- Company considers Nigerian press reports to be “malicious and false”
- Eroton remains operator of Niger Delta licence, OML 1
Aim-traded shares in Nigeria-focused exploration and production company San Leon Energy (SLE:23p) shed 13 per cent of their value following speculation in the Nigerian press that the Nigerian National Petroleum Company (NNPC) has taken over ownership of the Eroton-operated 1,035 sq km Niger Delta licence, OML 18. San Leon holds an indirect 10.58 per cent economic interest in OML 18 and is in the process of carrying out a protracted major capital reorganisation that will see it end up with a 44.1 per cent stake.
Eroton has responded by stating that the allegations made are both “malicious and false”, and that it remains “the operator of OML 18, any change to which has to be made through a clearly defined process which has not been followed”. San Leon's statement also highlights that an attempt was made to displace some Eroton staff from its Alakiri Gas Plant on Friday, 24 February 2023 by “armed and unknown men who claimed to be representatives of one of the other joint venture partners, OML 18 Energy Resource Limited”. However, these “purported actions are outside of the due process of law and in breach of the terms and conditions as stipulated in the joint operating agreement”. Eroton categorically denies “any fraudulent acts as stated in the Nigeria press article... and confirms that it continues to operate in compliance with all applicable laws and regulations”.
The Nigerian press article also highlights the lack of production from OML 18. Oil delivered for sales averaged only 1,130 bopd in the first half of 2022 through the Nembe Creek Tunnel line (which runs from OML 18 to the Bonny Terminal), or 5,550 bopd below the same period in 2021. However, this was because it suffered from high levels of downtime (17 per cent in the first half of 2022) and pipeline losses (due to vandalism) that averaged 91 per cent in the six-month trading period. A new alternative crude oil evacuation system (ACOES) export pipeline within the OML 18 acreage is expected to become fully operational in the first half of 2023, which will slash pipeline losses, ramp up oil deliveries and boost cash flow. Moreover, crude oil theft and sabotage of pipelines in the Nigel Delta are industrywide problems.
Clearly, the news is disconcerting for San Leon’s shareholders given that the OML 18 investment accounts for the majority of Panmure Gordon’s 86p-a-share tangible net asset value estimate. Shares in San Leon fell from around the 27.5p entry point in my 2021 Bargain Shares Portfolio to 23p, albeit the price drop has been accentuated by the fact that funds managed by Toscafund Asset Management hold 75 per cent of the 450mn shares in issue, and Midwestern Oil & Gas Company holds a further 13.18 per cent stake. Less than 0.2 per cent of the shares in issue traded in the five trading hours after the Eroton news broke, so selling pressure has not been high, implying any share price recovery could be equally swift once investors regain their poise. Hold.
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