TIDMSLE
RNS Number : 4590F
San Leon Energy PLC
21 February 2018
21 February 2018
San Leon Energy plc
("San Leon" or the "Company")
Operating and Corporate Update
San Leon Energy plc, the AIM listed company focused on oil and
gas development and appraisal in Africa and Europe, is pleased to
provide an update on operations and finances related to its initial
indirect 9.72 per cent. interest in the OML 18 project, onshore
Nigeria.
OML 18 Operations Overview
- Current oil production, including 50% of the Awoba field, is
approximately 53,000 barrels of oil per day ("bopd") before
downtime and pipeline losses, down approximately 3,000 bopd since
the operational update of 19 April 2017.
- In 2017, OML 18, including 50% of the Awoba field, produced
40,360 bopd before pipeline losses, or 50,450 bopd before pipeline
losses on a producing day basis.
- In 2017, average oil sales, including 50% of the Awoba field,
(after downtime and disputed pipeline losses) were 26,440 bopd
(compared with 30,969 bopd in 2016).
- The discrepancy between the sales and production numbers, and
delays in production increases, continue largely to be attributable
to three main factors: (i) workover/drilling progress (ii)
production downtime and (iii) estimated pipeline losses. Each of
these is being addressed by Eroton, the operator of OML 18, and is
explained further below.
- Current gas sales are approximately 50 million standard cubic
feet per day ("mmscf/d"). In 2017 the average gas sales were
45.2mmscf/d, after downtime.
- Production at OML 18 has continued uninterrupted by any
security issues in 2017. During January 2018 illegal bunkering
activity caused a fire on a non-operational well on the Buguma
field. This did not affect production, and there were no
casualties. The fire was swiftly brought under control by Eroton
without a reportable spill.
- The Krakama field was brought into production in January 2017
on schedule. Further well activity on the field has yet to
commence. Current oil production from Krakama is approximately
4,500 bopd.
- The Buguma Creek field, previously expected to go online in Q4
2017 with production transported in bulk to the Krakama facility,
is now expected online during Q3 2018.
- Field development plans ("FDPs") for Akaso, Cawthorne Channel
and Alakiri have been submitted to the Nigerian National Petroleum
Company ("NNPC"), with approval expected during Q1 2018.
- Eroton is working on an updated reserves report, with an
expectation of adding material oil and condensate volumes. A
summary of the finalised reserves report will be communicated to
shareholders once it is available and after review by the
Company.
OML 18 2017 Production Summary and Commentary
Delays in production increases have been as a result of:
(i) Workover/drilling progress
- Non-rig workovers performed during 2017 continued to proceed
less quickly than expected due primarily to downhole
challenges.
- There were some challenges in execution due to the process of
approvals with JV partners. Given the positive improvement in the
prompt settlement of ongoing partner cash calls, Eroton expects the
JV approvals process to continue to improve.
- San Leon's senior operations manager has now been working as
an appointee in Eroton for approximately two months, bringing with
him a wealth of downhole operational experience. Together with
Eroton's team, this experience is being applied to the ongoing
non-rig workovers and will also be used for rig-based workovers and
new wells.
- Following the 2018 budgetary planning process, and assuming
the approval of various FDPs, the Company now expects that
rig-based workovers, previously anticipated to commence in Q4 2017,
will commence in Q3 2018, and new wells will be drilled commencing
Q4 2018. As mentioned in previous operational updates, this type of
drilling activity has yielded material production gains in similar
fields elsewhere in Nigeria and the Company remains confident the
work will add materially to Eroton's production base. Such activity
was the basis for the production gains reflected in the Admission
Document.
(ii) Production downtime
- Tank tops and cargo shipping delays at the Bonny Terminal, as
well as intermittent upstream outages on the Nembe Creek Trunk Line
pipeline ("NCTL"), the export pipeline used to transport oil to the
Bonny Terminal, has resulted in material production downtime at OML
18.
- Eroton is evaluating a number of independent alternative oil
evacuation routes that will improve consistency of supply to the
market. The preferred evacuation route selected by Eroton is a new
dedicated pipeline and offshore Floating Storage and Offloading
("FSO") system.
(iii) Pipeline losses
- Following the installation of new Lease Automatic Custody
Transfer ("LACT") units on the NCTL line in 2016, the Bonny
Terminal operator allocated an average of approximately 35%
pipeline losses to all operators using NCTL for 2017 (compared with
9% assumed and documented in the Company's admission document dated
26 August 2016 ("Admission Document")). Eroton disputes the
allocation and has requested that the relevant regulatory
authorities investigate the allocation of such excessive losses
with a view to reallocating losses in Eroton's favour (thereby
boosting the sales numbers). Those discussions are ongoing.
- LACT units for OML 18 are now in Nigeria and, following
commissioning and regulatory sign off, are anticipated by Eroton to
be operational in H2 2018. The use of these units is expected to
provide accurate measurements at the transfer point and therefore
reduced the pipeline losses allocated to Eroton.
- The proposed alternative crude evacuation (pipeline) and
storage facilities are anticipated to realise significant
advantages with respect to pipeline loss allocation and production
up-time, coinciding with the expected timing of the production
increases from rig-based activity. The Company expects tendering
and approval by JV partners to occur in the next 6 months.
Nigeria Financial
In accordance with the terms of the $174.5 million loan note
instruments held by San Leon pursuant to the OML 18 assets (as
described more fully in the Interim Statement dated 29 September
2017), the average quarterly scheduled amount of principal and
interest to date is approximately $19 million. To date, $39.6
million has been received by San Leon in order to avoid a default
under the loan note instruments. SLE is also due to receive
approximately $19 million by 1 April 2018 from or on behalf of
Midwestern Leon Petroleum Limited ("MLPL"), and further similar
quarterly amounts thereafter, until all Notes have been repaid.
The Reserves Based Lending ("RBL") conditions required for the
payment of dividends by Eroton have been met, with the exception of
satisfying the amount payable to Debt Service Reserve Account
("DSRA") and the filing of Eroton's 2017 financial accounts. Eroton
awaits repayment of the majority of NNPC's historic operational
expenditure and capital expenditure cash calls from 2015 and 2016,
although encouragingly such repayments began in Q4 2017 and have
continued. NNPC has also paid the large majority of it 2017 cash
calls promptly and continues to do so in 2018.
The delayed receipt of NNPC 2015/2016 arrears has had two main
impacts to date.
- First, as announced on 7 September 2017, this has been a
contributory factor to some work programme delays (such as well
workovers and the drilling of new wells). These delays to heavy
workovers and new well drilling, which target significant hikes in
production rates, in turn impact the cash generated by Eroton.
- Secondly, as also announced on 7 September 2017, depositing
three future quarterly reserves based lending ("RBL") repayments
into the debt service reserve account ("DSRA") attached to Eroton's
existing RBL facility, is one of the conditions that needs to be
met before the RBL lenders will allow distribution of dividends
from Eroton to its shareholders. The cumulative amount required to
fill the DSRA varies according to the RBL amortisation schedule and
is approximately $90m for much of 2018. The DSRA balance however
fluctuates according to operational needs and due to some of the
funding challenges experienced.
Any future payment of dividends by Eroton, and receipt by MLPL,
will be used to pay the principal and interest due on the loan
notes, and to pay dividends to San Leon. Given the delays in
operational activity, downtime and pipeline losses, dividend
payments by Eroton are not expected until the impact of the
alternative export pipeline and/or the rig-based well activity have
materially increased sales volumes of oil.
During January 2018, Eroton put in place a new hedge covering
its RBL borrowing base. The hedge is a put option at a price of
$50/bbl for 10,170 bopd until 30 June 2019.
Nigeria Administrative
As provided for in the shareholders agreement between San Leon
Energy Nigeria Limited, Midwestern Oil and Gas Company Limited and
MLPL dated 22 March 2016, San Leon has the right to nominate people
for appointment to the following positions within Eroton.
- Two Eroton Board members: Mr. Oisin Fanning and Mr. Mutiu Sunmonu sit on the Eroton Board.
- The Chair of the Finance Committee: an appointee has been
agreed with Eroton, and will formally assume the role at the next
Eroton Board meeting.
- A Senior Technical Manager who has extensive experience in
Nigeria and similar environments: Mr. Les Johnson has now been in
place for two months.
Oisin Fanning, San Leon's CEO, commented:
"San Leon has been part of OML 18 for nearly 18 months. The
pressure on production levels caused by a scarcity of capital
available to OML 18 for investment in well activity, together with
securing permissions, has been exacerbated by downtime and pipeline
losses caused by external factors. This has resulted in materially
lower production and sales volumes compared with those assumed and
documented in the Admission Document. We look forward to receiving
the new competent person's report which will form a new basis for
evaluating the development plans, forward production profile and
economics of the OML 18 project.
Most importantly, these issues are not expected to affect,
materially, the long-term field performance, whilst in the shorter
term San Leon has a number of protections in place for receiving
loan note repayments which are expected to be approximately $19
million per quarter.
The Company anticipates a turnaround in OML 18's net production
(after downtime and pipeline losses) once several events have
occurred.
First, capital needs to be available at Eroton level for well
activity. This may include the receipt of NNPC arrears payments,
and external finance (for instance).
Secondly, rig-based activity needs to begin, in combination with
the non-rig workovers already occurring. This is expected
materially to increase gross production.
Thirdly, the alternative crude evacuation and storage facilities
must be installed, which the Company expects to bring the combined
downtime plus pipeline losses to below 10%. This would provide a
large boost to net oil production (sales oil)."
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
Enquiries:
+ 353 1291
San Leon Energy plc 6292
Oisin Fanning, Chief Executive
SP Angel Corporate Finance LLP +44 20 3470
(Nominated adviser to the Company) 0470
Richard Morrison
Richard Hail
Soltan Tagiev
Whitman Howard Limited (Financial
adviser and joint broker to the +44 20 7659
Company) 1234
Nick Lovering
Francis North
Brandon Hill Capital Limited (Joint +44 203 463
broker to the Company) 5000
Oliver Stansfield
Jonathan Evans
Vigo Communications (Financial +44 207 830
Public Relations) 9700
Chris McMahon
Kate Rogucheva
+353 1 280
Plunkett Public Relations 7873
Sharon Plunkett
This information is provided by RNS
The company news service from the London Stock Exchange
END
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