San Leon Energy Share Discussion Threads

[o1lman] 09/7/2017 13:39

San Leon fractured at oilfield
Gavin Daly
July 9 2017, 12:01am, 
The Sunday Times

San Leon cast its net wide in the early years as a plc, scooping up licences in places such as Poland


Sixteen kilometres south of Port Harcourt, in the mangrove swamps of the Niger Delta, lies an area with the inauspicious name of OML 18. The OML stands for oil mining licence, and OML 18, which spans more than 1,000 sq km, is considered one of the best oil and gas areas in all of Nigeria.
OML 18 has produced more than 1bn barrels of oil since 1970, and is estimated to hold another 500m barrels of oil and 4.6 trillion cubic feet of gas. Experts estimate there are hundreds of millions more barrels of oil under the mucky soil, in reserves that are not fully verified.
In 2015, OML 18 caught the eye of Oisín Fanning, the ebullient chief executive of San Leon Energy, an Irish-registered exploration group listed on the Alternative Investment Market (AIM) in London. Eroton, a consortium led by a Nigerian company, had paid $1.1bn (€965m) to buy 45% of OML 18 from oil giants Shell, Total and Agip — and there was an opportunity to get a slice of the action.
Through a complex $200m deal that occupied San Leon for eight months of 2016, the company gained a 9.72% economic interest in OML 18. It was a “transformational transaction”, said Fanning, pledging to pay handsome and quick dividends to San Leon’s shareholders.
Chief among those is Toscafund, a £2bn (€2.3bn) British asset manager headed by Martin “the Rottweiler” Hughes, nicknamed for his sometimes aggressive approach to deal-making. After supporting the OML 18 deal and continuing to snap up shares in San Leon this year, Toscafund owns 59.5% of the company, prompting speculation on bulletin boards that Hughes scented a big payday.

Less than a year on, extracting money from Nigeria has proved more difficult than extracting oil and gas. Shares in San Leon have been suspended from AIM for the past week after it missed a deadline to file its 2016 accounts, and a quick resolution seems unlikely.
On Friday, San Leon said the delay was caused by the complexity of incorporating results from Eroton and its partners, involving “several jurisdictions”. Even when the results are compiled, audits and “technical review matters” must be completed before the figures are published and San Leon shares can trade again.
At the same time, the company is fielding a buyout offer from China Great United Petroleum that values it at 67p-76p a share, or a maximum of £339m. Despite the promise of OML 18, the shares are frozen at 34.4p, way below the potential offer and just a third of a £1 share price target set last year by share price Angel, a London investment bank that San Leon’s broker.
On shareholder bulletin boards, San Leon investors swing between deep despair and wild optimism. A common question emerges: what is going on at San Leon?
A well-known figure in Irish business circles, Fanning was chief executive of MMI Stockbrokers, which collapsed in 1999. He then founded and floated Smart Telecom before leaving in 2006 amid discord with Brendan Murtagh, the Kingspan co-founder, who bought Smart for €1 after it lost out on a 3G licence.
In the following years, Fanning faced court actions with IBRC over personal and business debts but bounced back by joining forces with San Leon in 2007 and taking it public on AIM in 2008.
Founded by geologist Philip Thompson, a 25-year veteran of the oil and gas sector, San Leon had exploration assets in Holland, US and Morocco. Fanning’s oil and gas credentials, according to the San Leon website, include being “closely involved with the restructuring of Dana Petroleum plc in the early 1990s” and being “a major supporter of Tullow Oil plc in its early growth phase”.
San Leon cast its net wide in the early years as a plc, scooping up licences in Italy, Poland and Albania. There was an oil venture in Texas and project work in Iraq.
In 2010, the company bought Island Oil & Gas in a £13.6m all-share merger, and gained a 4.5% net profit interest in the Barryroe oilfield off Cork. It brought in a big partner, Talisman, in Poland, and bought Realm Energy, a Canadian group, sealing its position as a big shale gas player.
OML 18, which is 45% owned by Eroton and 55% by the Nigerian National Petroleum Corporation (NNPC), represented a big change of focus, scale and risk. share price Angel notes Nigeria has experienced “pipeline vandalism, kidnappings and militant takeovers of oil facilities in the Niger Delta”. Incidents of oil theft and sabotage have recently risen.


Fanning appears to have been undeterred by the local risks, or the complexity of the deal. Toscafund initially put up a loan for San Leon to buy into a Mauritian company involved in OML 18, and San Leon then sold more than 378m shares at 45p each to repay Toscafund.
Fanning told shareholders San Leon would have three revenue streams from OML 18: the repayment of the loan to the OML 18 company, with 17% interest; dividends from the oil company; plus a deal to provide oilfield services at OML 18. By late last year, OML 18 was producing about 61,000 barrels of oil a day, and everything seemed rosy.
Brandon Hill Capital, a London broker, said the Nigerian deal could generate $530m of cash flow for San Leon by 2020, with the company pledging to give 50% of that to shareholders. In research titled Game Changer, share price Angel noted that an “unrisked̶1; valuation of all San Leon’s interests was $9.5bn, the equivalent of more than £14 a share. In the real world, San Leon shares were trading around 50p last December when the firm said it had a buyout bid from a Chinese group, Geron Energy Investment, at 80p a share.
In a statement at the time, Toscafund said it had asked the San Leon board to engage with the potential bidder “to reach an amicable and speedy resolution”. As the months ticked by, however, San Leon kept radio silence on the bid but flagged issues with cash flow from Nigeria.
Eroton is itself waiting for overdue payments from the NNPC, which it needs to complete its 2016 accounts and make payments to its shareholders and San Leon. By April, San Leon was owed $58m of principal and interest payments, but had received just $5m. Fanning has brushed off concerns, saying the NNPC has started paying cash calls to oil groups since the start of the year and San Leon has protections in place to ensure it is paid. “Any issues . . . are being addressed and overcome,” he said in April.
Nonetheless, Toscafund has taken matters into its own hands, appointing a London investment bank, Hannam & Partners, for a “strategic review” of its options in relation to San Leon. The cash squeeze has brought other issues into focus in recent weeks, forcing San Leon to reschedule the payment of €23m it owes an exploration group, Avobone, following a court action. If it misses payments, Avobone can enforce a court order it has secured over San Leon.
San Leon is also evaluating its non-Nigerian assets “with a view to monetisation and/or cost reduction”. China Great United, meanwhile, is doing final due diligence and expects to be in a position to make a formal offer within 45 days, it said on June 30.
San Leon said it would announce any developments, even as its shares remain suspended. Hughes told The Sunday Times that OML 18 was “widely regarded as one of the best onshore sites in Nigeria”, and said Eroton was working on an updated report on reserves there.
“The resources update will provide shareholders of San Leon with a key valuation metric in order to judge the suitable value to put on the San Leon equity,” he said. “Toscafund is comfortable that the board of San Leon will only recommend an offer that is in the interests of all shareholders.”
On the bulletin boards, small shareholders wait and wonder. “When SLE [San Leon Energy] relists, as it surely soon will, then we can focus again on the real and exciting endgame now unfolding,” wrote one hopeful poster last Friday.

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