Our robust financial position, additional significant funds expected to be received in the next 18 months, existing and anticipated new projects, are planned to provide continued shareholder returns.
Oisin Fanning, chief executive
What the company owns
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.
How is it doing?
In 2020 to date, the company received US$41.5mln in payments from operators, via loan note arrangements. Some US$88.7mln of future loan note payments remain.
With US$35.6mln in cash at the end of the half-year - US$22.6mln by September 18, 2020, after US$6.8mln was put in escrow – the company said it is positioned to invest and grow further. In early September, new deals were announced which will see San Leon secure an interest in the Oza field, onshore Nigeria.
"Whilst the world and the industry has been through turbulent times, we have taken advantage of the opportunities presented by this as well as utilising our cash position to further build our portfolio in Nigeria in line with our strategy,” Oisín Fanning, San Leon's chief executive said in the results statement.
Fanning added: “Our strong position is expected to continue in the year ahead as we receive further loan note payments and deliver upon our strategy."
San Leon paid out US$35.3mln to shareholders in the first half of 2020 and in May it announced that a US$33.3mln special dividend would be paid - representing a dividend yield of about 30% at that time - and a US$2mln share repurchase programme was completed early in the reporting period.
Also in May, Fanning purchased 98mln San Leon shares, taking his shareholding to 24%.
Eroton delivered an average of 25,200 barrels of oil per day to the Bonny terminal during the first half of 2020. San Leon noted that operations in Nigeria continue to be impacted by pipeline losses and downtime, an impact of around 32%
What the broker says: Allenby
San Leon’s strategic move into Nigeria is “a great success story”, noting that the more recent investments similarly focus on the acquisition of cash-flow.
“The OML 18 move has been followed by two recent investments which again focus on near-term cash flow,” Allenby analyst Peter Dupont said.
“These are the interests taken in the new ACOES export pipeline linking the core of the OML 18 operations with an offshore FSO and in the Oza field development project in the northern Niger Delta. High yield debt is a feature of both investments.”
Dupont highlighted that currently San Leon shares are pricing an enterprise value of just £29mln, substantially less than the £371mln value estimated by Allenby.
“We have adopted a hybrid sum-of-the parts approach to valuation,” Dupont said.
“In the case of the current cash balance and the financial receivables relating to OML 18 and the ACOES pipeline, we have valued these items dollar for dollar.
“Regarding the equity interests in OML 18 and Decklar, our valuation basis is price/boe multiplied by net reserves. We have used $3/boe and $1.5/boe for 2P reserves and 2C resources respectively. Our valuation overall is $482m or £371m, equivalent to 82p/share.”