What the company owns

San Leon Energy PLC (LON:SLE) previously financed a Nigerian company in the OML 18 asset which is now producing at a rate of around 50,000 bopd.

Through its deal with operator Eroton Exploration and Production it receives a 17% coupon on the loan (it has so far received US$149mln of payments, a US$98mln balance is outstanding, and around US$114mln is due for payment before the scheduled expiry in 2021).

It also landed a 10% economic interest in the underlying asset base, which will continue to generate important cash flows to the business after the operator’s debt is repaid.

On top of that, San Leon subsidiaries retain revenue generating service contracts with Eroton for technical subsurface and broader (rig) field services.

Financial results for 2019, released in June 2020, confirmed US$266mln of revenue was generated by San Leon.

It returned some US$66mln back to shareholders – split between US$32.5mln of share buybacks and a US$33mln special dividend.

Management has reaffirmed its commitment to continue the policy to return 50% of cashflow to shareholders. Given that chief executive Oisin Fanning himself now owns close to 24% of the company, following a £20.5mln transaction in May, there can be a degree of confidence that management is aligned to shareholders and this objective in particular.

Fanning acknowledges that the free float of San Leon shares are presently ‘tight’ and possible measures to improve circulation is an ongoing consideration, particularly in regard to retail investors.

How is it doing?
In its financial results, San Leon told investors that it is in a strong position as the current environment presents challenges and also opportunities.

The AIM-quoted, Nigeria focussed oil firm had US$36.5mln of cash as at June 19.

It confirmed gross production of 39,000 barrels of oil per day from OML 18, and, adjusted for field downtime, the average daily production rate amounted to around 50,000 bopd.

Whilst some challenges exist, the company sees no reason why OML 18 can’t get back to its previous production levels of 200,000 barrels a day.

Like many operations in the country, the export and sales process continues to be impeded by pipeline losses. Sales for 2019 were largely consistent with the prior year, at an average of 29,500 bopd after pipeline downtime and pipeline losses – which were reported at 24% and 22% respectively.

A new pipeline development project is presently underway which, by routing to an offshore export facility via a river and swamp, aims to eradicate losses. It will therefore trigger an increase in sales and cashflows as higher volumes of crude are delivered intact.

Revenue for 2019 amounted to US$266mln, up from US$198mln in 2018, and the company reported a US$118mln gross profit.

On paper, the company made a US$38.6mln loss for net loss following a non-cash impairment to a non-core asset (a royalty interest in the Barryroe oil field project in Ireland).

New opportunities
Chief executive Oisin Fanning and his team are said to be monitoring market events closely and are ready to pursue any appropriate opportunities that may arise.

“San Leon is in a strong position, currently sitting with US$36.5mln in cash on our balance sheet,” Fanning said.

“The current environment generates challenges which Eroton is addressing well, but at the same time it provides a huge opportunity for our company to initiate its next stage of growth.

“We have the cash resources, technical and managerial capability, and established relations to select our next projects.”

What the boss says
“Our robust financial position, additional significant funds expected to be received in the in the next 18 months, existing and anticipated new projects, are planned to continue to provide continued shareholder returns.

“We are proud to have distributed US$66mln to shareholders in the past 15 months.

“San Leon is very well placed to continue to deliver its strategy in the year ahead and the board looks forward to updating shareholders on the company’s progress.”


Source: Proactive Investors