San Leon Energy : Annual report and accounts 2021

An independent oil and gas company

Annual Report 2021

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 a 13.32%* interest in Energy Link Infrastructure (Malta) Ltd ("ELI").

In June 2021, the Company announced the proposed Midwestern Reorganisation and further ELI transactions which are described in full in the Admission Document published on 8 July 2022. The transactions are expected to complete in Q4 2022 (subject to regulatory consent), and will position the Company to become a leading independent production and exploration company focused on Nigeria and West Africa.

*At 31 December 2021, SLE held a 10% equity interest with an additional 1.323% that was still subject to certain conditions being met. A further 2% of the ELI issued share capital was acquired post year-end subject to the same conditions as outlined in Note 31. Total interest held at 8 July 2022 date was 13.323%.

Overview

1. Corporate and financial highlights
2. Operational highlights
3. San Leon at a glance
4. Our strategy
5. 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. Consolidated statement of financial position
2. Consolidated statement of cash flows
3. Notes to the financial statements

1. Company statement of financial position
2. Company statement of changes in equity
3. Company statement of cash flows
4. Notes to the Company financial statements

Other information

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

Corporate and financial highlights

Corporate

• Negotiated and announced on 24 June 2021 the proposed Midwestern Reorganisation, which is described in full in the Admission Document, published today.
• In March 2021 completed the migration of the electronic holding and settlement of the Company's shares from the CREST system to the Euroclear Bank.
• On 24 June 2021 announced the conditional purchase from Walstrand (Malta) Ltd of 1.323% of ELI shares for US$2 million, together with an option to purchase a further 4.302% in ELI for an additional US$6.5 million.
• On 7 July 2021 announced conditional payment waivers (subsequently extended) regarding the approximately US$99.3 million (par value (page 133)) of payments due from Midwestern Leon Petroleum Limited ("MLPL") to San Leon during the second half of 2021, since the repayable amounts form part
  of the proposed Midwestern Reorganisation. Payment waivers remain in place at the date of this report pending completion of the transactions.
• In January 2022, the Company announced that some of its subsidiaries had successfully concluded their ongoing legal proceedings with TAQA Offshore BV ("TAQA") in relation to San Leon's legacy interests in two royalties on Block Q13A , which is located offshore the Netherlands (the "Amstel Oil Field"). Payments totalling more than €5.9 million for royalties receivable up to November 2021 including a payment in respect of its legal costs, have been received in 2022. From December 2021, the royalties will continue to be payable in accordance with the terms and conditions of the Royalty Agreements, and payments and are not expected to be material.
• The Company announced on 31 January 2022 that Brandon Hill Capital was no longer acting as its Joint Broker.
• On 15 February 2022, The Company announced a further loan of US$2 million to ELI, also enabling the Company to purchase a further 2% shareholding of ELI for a nominal sum.
• In February 2022, the Company completed its US$5.5 million investment in Decklar Petroleum Limited ("Decklar"), related to the Oza field onshore Nigeria, repayable to the Company as a loan through a cash sweep. The Company also holds 11% equity stake in Decklar. The Company has an option to increase its equity interest to 15% by providing an additional loan of US$2.5 million on similar terms.
• Board appointment process previously announced completed with appointment of John Brown as Independent Non-Executive Director and Chair of the Audit and Risk Committee. Alan Campbell resigned from the Board in 2021 as part of a board restructure. Lisa Mitchell left the Company as CFO and Executive Director in October 2021, and Julian Tedder was appointed as CFO and Executive Director in December 2021.

Financial

• We note the uncertainty set out in Note 1 to the financial statements which is mitigated by the transaction announced today. Cash and cash equivalents as at 31 December 2021 of US$7.6 million (includes US$6.8 million restricted and held in escrow for the Oza transaction) (31 December 2020: US$18.5 million including US$6.8 million restricted and held in escrow for the Oza transaction).
• In 2021, US$2.2 million (31 December 2020: US$46.5 million) in principal and interest payments has been received under the MLPL Loan Notes.
• Outstanding amounts due under the MLPL Loan Notes are now approximately US$105.6 million (par value (page 133)), which are subject to current repayment waivers pending the completion
  of the proposed Midwestern Reorganisation, and would be extinguished as part of the consideration if the transaction were to complete.

Overview

report Strategic

information Other Statements Financial governance Corporate

SAN LEON ANNUAL REPORT 2021

1

Operational highlights

Operational

An update on OML 18 activity during 2021 is provided below:

• Oil delivered to the Bonny terminal for sales was approximately 4,400 barrels of oil per day ("bopd") in 2021 (21,100 bopd in 2020) and has been affected by combined losses and downtime of approximately 79%. The 2021 figure has also been affected by OPEC oil production quota restrictions, and some Covid-related delays. Field operations to boost production were largely put on hold, pending the start-up of the ACOES barging system. 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 29.6 million standard cubic feet per day ("mmscf/d") in 2021 after downtime (32.7 mmscf/d in 2020).
• Production downtime of 9% in 2021 was caused by third party terminal and gathering system issues. This relates to days when oil production was entirely shut down at OML 18. Historical 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. Barging of oil from OML 18 to the FSO is expected to commence in July 2022, with trials already having been completed. Expected timing for the completion of the pipeline component of ACOES is late 2022. See ELI update below.
• Pipeline losses by the Bonny Terminal operator have increased markedly over the past year (31 December 2021: 70%; 31 December 2020: 28%), largely due to lower pipeline throughput as a result of OPEC quota restrictions and Covid-related issues. In the medium term, the ACOES is expected to reduce losses significantly.
• Eroton has taken all appropriate precautions for its operations and people, with regards to Covid-19.

An update on ELI is provided below:

• Whilst there have been some delays to ACOES principally due to Covid, barging operations from OML 18 to the ELI Akaso FSO are now expected by ELI to commence during July 2022.
• 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 late 2022.

Outlook for 2022

• Barging operations from OML 18 to the FSO to commence.
• Completion of the proposed transactions with Midwestern and ELI.
• The commissioning of the ACOES pipeline.
• Restarting of field operations on OML 18.
• Export of oil from Oza.
• Continuing to position the Company for further transactions.

2 SAN LEON ANNUAL REPORT 2021

San Leon at a glance

Considerable development and exploration potential exists across OML 18, an asset which is larger than Bahrain

NIGER

	BENIN	N I G E	R I A
								Abuja	CHAD
		Lagos
							Port
						Harcourt	CAMEROON
				N
				I
				G
				E
				R	D
					E L T A			Bonny
									Terminal
N					OML18
						EQUATORIAL
0	200km						GUINEA
					GABON

Material Assets in Nigeria

10.58% Initial Indirect Economic Interest in OML 18

The 2022 Competent Persons Report ("CPR") by Petrovision Energy Services ("Petrovision") illustrates the scale of the reserves applicable to OML18 partners. A summary is provided in the table opposite. The Company's current 10.58% initial indirect interest would increase to 44.1% if the proposed transaction with Midwestern were to complete.

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 15 of the Financial Statements and in the 2022 AIM admission document in the investors section of the Company's website.

Apara

Port

Ajokpori

OML 23

Harcourt

Gas Line

Ebubu

GTS 4

DEGEMA

Port Harcourt

BUGUMA

OML 2006

Oil Refinery

OGONI

N'tore

Greater Port

Chemicals

OPL 2005

Harcourt Swamp

Buguma

Line (GPHSL)

Creek

Onne

Asaritoru

Orubiri

Dawes

Island

Jokka

OML18

Alakiri

OML 11

Idama

East

Alakiri

Eastern Gas

Bille

Gathering

System

OML 55

(EGGS-1)

Krakama

East

Cawthorne

Hughes

Awoba

Channel

Channel

OML 24

Krakama

Asaramatoru

Nembe

Akaso

Nembe

Creek

YELLOW

Trunk Line

OML 55

Creek

(NCTL)

ISLAND

Trunk Line

Bonny

GTS 4

(NCTL)

Island

Gas Line

OML 25

OPL 278

Ke

1. Bonny Oil

1 Terminal (Shell)

3. MPN Bonny

3

2

2. NLNG Bonny

River Terminal

(Exxon Mobil)

LNG Terminal

OML 52

Bonny

OML 141

Terminal

OML 55

Manifold

Flow Station

Oil Export Line

Gas Export Line

Main field Tie-in Lines

OML 467

OML 74

OML 72

Proposed FSO location

OML 18

Gross technical reserves before economic cut-off

1P

2P

3P

Oil + Condensate (mmstb^)

416 (from 389)

603 (from 576)

852 (from 777)

Gas (bscf*)

2,269

3,391

5,470

(from 3,119)

(from 3,213)

(from 5,080)

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

Overview

report Strategic

Financial governance Corporate

13.32% equity investment in Energy Link Infrastructure (Malta)

The Company also has a 13.32% 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 OML18 and a floating storage and offloading vessel ("FSO"). Barging to the FSO is expected by ELI to commence during July 2022, and the system is expected by Eroton to reduce the downtime and allocated pipeline losses currently associated with the Nembe Creek Trunk Line ("NCTL"), to below 10%. In addition, it is anticipated that the ACOES project will improve overall well uptime. Commissioning of the pipeline component of ACOES is

expected at the end of 2022, and would increase the throughput capacity of oil from OML 18 relative to the current barging.

The Board believes that the ACOES project will have a significant effect on the operation of OML18, 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. As part of the proposed transaction, the Company would increase its equity position in ELI to c.50%, and hold loan receivables of approximately US50 million.

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 in February 2022 that it continued to seek approvals from the relevant government department to pursue further drilling on the Barryroe licence (SEL 1/11) during 2023. Providence also published summary results from a CPR on the asset.

information Other Statements

SAN LEON ANNUAL REPORT 2021

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