000 impaired
Lower than BBB 18.17% 84,234 15,309 Yes
The following table provides information about the exposure to credit risk and expected credit losses of the OML 18 Loan Notes
as at 31 December 2019.
Gross Impairment
Weighted carrying loss
average amount allowance Credit
Equivalent to Moody’s credit rating loss rate US$000 US$000 impaired
Lower than BBB 1.75% 114,254 2,002 No
ELI
The ELI transaction comprises a US$15.0 million shareholder loan as detailed in Note 17. The credit risk is managed via various
undertakings, such as representations, warranties and covenants and the ability for a preferential distribution should some
warranties be breached. Given the nature and stage of the asset the main credit risk is regarded as the timing of payments by ELI
Malta which is dependent on dividend distributions by ELI Nigeria rather than being unable to pay the total quantum due under
the Loan Notes. Currently the Loan Notes are in good standing with the first repayment due on 31 July 2021.
The credit risk associated with the ELI Loan Notes is regarded as low which has led the Company to determine that providing for a
loss over the following 12-month period is appropriate. Establishing an expected credit loss over the following 12-months 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 12-month expected
credit loss provision are explained as follows.
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SAN LEON ANNUAL REPORT 2020 111
Notes to the financial statements
for the year ended 31 December 2020 – continued
32. Financial instruments and financial risk management continued
The credit risk of the instrument needs to be evaluated without consideration of collateral. Financial instruments are not
considered to have low credit risk because that risk is mitigated by collateral.
ELI is not considered to be in financial difficulty and is expected to repay all interest and principal due under the loan agreement.
In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the expected credit loss and,
this has been assessed as having not increased significantly since initial recognition.
As the asset is not credit-impaired, the 12-month expected credit loss is recorded as a separate provision on the Statement of
Financial Position and remeasured at each reporting date. The ELI 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, and although this has slightly
delayed the completion of the pipeline, 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.
The following table provides information about the exposure to credit risk and expected credit losses of the ELI Loan Notes as at
31 December 2020.
Gross Impairment
Weighted carrying loss
average amount allowance Credit
Equivalent to Moody’s credit rating loss rate US$000 US$000 impaired
Lower than BBB 2.51% 15,353 385 No
Cash and cash equivalents
The credit risk on cash and cash equivalents held in the Group’s bank accounts is considered limited because the counterparties
are banks with high credit-ratings assigned by international credit rating agencies. The Group also holds limited funds for day to
day operational purposes with Irish banking institutions which are subject to guarantee by the Irish government. The Group and
Company’s maximum exposure to credit risk is equal to the carrying amount of cash and cash equivalents in its consolidated and
Company statement of financial position. The Group does not expect any counterparty to fail to meet its obligations.
Details of cash deposits, which are all for terms of one month or less are as follows:
Group Company
2020 2019 2020 2019
US$’000 US$’000 US$’000 US$’000
Euro 208 95 172 86
Sterling 1,332 481 1,134 471
US Dollar 16,855 35,856 16,838 35,830
Polish Zloty 114 264 – –
Moroccan Dirhams 1 1 1 1
18,510 36,697 18,145 36,388
112 SAN LEON ANNUAL REPORT 2020
32. Financial instruments and financial risk management continued
(c) Liquidity risk management
Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall due. The Group manages liquidity
risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flows and matching the
maturity profiles of financial assets and liabilities. Cash forecasts are produced to identify the liquidity requirements of the Group.
Surplus cash is placed on deposit in accordance with limits and counterparties agreed by the Board, with the objective to maximise
return on funds whilst ensuring that the short-term cash requirements of the Group are maintained.
All cash and cash equivalents held in the Group’s bank accounts are due on demand. All trade and other receivables and trade
and other payables are due within one month.
The financial liabilities at 31 December 2020 are as follows:
Less than One to Two to Greater than
one year two years five years five years Total
Group US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other payables, excluding leases (Note 21) 3,298 – – – 3,298
Operating leases (Note 28) 369 369 1,103 1,718 3,559
Derivative (Note 22) 9 – – – 9
3,676 369 1,103 1,718 6,866
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$’000
Trade and other payables, excluding lease (Note 21) 3,304 – – – 3,304
Operating leases (Note 28) 369 369 1,103 1,718 3,559
Derivative (Note 22) 9 – – – 9
3,682 369 1,103 1,718 6,872
The financial liabilities at 31 December 2019 are as follows:
Less than One to Two to Greater than
one year two years five years five years Total
Group US$’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
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SAN LEON ANNUAL REPORT 2020 113
Notes to the financial statements
for the year ended 31 December 2020 – continued
32. Financial instruments and financial risk management continued
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, the volatility in oil prices and demand, OPEC quotas, and recent operational challenges
being experienced by OML 18 could potentially have an impact on the Company’s indirect interest in OML 18 and receipt of Loan
Note repayments. However, San Leon is still confident in the operational potential of OML 18 and ultimately recovering the full
amount of the outstanding Loan Notes. Any impact on the Company’s liquidity risk is expected to be short term and mitigated by
the receipt of cash from other sources, such as Loan Note repayments from ELI and services income.
(d) Interest rate risk
The Group and Company’s exposure to the risk of changes in market interest rates relates primarily to the Group and Company’s
holdings of cash and short-term deposits.
It is the Group and Company’s policy to place surplus funds on short term deposit in order to maximise interest earned whilst
maintaining adequate short-term liquidity for operational requirements.
The Loan Notes referred to in Note 17 attract a 17% fixed rate of contractual interest and as a consequence there is no interest
rate exposure.
(e) Capital management risk
The Group and Company manage its capital to ensure that entities in the Group will be able to continue as a going concern while
maximising the return to shareholders through the optimisation of the debt and equity balance. The Group and Company
manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust its
capital structure, the Group may adjust or issue new shares or raise debt. In 2019 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$30.5 million in that year. See Note 24 for further details. The capital
structure of the Group consists of equity attributable to equity holders of the parent, comprising issued capital, reserves and
retained losses as disclosed in the consolidated statement of changes in equity.
The Group net debt and equity, and the net debt to equity ratio at 31 December 2020 was as follows:
2019
2020 US$’000
US$’000 (Restated*)
Total liabilities 6,642 8,091
Less: cash and cash equivalents 18,510 36,697
Adjusted net debt (11,868) (28,606)
Total equity 152,060 195,848
Adjusted net debt to equity ratio (0.08) (0.15)
* See Note 13 for details on restated amounts.
114 SAN LEON ANNUAL REPORT 2020
32. Financial instruments and financial risk management continued
(f) Financial assets and liabilities by category
The following table sets out the carrying value of all the financial assets and liabilities held at 31 December 2020:
Carrying
Fair value amount Level 1 Level 2 Level 3^
31 December 31 December 31 December 31 December 31 December
2020 2020 2020 2020 2020
Group US$’000 US$’000 US$’000 US$’000 US$’000
Financial assets
OML 18# (Note 17) 68,925 68,925 – – 68,925
ELI (Note 17) 14,968 14,968 – – 14,968
Barryroe NPI (Note 17) 6,842 6,842 – – 6,842
Unquoted shares (Note 17) – – – – –
Trade receivables * (Note 19) 2 2 – – –
Cash and cash equivalents * (Note 20) 18,510 18,510 – – –
Other debtors * (Note 19) 732 732 – – –
Financial liabilities
Trade payables * (Note 21) (719) (719) – – –
Other creditors * (Note 21) (36) (36) – – –
Derivative (Note 22) (9) (9) – – (9)
At 31 December 2020 109,215 109,215 – – 90,726
# 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.
Carrying
Fair value amount Level 1 Level 2 Level 3^
31 December 31 December 31 December 31 December 31 December
2019 2019 2019 2019 2019
Company US$’000 US$’000 US$’000 US$’000 US$’000
Financial assets
OML 18# (Note 17) 68,925 68,925 – – 68,925
Barryroe NPI (Note 17) 6,842 6,842 – – 6,842
Cash and cash equivalents * (Note 20) 18,145 18,145 – – –
Other debtors * (Note 19) 726 726 – – –
Financial liabilities
Trade payables * (Note 21) (187) (187) – – –
Other creditors * (Note 21) (2) (2) – – –
Derivative (Note 22) (9) (9) – – (9)
At 31 December 2020 94,440 94,440 – – 75,758
# There has been no change to the assumptions underlying the determination of fair value of the OML 18 loan since initial recognition. Therefore, the carrying amount
arising from the application of the effective interest rate method approximates to the fair value.
* The Group has not disclosed the fair value of financial instruments such as short-term receivables and payables, as it is considered that their carrying amounts are a
reasonable approximation of their fair values.
^ For detailed disclosures on the valuation techniques of level 3 disclosures see the note referenced above.
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SAN LEON ANNUAL REPORT 2020 115
Notes to the financial statements
for the year ended 31 December 2020 – continued
32. Financial instruments and financial risk management continued
During the period ended 31 December 2020, there were no significant changes in the business or economic circumstances that
affect the fair value of financial assets and liabilities, no reclassifications and no transfers between levels of the fair value hierarchy
used in measuring the fair value of the financial instruments.
The following table sets out the carrying value of all the financial assets and liabilities held at 31 December 2019:
Carrying
Fair value amount Level 1 Level 2 Level 3^
31 December 31 December 31 December 31 December 31 December
2019 2019 2019 2019 2019
Group US$’000 US$’000 US$’000 US$’000 US$’000
Financial assets
OML 18 (Note 17) 111,323 112,252 – – 112,252
Barryroe NPI (Note 17) 2,769 2,769 – – 2,769
Unquoted shares (Note 17) 194 194 – – 194
Trade receivables* (Note 19) 2 2 – – –
Cash and cash equivalents* (Note 20) 36,697 36,697 – – –
Other debtors* (Note 19) 710 710 – – –
Financial liabilities
Trade payables* (Note 21) (1,608) (1,608) – – –
Other creditors* (Note 21) (158) (158) – – –
Derivative (Note 22) (128) (128) – – (128)
At 31 December 2019 149,801 150,730 – – 115,087
* 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.
Carrying
Fair value amount Level 1 Level 2 Level 3^
31 December 31 December 31 December 31 December 31 December
2019 2019 2019 2019 2019
Company US$’000 US$’000 US$’000 US$’000 US$’000
Financial assets
OML 18 (Note 17) 111,323 112,252 – – 112,252
Barryroe NPI (Note 17) 2,769 2,769 – – 2,769
Cash and cash equivalents* (Note 20) 36,388 36,388 – – –
Other debtors* (Note 19) 696 696 – – –
Financial liabilities
Trade payables* (Note 21) (329) (329) – – –
Other creditors* (Note 21) (71) (71) – – –
Derivative (Note 22) (128) (128) – – (128)
At 31 December 2019 150,648 151,577 – – 114,893
* 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.
116 SAN LEON ANNUAL REPORT 2020
32. Financial instruments and financial risk management continued
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.
(g) Hedging
At 31 December 2020 and 31 December 2019, the Group and Company had no outstanding contracts designated as hedges.
33. Subsequent events
MLPL Loan Note
The Company has received US$0.8 million in Loan Note repayments since 31 December 2020.
Barryroe NPI
On 22 April 2021, Providence Resources plc announced that the farmout agreement with SpotOn Energy for the Barryroe Licence
had been terminated due to SpotOn Energy’s inability to secure financing. Providence are now progressing arrangements for an
alternative funding package to finance 100% of the costs for the early development scheme of the Barryroe Licence.
Since this announcement the share price of Providence has materially reduced compared to the price quoted at 31 December
2020 which was used as a key input in the valuation of the Company’s 4.5% NPI in Barryroe. Should the share price remain
materially lower than at half year reporting, the carrying value of the Barryroe NPI will likely be impaired.
Appointment of new Director
On 7 May 2021, John Brown was appointed to the Board as an Independent Non-Executive Director.
Resignation of Director
On 7 May 2021, Alan Campbell stepped down from the Board as an Executive Director.
Property owned by Mr. Oisín Fanning
In June 2021, the Company signed a licence with Mr. Oisín Fanning to use the property previously disclosed in Note 31 for office
space. The monthly rent payable is on average US$32,000.
ELI – additional investment
On 24 June 2021, the Company announced a conditional investment of US$2.0 million and an option to conditionally invest a
further US$6.5 million in the equity of ELI. The equity being conditionally purchased and the equity that may be purchased via the
option are existing equity interests in ELI owned by Walstrand (Malta) Limited, ELI’s largest shareholder.
Proposed transactions and Suspension of San Leon shares
On 24 June 2021, the Company announced that it was is in preliminary discussions with Midwestern about acquiring Midwestern’s
interest in the OML 18 oil and gas block located onshore in Nigeria. At this date, heads of terms for the transaction had not been
agreed. The transaction would involve San Leon acquiring the outstanding shares not already owned by San Leon in relation to MLPL.
San Leon is not contemplating acquiring Midwestern. San Leon currently owns 40% of MLPL with Midwestern owning the other 60%.
In addition, the Company is considering making further debt and equity investments in ELI.
Elements of the above transactions would constitute a reverse takeover under rule 14 of the AIM Rules for Companies.
San Leon and Midwestern are in discussions for the Company to acquire the remaining 60% equity interest in MLPL from
Midwestern. The consideration for this would be satisfied by the issuance of a substantial number of new ordinary shares in
San Leon to Midwestern such that Midwestern would become the majority shareholder of San Leon.
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SAN LEON ANNUAL REPORT 2020 117
Notes to the financial statements
for the year ended 31 December 2020 – continued
33. Subsequent events continued
The proposed transaction is at a very early stage and will therefore be subject to a number of factors, including, inter alia, the
completion of due diligence, negotiation of transaction documentation, regulatory approvals, a “whitewash” under the Irish
Takeover Rules and shareholder approval. As such, there is no certainty that the transaction will proceed nor any certainty
regarding the terms on which they would proceed.
Related party
Midwestern currently holds more than 10% of the Company’s ordinary shares. Accordingly, Midwestern is classified as a related
party under the AIM Rules and the transactions above in which Midwestern has an interest will therefore be treated as
transactions with a related party pursuant to rule 13 of the AIM Rules.
Suspension of trading
As the transactions would constitute a reverse takeover under rule 14 of the AIM Rules, these will be subject, inter alia, to the
approval of San Leon’s shareholders. As such, a further announcement including, inter alia, full details of the transactions will be
issued at the appropriate time once binding contracts are entered into and an AIM admission document published and sent to
San Leon’s shareholders with a notice of general meeting.
In accordance with rule 14 of the AIM Rules, the Company's ordinary shares were suspended from trading on AIM on 24 June
2021. The Company's ordinary shares will remain suspended until such time as either an AIM admission document is published
or an announcement is released confirming that the relevant transactions are not proceeding.
34. Approval of financial statements
The Financial Statements were approved by the Board on 28 June 2021.
118 SAN LEON ANNUAL REPORT 2020
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 OML 18 Loan Notes under IFRS 9, excluding expected credit losses, and the par value is
provided below:
IFRS 9
Amortised IFRS 9
Cost Adjustment Par value
US$’000 US$’000* US$’000
Loan Notes at 31 December 2019 114,254 4,494 118,748#
Interest accrued on Loan Notes (1 January 2020 to 6 April 2020) 6,783 (1,886) 4,897
Cash receipts (1 January 2020 to 6 April 2020) (41,500) – (41,500)
Loan Notes at 6 April 2020 79,537 2,608 82,145
Interest accrued on Loan Notes (7 April 2020 to 31 December 2020) 9,697 595 10,292
Cash receipts (7 April 2020 to 31 December 2020) (5,000) – (5,000)
Loan Notes at 31 December 2020 84,234 3,203 87,437^
Interest accrued on Loan Notes (1 January 2021 to 18 June 2021) 8,961 (2,496) 6,465
Cash receipts (1 January 2021 to 18 June 2021) (750) – (750)
Loan Notes at 18 June 2021 92,445 707 93,152
* 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.
^ Made up of capital balance of US$82.1 million and accrued interest of US$5.3 million.
A reconciliation from the value of the ELI Loan Notes under IFRS 9, excluding expected credit losses, and the par value is
provided below:
IFRS 9
Amortised IFRS 9
Cost Adjustment Par value
US$’000 US$’000* US$’000
Loan Notes at 31 December 2020 15,353 399 15,752^
Interest accrued on Loan Notes (1 January 2021 to 18 June 2021) 1,092 (120) 972
Cash receipts (1 January 2021 to 18 June 2021) – – –
Loan Notes at 18 June 2021 16,445 279 16,724
* The effective interest rate is 16% and the coupon rate is 14% (Note 17)
^ Made up of capital balance of US$15.0 million and accrued interest of US$0.8 million
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SAN LEON ANNUAL REPORT 2020 119
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) resigned 7 May 2021
Lisa Mitchell (Chief Financial Officer)
Mark Phillips (Non-Executive Director)
resigned 29 June 2020
Linda Beal (Non-Executive Director)
resigned 8 December 2020
Bill Higgs (Non-Executive Director)
resigned 18 May 2020
Adekolapo Ademola (Non-Executive
Director) appointed 7 April 2020
John Brown (Non-Executive Director)
appointed 7 May 2021
Registered Office
2 Shelbourne Buildings
Crampton Avenue
Shelbourne Road
Ballsbridge
Dublin 4
Secretary
Alan Campbell
Auditor
KPMG
Chartered Accountants,
Statutory Audit Firm
1 Stokes Place
St Stephen’s Green
Dublin 2
Principal Bankers
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
England
Alius Law
12 Melcombe Place
London NW1 6JJ
England
Nominated Adviser
and Joint Broker
Allenby Capital Limited
1 Churchill Place
5 St Helen’s Place
London EC3A 6AB
Joint Stockbrokers
Panmure Gordon & Co
1 New Change
London EC4M 9AF
Brandon Hill Capital
1 Tudor Street
London EC4Y 0AH
120 SAN LEON ANNUAL REPORT 2020
Glossary
2C Best estimate of Contingent Resources
1P Proven Reserves
2P Proven plus Probable Reserves
3P Proven plus Probable plus Possible Reserves
AIM The London Stock Exchange’s AIM market
AIM Rules AIM Rules for Companies
BCF or bcf Billion cubic feet
Bilton Bilton Energy Limited
B.V. Dutch private limited company
BVI British Virgin Islands
CPR Competent Person’s Report
Eroton Eroton Exploration and Production Company Limited
US$’000 United States Dollars, thousands
ESM European Stability Mechanism
FSO Floating Storage and Offloading
Group San Leon and its subsidiaries
LLP Limited liability partnership
Loan Notes $174.5 million principal amount of 17% fixed rate loan notes acquired by San Leon pursuant to the
amended and restated loan note instrument dated September 30, 2016 executed and issued by
Midwestern Leon Petroleum Limited
Ltd or limited A private limited company incorporated under the laws of England and Wales, Scotland, certain
Commonwealth countries and Ireland
m Metres
‘m Millions
Martwestern Martwestern Energy Limited
Midwestern Midwestern Oil and Gas Company Limited
MLPL Midwestern Leon Petroleum Limited
MSA Master Services Agreement
mmbbL Million barrels
Nomad A company that has been approved as a nominated advisor for AIM by the London Stock Exchange
NNPC Nigerian National Petroleum Corporation
NPI Net Profit Interest
PLC A publicly held company
San Leon or the Company San Leon Energy PLC
SEDA Standby Equity Distribution Agreement
Sp. z o.o. Polish limited liability company
Sp. z o.o. sp.k Polish LLP
SPV Special purpose vehicle
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SAN LEON ANNUAL REPORT 2020 121
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 To Multiply by
mcf Cubic metres 28.174
Cubic metres Cubic feet 35.494
bbls Cubic metres 0.159
Cubic metres bbls 6.290
Feet Metres 0.305
Metres Feet 3.281
Miles Kilometres 1.609
Kilometres Miles 0.621
Acres Hectares 0.405
Hectares Acres 2.471
122 SAN LEON ANNUAL REPORT 2020
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% initial indirect economic interest in Oil Mining Lease 18
(“OML 18”), a producing asset located onshore Nigeria; and during
2020 acquired a 10% interest in Energy Link Infrastructure (Malta) Ltd
(“ELI”). ELI’s sole asset is the proposed new Alternative Crude Oil
Evacuation System (“ACOES”) constructed to provide a dedicated oil
export route from the OML 18 asset.
The Company is aiming to use its interest in 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.
Overview
Highlights
San Leon at a glance
Our strategy
1
2
4
5
Financial statements
46
Independent Auditor’s report
52 Consolidated income statement
53 Consolidated statement of other comprehensive income
Overview / Corporate structure
54 Consolidated statement of changes in equity
Strategic report
6
8
Chairman’s statement
Four expected cash flow sources
10 Chief Executive’s statement
Corporate governance
14 Board of Directors
16 Corporate governance statement
24
27
Audit and Risk Committee report
Remuneration Committee report
30 Nomination Committee report
31 Health and Safety Committee report
32 Directors’ report
39 Corporate Responsibility
44
Statement of Director’s responsibilities
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
119 Alternative performance measures
120 Corporate information
121 Glossary
122 Conversion
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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
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An independent
oil and gas company
Annual Report 2020