San Leon Energy : Annual report and accounts 2020

An independent oil and gas company

Annual Report 2020

Corporate statement

San Leon Energy plc ("San Leon" or the "Company") is a publicly listed energy company focused on Nigeria. The Company currently holds a 10.58% initial indirect economic interest in Oil Mining Lease 18 ("OML 18"), a producing asset located onshore Nigeria; and during 2020 acquired a 10% interest in Energy Link Infrastructure (Malta) Ltd ("ELI"). ELI's sole asset is the proposed new Alternative Crude Oil Evacuation System ("ACOES") constructed to provide a dedicated oil export route from the OML 18 asset.

The Company is aiming to use its interest in OML 18 as a platform to become a leading independent production and exploration company focused on Nigeria and West Africa - by securing and developing further high potential asset opportunities that yield value to our shareholders.

Overview

1. Highlights
2. San Leon at a glance

1. Our strategy
2. Overview / Corporate structure

Strategic report

6 Chairman's statement

1. Four expected cash flow sources

1. Chief Executive's statement

Corporate governance

14 Board of Directors

1. Corporate governance statement

1. Audit and Risk Committee report

1. Remuneration Committee report

1. Nomination Committee report
2. Health and Safety Committee report
3. Directors' report

1. Corporate Responsibility

1. Statement of Director's responsibilities

Financial statements

1. Independent Auditor's report

1. Consolidated income statement
2. Consolidated statement of other comprehensive income
3. Consolidated statement of changes in equity

1. Company statement of changes in equity

1. Consolidated statement of financial position
2. Company statement of financial position
3. Consolidated statement of cash flows
4. Company statement of cash flows
5. Notes to the financial statements

Other information

1. Alternative performance measures
2. Corporate information
3. Glossary
4. Conversion

Highlights

Corporate

• Completed the return of approximately US$33.8 million to shareholders during the first half of 2020 delivering on the Company's commitment to shareholder returns.
• The Company entered into an agreement dated 6 April 2020 amending the existing Loan Notes Instrument (the "Amendment") between San Leon and Midwestern Leon Petroleum Limited ("MLPL"). Under the terms of the Amendment, US$40.0 million was received immediately by San Leon.
• On 3 August 2020 the Company provided a US$10.0 million loan plus an additional US$5.0 million loan on 6 October 2020 and acquired a direct 10% interest in Energy Link Infrastructure (Malta) Ltd ("ELI"). ELI's sole asset is the proposed new Alternative Crude Oil Evacuation System ("ACOES") constructed to provide a dedicated oil export route (comprising a new pipeline together with a Floating Storage and Offloading ("FSO") vessel) from OML 18. Once commissioned, the system is expected, by Eroton, to reduce the downtime and allocated pipeline losses to below 10%.
• On 1 September 2020, the Company announced that it had conditionally agreed to invest US$7.5 million by way of a loan to Decklar Petroleum Limited ("Decklar"), which is the holder of a Risk Service Agreement ("RSA") with Millenium Oil and Gas Company Limited ("Millenium") on the Oza marginal field, carved out of OML 11, onshore Nigeria. Under the agreements, once completed, the Company will also receive a 15% interest in Decklar for a nominal amount paid. This transaction is still awaiting final conditions precedents to complete.
• Board appointment process previously announced completed with appointment of John Brown as Independent Non-Executive Director and Chair of the Audit and Risk Committee and Adekolapo Ademola as Non-IndependentNon-Executive Director on behalf of Midwestern Oil & Gas Company Ltd. Non-Executive Directors, Mark Phillips, Bill Higgs and Linda Beal, left the Board during 2020 and Alan Campbell has since stepped off the Board in 2021 as part of a board restructure.

Financial

• Cash and cash equivalents as at 31 December 2020 of US$18.5 million (includes US$6.8 million restricted and held in escrow for the Oza transaction) (31 December 2019: US$36.7 million).
• Cash and cash equivalents as at 18 June 2021 were US$14.8 million (includes Oza escrow of US$6.8 million).
• In the past 18 months US$47.3 million, of which US$46.5 million relates to 2020 (31 December 2019: US$43.2 million) in principal and interest payments has been received under the MLPL Loan Notes.
• US$5.8 million has so far been paid of the US$10.0 million due under the MLPL Loan Notes in September 2020, leaving US$4.2 million still outstanding.
• A share repurchase programme of US$2.0 million of Company's shares was completed between October 2019 and January 2020.
• A special dividend of US$33.3 million was declared in May 2020, giving a dividend yield of approximately 30% as at the date of dividend announcement.

Operational

An update on OML 18 activity during 2020 is provided below:

• Oil delivered to the Bonny terminal for sales was approximately 21,100 barrels of oil per day ("bopd") in 2020 (32,000 bopd in 2019) and continues to be affected by combined losses and downtime of approximately 35%. The 2020 figure has also been affected by OPEC oil production quota restrictions, and some Covid-related delays. Together, the losses, downtime, OPEC restrictions and Covid-related delays have caused the majority of the difference between gross production when there is minimal disruption to production, and oil is received at Bonny terminal for sales.
• Gas sales averaged 32.7 million standard cubic feet per day ("mmscf/d") in 2020 after downtime (36.0 mmscf/d in 2019).
• Production downtime of 9% in 2020 was caused by third party terminal and gathering system issues. This relates to days when oil production was entirely shut down at OML 18. OPEC quota restrictions on production also had an adverse effect on production rates, however downtime and Covid-related delays have meant these quotas at times have not been met. Such issues in the third-party export system are expected to be substantially resolved by the implementation of the new ACOES for the purpose of transporting, storing and evacuating crude oil from OML 18 export Pipeline. The pipeline will run from within the OML 18 acreage to a dedicated FSO vessel in the open sea, approximately 50 kilometres offshore. Expected timing for the commencement of operations is H2 of 2021. See ELI update below.
• Pipeline losses by the Bonny Terminal operator have increased over the past year (31 December 2020: 28%; 31 December 2019: 22%), largely due to lower pipeline throughput as a result of OPEC quota restrictions. In the longer term, the ACOES is expected to reduce losses significantly.
• Eroton completed its three well drilling programme in early 2020, with the final completion and flow of these wells impacted by Covid-19. Lower oil prices for much of 2020 have led Eroton to improve capital discipline and the prudent deferral of the next drilling campaign, now expected to commence during 2022.
• Eroton has taken all appropriate precautions for its operations and people, with regards to Covid-19 and we understand has had no Covid-19 cases on OML 18.

ELI

• ELI has received approval from the President of Nigeria (acting in his capacity as Minister for Petroleum Resources) for the FSO, ELI Akaso, to be set up as an oil terminal.
• ELI is in advanced negotiations with other third party injectors for use of its pipeline and terminalling facilities.
• Construction of the pipeline continues to progress and hook up with ELI Akaso is expected to take place in the H2 2021.

Outlook 2021

• The commissioning of the ELI pipeline.
• Expected close out of Oza transaction.
• Continuing to position the Company for further transactions.

Overview

report Strategic

information Other Statements Financial governance Corporate

SAN LEON ANNUAL REPORT 2020

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San Leon at a glance

Considerable exploration potential exists across OML18, an asset which is larger than Bahrain

Material Assets

in Nigeria

10.58% Indirect Economic Interest in OML 18

The 2016 Competent Persons Report ("CPR") by Petrovision Energy Services ("Petrovision") illustrated the scale of the reserves applicable to OML 18 partners. A summary is provided in the

table opposite.

Contingent resources and considerable exploration potential also exist across this asset which is larger than Bahrain. Further details regarding San Leon's investment in OML 18 can be found in Notes 13 and 17 of the Financial Statements and in the 2016 AIM admission document in the investors section of the Company's website.

10% equity investment in Energy Link Infrastructure (Malta)

The Company also has a 10% equity interest in Energy Link Infrastructure (Malta) ("ELI") - a company which owns the ACOES project. The ACOES is being constructed to provide a dedicated oil export route from the OML 18 asset, comprising a new pipeline from OML 18 and a floating storage and offloading vessel ("FSO"). Once commissioned, the system is expected by Eroton to reduce the downtime and allocated pipeline losses currently associated with the

NIGER

BURKINA

FASO

BENIN

N

I

G

E

R

I

A

TOGO

Abuja

Lagos

G

U

L

F

Port

CAMEROON

Harcourt

O

F

G U

I

N

E A

N

I

Bonny

G

E

R

D E L T A

Terminal

N

0

200km

OML18

EQUATORIAL

GUINEA

OML 18

Gross technical reserves before economic cut-off

1P

GABON2P

3P

Oil + Condensate (mmstb^)

389

576

777

Gas (bscf*)

3,119

3,213

5,080

^ million stock tank barrels of oil. * billion standard cubic feet of gas.

Nembe Creek Trunk Line ("NCTL"), to below 10%. In addition, it is anticipated that the ACOES project will improve overall well uptime.

The 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 earn fees for transporting and storing crude oil from OML 18 and potential third parties. As a shareholder in ELI, San Leon stands to benefit from what the Board considers could be a very profitable operation in the medium to long term.

Other assets

Ireland (Offshore) - Barryroe

San Leon holds a 4.5% Net Profit Interest ("NPI") on the Barryroe oil field which is located in Standard Exploration Licence 1/11 in the North Celtic Sea, offshore Ireland. The field has had six hydrocarbon bearing wells successfully drilled on the structure. Providence Resources plc (the operator of Barryroe) announced during 2020 that it had farmed out Barryroe, pending certain conditions to be fulfilled. The Farmout Agreement was entered into with SpotOn Energy Limited, a Norwegian-based resources company, who have partnered with Schlumberger,

Aker Solutions, AGR, Maersk Drilling, Keppel FELS, Aibel AS for the subsequent development of Barryroe. In April 2021, Providence has announced that it had terminated the farm-out agreement with SpotOn Energy for the Barryroe Licence and is progressing arrangements for an alternative funding package to finance 100% of the costs of the early development scheme ("EDS") for the Barryroe licence (SEL 1/11).

2 SAN LEON ANNUAL REPORT 2020

OML 18

		Apara	Port		Ajokpori
OML 23		GTS4	Harcourt
		Gas Line		Port Harcourt	Ebubu
DEGEMA
BUGUMA	OML 2006		Oil Refinery
					OGONI
				N'tore	Overview
GreaterPort				Chemicals
Harcourt Swamp		Buguma
Line (GPHSL)
		Creek				Onne
		Orubiri
		Asaritoru		Dawes
				Island
Jokka	OML18	Alakiri			OML 11
Idama			Alakiri
				East
	Eastern Gas	Bille					Strategic
	Gathering
	System
OML 55	(EGGS-1)	Krakama
		East					report
				Cawthorne	Hughes
	Awoba			Channel	Channel
OML 24	Krakama				Asaramatoru
	Akaso
Nembe
		GTS 4	Nembe		Island	Corporate
Creek
	OML 55	YELLOW
Trunk Line		Creek
(NCTL)			ISLAND	Trunk Line		Bonny
				(NCTL)
			Gas Line				governance
OML 25	OPL 278	Ke		River Terminal	1	2. NLNG Bonny LNG Terminal
		1. Bonny Oil Terminal (Shell)
				3. MPN Bonny	2
				3
				(Exxon Mobil)			Financial
					Terminal
						OML 52
					Bonny	Statements
OML 141		OML 55
Manifold	Flow Station
Oil Export Line
Gas Export Line
Main field Tie-in Lines						Other
	OML 74	OML 467			OML 72	information
			Proposed
			FSO location

SAN LEON ANNUAL REPORT 2020

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