San Leon Energy gives report card on Nigeria’s OML 18 asset investment


The AIM-listed oil and gas investor says its ‘encouraged’ by the first six months of involvement in OML 18 notwithstanding a demanding operating environment in Nigeria and the challenges faced by operator Eroton.

San Leon Energy Plc (LON:SLE) has provided a report card on its Nigerian oil investment, a 9.72% stake in the OML 18 asset, where the company highlighted production of 56,000 barrels of oil per day (bopd).

The update, which comes around six months after San Leon got its stake, confirmed that the OML18 operation was uninterrupted by any security issues – though there have been issues that have caused downtime and like other Nigerian operations ‘pipeline losses’ are a problem.

“San Leon has been part of OML 18 for effectively six months now and, notwithstanding a demanding operating environment in Nigeria and the challenges that [the licence operator] Eroton has encountered, we are encouraged by Eroton’s flexibility and implementation of activities to maximise cash flow from the world-class OML 18 asset,” said Oisin Fanning, San leon chief executive.

He added: “Any issues encountered by Eroton are considered by both Eroton and San Leon to be temporary and are being addressed and overcome.”

Production, downtime and pipeline losses

The latest daily production figure represents an improvement of around 3,000 bopd over 40,507 given in December.

Whilst output was 56,000 bopd, sales tallied 30,969 bopd, which was below the level anticipated in last year’s competent persons report, which saw sales of 47,058 bopd.

San Leon said the discrepancy between production and sales was largely attributable to three factors – workover/drilling progress; production downtime; and estimated pipeline losses.

Work is underway to address these issues, San Leon added.

New projects promise growth

Growth projects, meanwhile, promise further production growth through 2017.

OML 18 comprises several oil and gas assets, including a number of development opportunities.

The Krakama field came online ahead of schedule in January, adding 5,500 bopd from three wells, and two further well operations are slated to lift output further.

San Leon also highlighted that the Buguma Creek field is due to start up during the second quarter, with an early production system being constructed presently, and a development plan for the Akaso field has been submitted to the Nigerian authorities for approval – elsewhere submission of plans for two further development projects (Cawthorne Channel and Alakiri) are anticipated in the second quarter.

Development projects are of particular significance for San Leon as it is positioned to provide oil field services for OML 18.San Leon told investors that it is now at an advanced stage in setting up its services company structure.

The company is in the process of securing a drilling rig and it is advancing through the approval process for that.

Income due

As well as the stake in the asset and its field services business, San Leon’s economic interest in OML 18 also comes from the debt financing that it secured for the partnership. It holds US$174.5mln of loan notes, and under the terms of those instruments some US$58mln of principal and interest payments came due on April 1.

The company has so far received US$5mln from its Nigerian partners.

It highlighted that it has guarantees and certain equity pledge in place, providing security over the first repayments.

Nonetheless, San Leon says it is confident that partner Midwestern Leon Petroleum will meet its obligations, once it receives dividend payments from OML 18 operator Eroton.

The company also noted that Eroton presently awaits payments from the Nigerian National Oil Company for the majority of the historic cash calls for 2015 and 2016.

It acknowledged that shareholder distributions from Eroton and lower than anticipated returns from production will reduce San Leon’s cash receipts, but, pointed to the fact that the majority of returns relating to OML 18 are due to come from the loan note receivables.

“Most importantly, these issues are not expected to affect, materially, the long-term field performance or indeed the long-term overall level of cashflows to San Leon, whilst in the shorter term San Leon has a number of protections in place for receiving loan note repayments which constitute the large majority of expected cash flow from Nigeria until the end of 2018,” Fanning said.

Elsewhere, San Leon says it is continuing a process to evaluate its non-Nigerian portfolio assetswith a view to monetise and/or cost reduction.


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