In early September the company unveiled its agreement to invest US$7.5mln investment into the Oza field via a loan agreement with Decklar, which is a subsidiary of Asian Mineral Resources (CVE:ASN).
Decklar owns a majority interest in production and cash flow rights for the Oza field which was historically operated by Shell, between 1959 and 1974, but has never reached commercial-scale production.
It is proposed San Leon will subscribe for US$7.5mln of Decklar loan notes, carrying interest at 10%, and it will also receive 1.76mln Decklar shares.
Decklar plans to use the funds to fast-track the initial redevelopment of the Oza oil field. It intends to re-enter the existing Oza-1 well to test three oil-bearing zones, two of which are expected to be put into production. After that, from the same location, the rig will drill a new horizontal well.
It estimates that first production will be three to four months following the drawdown of the financing, as it already has access to significant export and production processing facilities.
San Leon also gains the right to subscribe for another US$7.5mln of notes, plus another 2.5mln shares subject to results from a planned well.
The agreement sees San Leon take a 15% interest in Decklar initially, potentially rising to 30% with a further subscription alongside the subsequent funding. San Leon will be allocated one seat on the board of Decklar.
Oisin Fanning, San Leon chief executive, earlier this month highlighted that the deal was in-line with strategy to invest in assets with expected near-term cash flow, via a low-risk lending-based model.
“The structure of the transaction, which sees San Leon provide a repayable loan at an attractive interest rate and with an additional significant equity kicker, gives us the opportunity again to generate a meaningful return from repayments in the coming years as well as looking forward to a longer-term dividend return from our shareholding.
“The option to scale up our investment following receipt of the result of the new drill proof-of-concept well on equivalent terms to the initial investment, also provides San Leon with valuable informed optionality.