San Leon issues further details on potential Midwestern consolidation

The AIM-traded firm noted that the potential transaction would be classified as a reverse takeover under the AIM rules, adding that it was an opportunity for it to increase its economic interest in the OML 18 oil and gas block, onshore Nigeria.

It also said it would become the largest shareholder of the Alternative Crude Oil Evacuation System (ACOES) project as a result of the transaction, which was designed to transport, store and evacuate crude oil from the OML 18 export pipeline.

The company said ACOES was currently being built by ELI and, once operational, was expected to “significantly reduce” the pipeline losses and downtime on production at OML 18.

On Friday, San Leon said it was expecting to publish an admission document on the potential transaction by the end of February, after which it would seek the restoration of trading of its ordinary shares on AIM.

As part of the potential transaction, it was proposed that new preference shares would be issued to the shareholders in the company immediately prior to the transaction completing.

It was intended for the preference shares to entitle holders to a preferential right to any dividends declared and paid by the company in the three years following completion, up to a maximum of $40m in total over the period.

If less than $40m of dividends were declared and paid by the company during that three-year period, the right of preference shareholders to a preferred dividend would continue to cover the shortfall, with the shortfall amount to increase by 10% each year until the full amount of the shortfall was paid.

Once the preferential right to the dividend was satisfied, the preference shares would cease to hold economic value and would become deferred shares.

San Leon said neither the preference shares nor the deferred shares would carry any voting rights at any time, and neither would be admitted to or quoted on any stock exchange.

The company also said it was envisaged that the loan notes currently owed to San Leon by MLPL would be eliminated under the potential transaction.

The preference shares were thus intended to provide a return to existing shareholders in place of dividends on ordinary shares that they might otherwise have anticipated receiving from San Leon following the repayment of the loan notes.

San Leon also anticipated that, following completion, Eroton would pay San Leon $6m per annum to cover management costs in relation to OML 18 in return for receiving services from San Leon, being settled monthly in advance, with the first payment being made on completion.

“Our potential transaction with Midwestern is a transformational opportunity for San Leon, achieving our twin aims of increasing our interest in OML 18 and building our shareholding in the operator of the new ACOES pipeline project,” said chief executive officer Oisin Fanning.

“We have long considered OML 18 to be a world class oil and gas asset and our plans to further enhance our involvement there could be very significant to the company's future growth plans.

“A considerable amount of work has already been carried out by both parties and their respective advisers.”