San Leon Energy PLC (AIM:SLE, OTC:SLGYF) (SLE) has announced a further US$5 million investment in the Energy Link Infrastructure (ELI) vehicle, which owns the new pipeline plus the floating storage and offloading vessel for the OML 18 oil and gas field in Nigeria.
The AIM-quoted firm said its investment was being funded through the issue of a secured US$5.0 million loan by the company's largest shareholders, certain funds managed by Toscafund Asset Management LLP.
SLE’s investment comes with a 17% coupon and a four-year maturity, repayable after a one-year moratorium from the date of issue.
"This new investment is an important step for both San Leon and ELI,” said SLE chief executive Oisin Fanning.
“For us, it marks the next step in our further investment in that company, as originally outlined in our admission document last July but subsequently adjusted to address developments over the past year, and protects our position and past investment in ELI.”
The terms of the investment additionally give SLE the right to purchase a further 4.2% shareholding in ELI at a nominal value, the AIM-firm added – on the basis that the option is taken up, SLE’s stake in ELI would rise to 16.2%.
SLE furthermore enters into a period of exclusivity with ELI, to potentially invest up to US$37 million of additional funding and take its potential stake to 46% (whilst retaining other previously announced options to invest in ELI).
The additional potential investments in ELI announced today are conditional upon SLE completing a US$50 million loan financing with a third-party, the identity of which is not disclosed, as the financing talks are said to be continuing.
In order to loan US$5 million to ELI at 17% interest, SLE is borrowing US$5 million from Toscafund at 10% through a debenture secured against certain assets.
Loan talks and creditor pressure
SLE, meanwhile, detailed progress in its efforts to land the larger US$50 million financing.
“This proposed alternative loan facility was reconfirmed verbally last week to the company's chief executive and the company expects negotiations on finalising the legal documentation to take place in the near term,” the company said in a stock market statement.
“The board remains optimistic that a conclusion on the alternative loan facility will be reached and will provide an update to shareholders at that time.”
Previously, in July, a US$50 million loan was made available to the company by MM Capital though SLE said its board has consciously delayed drawing down, as it believes that alternative financing, including the proposed alternative loan facility may be better aligned with the company's overall strategic and financing objectives.
Specifically, the company said talks over alternatives have included larger facilities, convertible loan note facilities and the possibility of direct equity investments in SLE.
Today, SLE added: “Although the board is cognisant of the company's numerous outstanding creditors and the increasing pressure a number of these creditors are applying to the company (including sending letters before action), it continues to believe that the prospects of obtaining long term financing from a supportive partner, and therefore the opportunities that this creates for San Leon, outweighs the benefits of drawing down on the MM Capital facility at this time.
“In light of the recent discussions with its prospective new financing partner the board anticipates settling all the company's outstanding creditors shortly upon completion of the proposed alternative US$50 million loan facility, as well as repaying the loan and, as a result, releasing the security it has granted funds managed by Toscafund over its interests in ELI and other assets.”
The MM facility remains available to SLE until the end of this year, it noted.
ELI’s ACOES offers ‘significant’ boost to OML18
The ACOES project, owned by ELI, promises to have a significant effect on the operation of OML 18, according to SLE.
ACOES comprises a new 47-kilometre secure undersea pipeline from OML 18 to the FSO ELI Akaso terminal.
It has a capability of 100,000 barrels of oil per day, with some 2 million barrels worth of storage capacity.
Once commissioned and in operation, it aims to reduce field downtime at OML 18 and reduce pipeline losses to below 10%, SLE highlighted.
ACOES is due to complete in the second half of 2023.
“The [SLE] 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 also earn fees for transporting and storing crude oil from OML 18 and potential third parties.”
In today’s statement, SLE chief executive Fanning added: “Our agreement with ELI to provide further financial support should soon see San Leon become ELI's largest shareholder.
“For ELI, our support enables it to address its financial obligations and continue the process of commissioning the ACOES - once operational, this is anticipated to be a profitable and cash-generative project from which San Leon expects substantial upside."