San Leon Energy Plc. Admission to trading on AIM Nominated Adviser & Broker Daniel Stewart & Company plc

Transcription

1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document or as to the action you should consult your stockbroker, bank manager, solicitor or accountant or other independent financial adviser, being (in the case of persons resident in Ireland) an organisation or firm authorised or exempted pursuant to the Investment Intermediaries Act 1995 of Ireland or the Stock Exchange Act 1995 of Ireland and in the case of persons resident in the United Kingdom an organisation or firm authorised pursuant to the Financial Services and Markets Act 2000 ( FSMA ) who specialises in advising on the acquisition of shares and other securities in the United Kingdom. The whole of the text of this document should be read. You should be aware that an investment in the Company involves a high degree of risk and prospective investors should also carefully consider the section entitled Risk Factors in Part III of this document before taking any action. This document comprises an admission document for the purposes of the AIM Rules. This document does not constitute a prospectus for the purposes of the Prospectus (Directive 2003/71/EC) Regulations 2005 of Ireland or section 85 of FSMA and is not a prospectus for the purposes of the Prospectus Regulations, nor has it been approved by the UK Listing Authority or the Financial Services Authority. This document has not been delivered to the Registrar of Companies in Dublin or the Registrar of Companies in England and Wales or any other authority in any jurisdiction for registration. The Directors of San Leon Energy Plc, whose names appear on page 4 of this document and the Company accept responsibility for the information contained in this document including individual and collective responsibility for compliance with the AIM Rules. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. Application has been made for the Issued Share Capital to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings will commence on AIM on 29 September The Ordinary Shares are not dealt in or on any other recognised investment exchange and no such other applications have been made. AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the UK Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. Each AIM company is required pursuant to the AIM Rules to have a nominated adviser. The nominated adviser is required to make a declaration to the London Stock Exchange on admission in the form set out in Schedule Two to the AIM Rules for Nominated Advisers. The London Stock Exchange has not itself examined or approved the contents of this document. The AIM Rules are less demanding than those of the Official List of the UK Listing Authority. It is emphasised that no application is being made for admission of these securities to the Official List of the UK Listing Authority or the Official List of the Irish Stock Exchange Limited. San Leon Energy Plc (Incorporated and registered in the Republic of Ireland with limited liability under the Companies Acts 1963 to 1990 with registered number ) Admission to trading on AIM Nominated Adviser & Broker Daniel Stewart & Company plc Share capital immediately following Admission Authorised Issued and fully paid Amount Number Ordinary Shares of 0.05 each Amount Number 37,500, ,000,000 13,566, ,329,367 Daniel Stewart & Company plc ( Daniel Stewart ), which is authorised and regulated by the Financial Services Authority, is acting as Nominated Adviser and Broker to the Company and no one else in connection with Admission and will not be responsible to any person other than the Company for providing the regulatory and legal protections afforded to clients (as defined by the FSA Rules) of Daniel Stewart nor for providing advice in relation to the contents of this document or any matter, transaction or arrangement referred to in it. The responsibilities of Daniel Stewart, as Nominated Adviser under the AIM Rules for Nominated Advisers, are owed solely to London Stock Exchange and are not owed to the Company or any director of the Company or to any other person in respect of their decision to acquire Ordinary Shares in reliance of any part of this document. This document does not constitute an offer to buy or to subscribe for, or the solicitation of an offer to buy or subscribe for, Ordinary Shares in any jurisdiction in which such offer or solicitation is unlawful. The Ordinary Shares have not been, and will not be, registered in the United States of America under the United States Securities Act of 1933 (as amended) (the Securities Act ) or qualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada, Australia, the Republic of South Africa, or Japan and, may not be offered or sold in the United States of America, Canada, Australia, the Republic of South Africa, or Japan or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to any national, resident or citizen of Canada, Australia, the Republic of South Africa, or Japan. Neither this document nor any copy of it may be sent to or taken into the United States, Canada, Australia, the Republic of South Africa, or Japan, nor may it be distributed to any US person (within the meaning of Regulation S under the Securities Act). In addition, the securities to which this document relates must not be marketed into any jurisdiction where to do so would be unlawful. Copies of this document which is dated 23 September 2008 will be available from the date of this document free of charge to the public on any weekday (Saturdays, Sundays and public holidays excepted) at the offices of Daniel Stewart, Becket House, 36 Old Jewry, London EC2R 8DD for one month from the date of Admission.

2 CONTENTS SHARE CAPITAL STATISTICS 3 EXPECTED TIMETABLE OF PRINCIPAL EVENTS 3 DIRECTORS, SECRETARY AND ADVISERS 4 DEFINITIONS 6 PART I SUMMARY 9 PART II INFORMATION ON THE GROUP 11 Page 1. Introduction History and Background Summary of the Petroleum Consultant s Report The Group s Assets Petroleum Consultant s Report Strategy Current Trading and Prospects Board of Directors Corporate Governance Reasons for Admission Dividend Policy Options Warrants Regulation Taxation Admission and CREST The Takeover Code Lock-in and Orderly Market Arrangements Additional Information 20 PART III RISK FACTORS 21 PART IV PETROLEUM CONSULTANT S REPORT 27 PART V FINANCIAL INFORMATION ON THE GROUP 133 A. Financial information on the Group 133 B. Unaudited interim financial information on San Leon Energy plc for the six month period to 30 June PART VI ADDITIONAL INFORMATION 155 GLOSSARY AND ABBREVIATIONS 197 2

3 SHARE CAPITAL STATISTICS Number of Ordinary Shares in issue on the date of this document and on Admission (undiluted) 271,329,367 Number of share options in issue on Admission 9,500,000 Number of Warrants in issue on Admission 30,697,443 Number of Ordinary Shares in issue on Admission (diluted) 311,526,810* Market capitalisation of the Company on Admission at 37 pence per share million * This number of Ordinary Shares does not take into account share options which may be exercised in specified circumstances pursuant to the Convertible Loan Note. EXPECTED TIMETABLE OF PRINCIPAL EVENTS Publication date of this document 23 September 2008 Admission and dealings in the Ordinary Shares to commence on AIM 29 September 2008 Delivery into CREST of the Ordinary Shares to be held in uncertificated form 29 September

4 DIRECTORS, SECRETARY AND ADVISERS Directors Oisín Brendan Fanning Chairman William Arthur Philip Thompson Chief Executive Officer Charles McEvoy Operations Director James Mathew Dominic Paul Commercial Director Sullivan Jeremy Boak Non-Executive Director Raymond Albert King Non-Executive Director Registered Office all of: First Floor Wilton Park House Wilton Place Dublin 2 Republic of Ireland Telephone Number Company Website Company Secretary Nominated Adviser & Broker to the Company Petroleum Consultant Solicitors to the Company Provider of legal opinion as to Nebraska Law Provider of legal opinion as to Dutch Law Provider of legal opinion as to Moroccan Law Raymond King Daniel Stewart & Company plc Becket House 36 Old Jewry London EC2R 8DD United Kingdom Netherland, Sewell & Associates, Inc Thanksgiving Tower 1601 Elm Street Dallas Texas United States of America WhitneyMoore Wilton Park House Wilton Place Dublin 2 Republic of Ireland Matzke, Mattoon & Miller 907 Jackson Street P.O. Box 316 Sidney, Nebraska United States of America CMS Derks Star Busmann N.V. Mondriaantoren 8A Postbus BC Amsterdam The Netherlands UGGC & Associés 97 Boulevard Massira-Al Khadra Casablanca, Morocco 4

5 Provider of legal opinion as to the Laws of British Virgin Islands Solicitors to Daniel Stewart Reporting Accountants Auditors Financial Public Relations Registrars ISIN EPIC Harney Westwood & Riegels LLP 5, New Street Square London EC4A 3BF United Kingdom Fox Williams LLP Ten Dominion Street London EC2M 2EE United Kingdom LHM Casey McGrath 6 Northbrook Road Dublin 6 Republic of Ireland Barr Pomeroy 21 Herbert Place Dublin 2 Republic of Ireland College Hill The Registry Royal Mint Court London EC3N 4QN United Kingdom Paul White & Associates Beacon Court Sandyford Dublin 18 Republic of Ireland Computershare Investor Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Republic of Ireland IE00B3CLK236 SLE.L 5

6 DEFINITIONS The following definitions apply throughout this document, unless the context otherwise requires: 1963 Act the Companies Act 1963 of Ireland 1983 Act the Companies (Amendment) Act 1983 of Ireland 1990 Act the Companies Act 1990 of Ireland 2006 Act the Companies Act 2006 of Ireland Admission admission of the Issued Share Capital to trading on AIM and such admission becoming effective in accordance with the AIM Rules Admission Agreement the conditional agreement dated 23 September 2008 between the Company, the Directors and Daniel Stewart relating to Admission, further details of which are set out in paragraph of Part VI of this document AIM AIM Rules or AIM Rules for Companies AIM Rules for Nominated Advisers Articles Board or Directors Code Companies Acts Company or San Leon Convertible Loan Note CREST CREST Regulations Daniel Stewart the AIM market operated by the London Stock Exchange the AIM Rules for companies as published by the London Stock Exchange entitled AIM Rules for Companies as amended from time to time the AIM Rules for Nominated Advisers published by the London Stock Exchange as amended from time to time the articles of association of the Company the board of directors of the Company for the time being, whose names appear on page 4 of this document and Director means any one of them including a duly constituted committee of such directors the City Code on Takeovers and Mergers the Companies Acts 1963 to 2006 of Ireland San Leon Energy Plc, a company incorporated and registered in the Republic of Ireland with registered number the Convertible Loan Note of 5 million further details of which are set out in paragraph 3.18 of Part VI of this document the computer based system and procedures which enable title to securities to be evidenced and transferred without a written instrument, administered by Euroclear UK & Ireland Limited the Companies Act, 1990 (Uncertificated Securities) Regulations 1996 (SI 68 of 1996) of Ireland Daniel Stewart & Company plc, the Company s nominated adviser and broker for the purpose of the AIM Rules, a member of the London Stock Exchange and regulated in the UK by the FSA Denver Basin or DJ Basin Denver Julesburg or DJ Basin covering North East Colorado (including Denver), South West Nebraska and North East Kansas EBN Energie Beheer Nederland B.V. EU the European Union EUROCLEAR UK Euroclear UK & Ireland limited, the operator of CREST Exploration Permits the seven exploration permits granted in relation to the Tarfaya onshore area in Morocco to ONHYM Island International Exploration Morocco, San Leon (Morocco) and Longreach Oil and Gas Ventures Limited FSA the Financial Services Authority of the UK 6

7 FSMA the Financial Services and Markets Act 2000, as amended HMRC Her Majesty s Revenue and Customs Irish Takeover Panel The Irish Takeover Panel established under the Irish Takeover Panel Act 1997 IOG Island Oil & Gas Plc an Irish registered Company and/or any of its subsidiaries as the context permits ISIN International Securities Identification Number Issued Share Capital the issued share capital of the Company immediately following Admission, being 271,329,367 Ordinary Shares Leases the 70 oil and gas leases entered into by Western Nebraska Land Services Inc. and landowners covering the Lease Area and assigned to San Leon (USA) on 8 August Lease Areas the entire land area covered by the Leases being approximately 26 km 2 London Stock Exchange London Stock Exchange plc Lock-In Agreements the lock-in agreements between the Company, the Directors, their respective nominee companies and Daniel Stewart further details of which are set out in paragraph of Part VI of this document Netherland Sewell Netherland, Sewell & Associates, Inc., the competent person who prepared the Petroleum Consultant Report Netherlands Agreement the share purchase agreement made between Philip Thompson and San Leon dated 11 July 2008 in respect of the sale and purchase of the entire issued share capital of San Leon (Netherlands) further details of which are set out in paragraph 12.9 of Part VI of this document Official List the official list of the United Kingdom Listing Authority ONHYM Office National des Hydrocarbures et des Mines Option a right to acquire Ordinary Shares granted to certain of the Directors pursuant to the Option Agreements Option Agreements agreements between inter alia the Company and certain Directors details of which are set out in paragraph 3.16 of Part VI of this document Option Holder a holder of an option Ordinary Shares ordinary shares of 0.05 each in the capital of the Company Panel the Panel on Takeovers and Mergers Petroleum Agreement the petroleum agreement between ONHYM, Island International Exploration Morocco, San Leon (Morocco) and Longreach Oil and Gas Limited dated 15 November 2007 Petroleum Consultant s Report the report prepared by Netherland, Sewell & Associates, Inc. and set out in Part IV of this document Production Licence the production licence granted pursuant to a decree dated 16 November 2006 by the Minister of Economic Affairs of the Netherlands in relation to the Netherlands continental shelf block Q13 to Nido Petroleum Limited and pursuant to the same decree, the Minister of Economic Affairs granted approval for the transfer of the production licence from Nido Petroleum Limited to Nido Petroleum Limited and IOG. Prospectus Regulations the Prospectus Regulations 2005, implementing the EU Prospectus Directive 2003/71/EC of the UK and the Prospectus (Directive 2003/71/EC) Regulations 2005 of Ireland 7

8 QCA Guidelines Regulatory Information Scheme Republic of Ireland or Ireland Restricted Period Royalty Agreement San Leon Group or the Group the corporate governance guidelines for AIM companies, published by the Quoted Companies Alliance a channel recognised by the FSA from time to time as a channel for the dissemination of regulatory information by companies admitted to AIM the island of Ireland excluding Northern Ireland and the word Irish shall be construed accordingly the 12 month lock in period described in paragraph 18 of Part I and paragraph 5 of Part VI of this document means the royalty agreement dated 7 December 2007 between San Leon (Netherlands) and Island Netherlands B.V San Leon Energy Plc and its subsidiaries San Leon (Italy) San Leon (Morocco) San Leon (Netherlands) San Leon Services San Leon (USA) Shareholder(s) subsidiary or subsidiaries Takeover Act San Leon Italy s.r.l, a subsidiary of the Company registered in Italy with company number San Leon (Morocco) Limited, a subsidiary of the Company registered in the British Virgin Islands with company number San Leon (Netherlands) Limited, a subsidiary of the Company registered in the British Virgin Islands with company number San Leon Services Limited, a subsidiary of the Company registered in Jersey with company number San Leon (USA) Limited, a subsidiary of the Company registered in Ireland with company number the person(s) who are registered as holder(s) of Ordinary Shares from time to time a subsidiary of the Company as defined in the 1963 Act The Irish Takeover Panel Act 1997 of Ireland (as amended) Takeover Rules The Irish Takeover Panel Act 1997, Takeover Rules 2001 to 2006 and the Irish Takeover Panel Act, 1997, Substantial Acquisition Rules 2007, each of Ireland (as amended) United Kingdom or UK UK Listing Authority or UKLA uncertificated or in uncertificated form Warrants p or pence United Kingdom of Great Britain and Northern Ireland the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of FSMA recorded on the register of holders of Ordinary Shares as being held in uncertificated form in CREST, entitlement to which by virtue of the CREST Regulations, may be transferred by means of CREST the warrants outstanding over the Ordinary Shares one hundredth part of one pound sterling or sterling United Kingdom pounds sterling or Euro Euro, the basic unit of currency among participating European Union Countries In this document, all references to time and dates are in reference to those observed in London, England. 8

9 PART I SUMMARY The following is determined from, and should be read in conjunction with the full text of this document and prospective investors should read the whole document and not just rely on the information set out below. The attention of prospective investors is drawn, in particular, to Part III of this document, which is entitled Risk Factors. Overview The San Leon Group is an international group of companies focused on the exploration and production of oil and gas projects in North America, Morocco and The Netherlands. In early 2008, the San Leon Group commissioned Netherland Sewell to produce the Petroleum Consultant s Report on the assets held by the Group. Under the Royalty Agreement, the Group is entitled to a royalty from the Production Licence with Contingent Resources in the Dutch North Sea through its wholly owned subsidiary, San Leon (Netherlands). In addition, through its subsidiary San Leon (Morocco), the Group operates an onshore reconnaissance license and is also a partner in an exploration license in Morocco. San Leon (USA) is also conducting a drilling campaign in Nebraska in the United States. The Group is in negotiations to acquire additional licences, in particular in Italy, and is actively investigating other exploration areas. Assets The Group s combined lease and license assets are summarised in the table below: Participating Area Area Operator interest Status Expiration date (km 2 ) Amstel Field, Block Island Oil & 0.6 per cent. Contingent Production License is 30 Q/13a Production Gas Plc royalty retained for the duration License, Offshore IOG of oil production DJ Basin, Cheyenne San Leon 100 per cent. Exploration Leases are valid for 26 County, Nebraska, (USA) working and 18 months; pending United States Limited 82 per cent. discovery, leases are revenue (1) held by production Tarfaya Exploration IOG 30 per cent. Exploration Phase I 07/ ,434 Permits, Morocco working (2)(3) Phase II 07/2013 Phase III 01/2016 Zag Exclusive San Leon 50 per cent. Exploration Exclusive Reconnaissance 21,807 Reconnaissance (Morocco) License extension 12/2008 License, Morocco (1) James Mitchell, a consultant to San Leon, has a 4.5 per cent. overriding royalty interest, and San Leon has agreed to provide a 1 per cent. royalty interest to Western Nebraska Land Services Inc., a company that has provided land services to San Leon. This leaves San Leon (USA) with an 82 per cent. revenue interest. (2) Pursuant to the Petroleum Agreement, San Leon s participating interest in the Tarfaya exploration permits is initially 30 per cent. because of a royalty exemption on the first 300 thousand tons, approximately 1.9 million barrels (MMBBL), of oil. San Leon s interest becomes 27 per cent. after production of the exempted oil volume to account for the 10 per cent. royalty on oil production. (3) Pursuant to the Petroleum Agreement, the Office National des Hydrocarbures et des Mines (ONHYM) has a 25 per cent. interest, and San Leon has a 22.5 per cent. interest. ONHYM has the right to maintain its interest of up to 25 per cent. If ONHYM relinquishes all of its 25 per cent. interest, San Leon may be entitled to an interest of up to 30 per cent. as a nonoperating partner. If ONHYM maintains its interest at the maximum 25 per cent., San Leon will have a 22.5 per cent. equity interest. The participating interest volumes shown in this report for San Leon in relation to the Tarfaya exploration permits are based on the assumption that ONHYM will relinquish all of its 25 per cent. interest. The table and notes above are extracted from the Petroleum Consultant s Report on page 52 in Part IV of this document. 9

10 Key highlights & strengths The Directors believe that the key strengths of the Group are: its portfolio of oil and gas exploration assets in Morocco and the USA; the benefit of the Royalty Agreement in The Netherlands; operational progress in the exploration of its assets; its negotiations for new licences and additional exploration areas; and a strong management team that has technical, exploration and commercial expertise. Strategy The strategy of the Group is to acquire a balance of low risk production and high reward exploration licences. In the short term, the Group intends to concentrate on delivering oil and gas production through its US assets in the DJ Basin. Management The Board has many years of international oil and gas experience and commercial expertise. The technical team includes Philip Thompson and Jeremy Boak who collectively have over 50 years of experience in petroleum geophysics and geology. Expected market capitalisation at Admission On Admission, the market capitalisation of the Company at 37 pence per Ordinary Share is expected to be million. Risk Factors Your attention is drawn to the risk factors which are set out in Part III of this document. 10

11 PART II INFORMATION ON THE GROUP 1. Introduction The San Leon Group is an international group of companies focused on the exploration and production of oil and gas projects in North America, Morocco and The Netherlands. In early 2008, the San Leon Group commissioned Netherland Sewell to produce the Petroleum Consultant s Report on the assets held by the Group. The Group is entitled to a royalty from the Production Licence with Contingent Resources in the Dutch North Sea through its wholly owned subsidiary San Leon (Netherlands). In addition through its subsidiary, San Leon (Morocco), the Group operates an onshore reconnaissance license and is also a partner in an exploration license in Morocco. Further, San Leon (USA) is conducting a drilling campaign in the Denver Basin in Nebraska in the US. In aggregate, the Group s license interests represent a combined area covering approximately 35,297 square kilometres (km 2 ). San Leon is now seeking Admission to AIM. 2. History and Background The Company was incorporated in 1995 as an oil and gas exploration company. Between 1995 and 2007, its principle activity was to act as an investment vehicle. In October 2007 the Company acquired its first exploration assets, situated in Morocco. With new management, investment and a strategy of balanced acquisition and exploration, the Company has established the portfolio of assets described in this document. The Company has secured financing of 5 million through the Convertible Loan Note. Further details of the Convertible Loan Note are set out in paragraph 3.18 of Part VI of this document. 3. Summary of the Petroleum Consultant s Report The Group s combined lease and license areas are shown below: Participating Area Area Operator interest Status Expiration date (km 2 ) Amstel Field, Block Island Oil 0.6 per cent. Contingent Production License is 30 Q/13a Production and Gas Plc royalty retained for the duration License, Offshore IOG of oil production the Netherlands DJ Basin, Cheyenne San Leon 100 per cent. Exploration Leases are valid for 18 months; 26 County, Nebraska, (USA) working and pending discovery, leases are United States Limited 82 per cent. held by production revenue (1) Tarfaya Exploration IOG 30 per cent. Exploration Phase I 07/ ,434 Permits, Morocco working (2)(3) Phase II 07/2013 Phase III 01/2016 Zag Exclusive San Leon 50 per cent. Exploration Exclusive Reconnaissance 21,807 Reconnaissance (Morocco) License extension 12/2008 License, Morocco (1) James Mitchell, a consultant to San Leon (USA), has a 4.5 per cent. overriding royalty interest, and San Leon (USA) has agreed to provide a 1 per cent. royalty interest to Western Nebraska Land Services Inc., a company that has provided land services to San Leon (USA). This leaves San Leon (USA) with an 82 per cent. revenue interest. (2) Pursuant to the Petroleum Agreement, San Leon s participating interest in the Tarfaya exploration permits is initially 30 per cent. because of a royalty exemption on the first 300 thousand tons, approximately 1.9 million barrels (MMBBL), of oil. San Leon s interest becomes 27 per cent. after production of the exempted oil volume to account for the 10 per cent. royalty on oil production. (3) Pursuant to the Petroleum Agreement, the Office National des Hydrocarbures et des Mines (ONHYM) has a 25 per cent. interest, and San Leon has a 22.5 per cent. interest. ONHYM has the right to maintain its interest of up to 25 per cent. If ONHYM relinquishes all of its 25 per cent. interest, San Leon may be entitled to an interest of up to 30 per cent. as a nonoperating partner. If ONHYM maintains its interest at the maximum 25 per cent., San Leon will have a 22.5 per cent. equity interest. The participating interest volumes shown in this report for San Leon in relation to the Tarfaya exploration permits are based on the assumption that ONHYM will relinquish all of its 25 per cent. interest. The table and notes above are extracted from the Petroleum Consultant s Report on page 52 in Part IV of this document. 11

12 A summary of the Group s Contingent Resources located offshore The Netherlands and Prospective Resources located in the United States and Morocco, as assessed by Netherland Sewell, is set out in the Petroleum Consultant s Report. The Petroleum Consultant s Report, as prepared by Netherland Sewell, is set out in its entirety in Part IV of this document. Contingent Resources A summary of the Group s Contingent Resources and cash flow to the Group s royalty interest in the Amstel Field offshore The Netherlands as at 1 September 2008 is as follows using a combination of deterministic and probabilistic methods: Contingent Oil Resources Net Contingent Cash Flow (M$) Gross Net Discounted Category (MBBL) (MBBL) Total at 10% Low Estimate 4, , ,625.9 Best Estimate 8, , ,151.5 High Estimate 16, , ,302.8 Note: The oil resources shown only include crude oil. Oil volumes are expressed in thousands of barrels (MBBL); a barrel is equivalent to 42 United States gallons. Gross resources are 100 per cent. of the resources expected to be produced from the wells. Net resources are the share of the resources attributable to San Leon (Netherlands) s 0.6 per cent. net royalty interest (being a 1 per cent. royalty entitlement under the Royalty Agreement less the State Profit Share). Cash flow estimates are expressed in thousands of United States dollars (M$). The table and notes above are extracted from the Petroleum Consultant s Report on page 28 in Part IV of this document. Prospective Resources A summary of the Group s unrisked and risked Prospective Resources in the DJ Basin Lease Area, Nebraska and Tarfaya Exploration Permits, Morocco as at 1 September 2008 is as follows: Prospective Resources Gross (100 per cent.) San Leon Participating Interest Unrisked Risked Unrisked Risked Lease Area or Oil Gas Oil Gas Oil Gas Oil Gas License/Category (MMBBL) (BCF) (MMBBL) (BCF) (MMBBL) (BCF) (MMBBL) (BCF) DJ Basin Lease Area, Nebraska Low Estimate Best Estimate High Estimate Tarfaya Exploration Permits, Morocco Low Estimate Best Estimate High Estimate 3, , Exploration and production leases, DJ Basin, Cheyenne County, Nebraska, United States: Assessed low, best and high estimate unrisked prospective resources to San Leon (USA) s 100 per cent. working interest and 82 per cent. revenue interest in 6 identified prospects using a combination of deterministic and probabilistic methods. Conducted geological risk assessment for each identified prospect. Tarfaya exploration permits, onshore Morocco: Assessed low, best and high estimate unrisked prospective resources to San Leon (Morocco) s 30 per cent. nonoperating working interest, assuming ONHYM relinquishes all of its 25 per cent. interest, for 15 identified leads using a combination of deterministic and probabilistic methods. Prepared a scoping economic analysis for a representative development of a single lead. Conducted geological risk assessment for each identified lead. Play concept description Zag exclusive reconnaissance license, onshore Morocco: Prepared a description of basin petroleum system and play types for San Leon (Morocco) operated 50 per cent. participating interest in the Zag exclusive reconnaissance license. The table and notes above are extracted from the Petroleum Consultant s Report on pages 29 to 31 in Part IV of this document. 12

13 4. The Group s Assets The San Leon Group s combined lease and licence areas cover approximately 35,297 square kilometres (km 2 ), as shown in Figures 1, 2 and 3 of the Petroleum Consultant s Report and reproduced on pages 84 to 86 in Part IV of this document and summarised in the table on page 11 above under Summary of the Petroleum Consultant s Report. Further details of these assets are set out below in this paragraph 4 of this Part II of this document. Amstel Field, Block Q13a Production Licence, offshore the Netherlands Amstel Field is an appraised but undeveloped discovery that was awarded by the Dutch Ministry of Economic Affairs of the Netherlands to IOG as a production licence effective from 17 November The Production Licence is awarded in respect of that part of Block Q13 which is referred to as Block Q13a. The Amstel Field development area is located in the West Netherlands Basin of the North Sea approximately 10km offshore, and covers 30 km 2 in water depths between 21 and 23 metres. The location of the Amstel Field assets is shown below: Source: Petroleum Consultant s Report The Block Q13a Production Licence is operated by Island Netherlands B.V with a 40 per cent. mandatory state participation through EBN. San Leon (Netherlands) entered into the Royalty Agreement with IOG on 7 December Under the terms of the Royalty Agreement, San Leon (Netherlands) s interest in Block Q13a is a royalty interest of 0.6 per cent. after EBN participation. The royalty interest entitles San Leon (Netherlands) to 0.6 per cent. of the gross revenue from the production flowstreams from Block Q13a. Pursuant to the Netherlands Agreement and the satisfaction of certain conditions, Philip Thompson is entitled, inter alia, to a payment equal to 50 per cent. of the royalties received by San Leon (Netherlands) in excess of US$1 million. Further details of the Netherlands Agreement are set out in paragraph 12.9 of Part VI of this document. 13

14 The hydrocarbon resources at Amstel Field are planned to be developed during 2008 from 2 high-angle or horizontal wells and 1 vertical well. Production startup is anticipated during 2010 with oil produced via an unmanned wellhead protector jacket. The oil is anticipated to be exported through a 24 kilometre (km) pipeline to the Rijn Field platform facilities for processing and onward transmission. Pending regulatory approval, confirmation by EBN that it will exercise its 40 per cent. equity participation and demonstration of commerciality, the undeveloped hydrocarbon volumes are classified as Contingent Resources. Provided these contingencies are met, some portion of the Contingent Resources estimated in the Petroleum Consultant s Report may be reclassified as reserves. The field operator, Island Netherlands B.V. has informed San Leon (Netherlands) that the letters of agreement for field development are in the final stages of the approval process. An assessment of Contingent Resource estimates for the Amstel Field, Block Q13a licence is included at paragraph of the Petroleum Consultant s Report in Part IV of this document. DJ Basin, Cheyenne County, Nebraska, United States San Leon (USA) owns a 100 per cent. working interest in the Leases in Nebraska that encompass approximately 6,400 contiguous acres (approximately 26 km 2 ). The Lease Area is located on the eastern flanks of the DJ Basin where San Leon (USA) s exploration efforts will be focused on the Cretaceous-aged D Sandstone oil reservoirs with secondary objectives in the shallower Cretaceous-aged Niobrara gas reservoirs and a deeper Permian-aged Lyons oil interval. The location of the DJ Basin assets is shown below: Source: Petroleum Consultant s Report The acreage was leased on behalf of San Leon (USA) from a number of mineral rights owners at an average cost of US$4.75 per acre per annum. The mineral rights owners retain a 12.5 per cent. royalty interest for revenue generated from production. James Mitchell, a consultant to San Leon (USA) has a 4.5 per cent. overriding royalty interest, and San Leon (USA) has agreed to provide a 1 per cent. royalty interest to Western Nebraska Land Services Inc., a company that has provided land services to San Leon (USA). This leaves San Leon with an 82 per cent. revenue interest. Mineral leases provide the rights to conduct exploration drilling and, in the event of a discovery, to construct necessary facilities to produce the discovered hydrocarbons. 14

15 San Leon (USA) recently acquired a 3-D seismic data set over the Lease Area. 8 exploration prospects have been identified and assessed. The ongoing drilling campaign is expected to be completed by the first quarter of Drilling and completion costs for a successful discovery are estimated by San Leon (USA) to average US$540,000, which includes at least one Lyons Sand test. Dry hole costs are estimated to be US$165,000 for a D Sand test and US$375,000 for a Lyons Sand test. San Leon drilled its first exploration well, Ludeman 1, in July 2008 to test the D Sand C prospect and Lyons Sand Dune East prospect. This well failed to find commercial quantities of hydrocarbons in the D Sand and Lyons Sand intervals. An assessment of Prospective Resource estimates for the DJ Basin exploration and production leases, is included at paragraph of the Petroleum Consultant s Report in Part IV of this document. Tarfaya Exploration Permits, Morocco The Tarfaya interest, comprising of 7 Exploration Permits, is located in the Tarfaya-Laayoune Basin of southern Morocco and encompasses 13,434 km 2. The Exploration Permits are located onshore and border the coastline of the Atlantic Ocean. The location of the Tarfaya and Zag (discussed below) assets is shown below: Source: Petroleum Consultant s Report The Petroleum Agreement sets out the basis for the award of the Exploration Permits. The Exploration Permits were awarded by ONHYM effective 14 January 2008, for an initial term of 2 years and 6 months. The parties to the Petroleum Agreement are entitled to apply to have the term of the exploration permits extended for further periods of 3 and 2.5 years as set out below. Pursuant to the Petroleum Agreement ONHYM has an interest of 25 per cent. and San Leon (Morocco), a non operator, has an interest of 22.5 per cent. in the Tarfaya area. None of the costs incurred pursuant to the Exploration Permits are borne by ONHYM. Any costs incurred pursuant to an exploitation concession, when one is issued, are borne by all parties to the Petroleum Agreement including ONHYM in proportion to their interests, which for ONHYM is 25 per cent. and San Leon (Morocco) 22.5 per cent. If ONHYM were to back out of the Tarfaya area and relinquish all of its interest San Leon (Morocco) may be entitled to participate in ONHYM s share and have an interest of up to 30 per cent. in total in the Exploration Permits. The exploration work programs for the three periods include the following: 15

16 Phase I: 2.5-year period acquire, process, and interpret 500 km line of 2-D seismic data and conduct geochemical modeling. A drill or drop decision will be made at the end of the initial period. Phase II (if granted): 3-year period drill 1 well. Phase III (if granted): 2.5-year period drill 2 wells. There are 15 onshore leads that have been identified and assessed which can be subdivided into two primary types contained in Mesozoic age reservoirs: Jurassic platform carbonates and Triassic clastic reservoirs. Delineation of the lead areas through exploratory drilling will dictate development plans. ONHYM has provided San Leon (Morocco) with a preliminary dry hole cost estimate of US$7 million. An assessment of Prospective Resource estimates for the Tarfaya Exploration Permits is included at paragraph of the Petroleum Consultant s Report in Part IV of this document. Zag Exclusive reconnaissance license, Morocco The Zag exclusive reconnaissance license is located in southern Morocco and occupies approximately 21,807 km 2. The license was awarded by ONHYM to San Leon (Morocco) and its joint venture partners IOG and GB Oil and Gas Ventures Limited (which has since changed its name to Longreach Oil and Gas Ventures Limited) on December 25, 2006, for a 12-month period initially. ONHYM subsequently granted a 12-month extension valid until 25 December The joint venture partners in the license are San Leon (Morocco), as operator, with a 50 per cent. interest; Longreach Oil and Gas Ventures Limited with a 30 per cent. interest and IOG with a 20 per cent. interest. Following agreement with the joint venture partners, San Leon (Morocco) s cost for the first year work program has been fully carried by the partners. The first year work program includes reviewing existing studies; conducting geological field studies and a geochemical study; and the interpretation of satellite image data. The Directors believe that the integration of this data will aid in high-grading areas for future acquisition of a 2-D seismic survey to delineate leads and prospects. The first year work program has been completed by San Leon (Morocco). The studies completed by San Leon (Morocco) were compiled into a comprehensive report entitled Zag License: First Prospectivity Report. This report documents the drilling history and oil and gas shows encountered by previous wells on the basin margins and analog wells from the Reggane-Tindouf Basin in Algeria, source rock geochemistry obtained from diggings from water wells in the 50 to 100 metre depth range, and analysis of the petroleum system and play concepts. San Leon (Morocco) is currently progressing in the 12-month extension period work programme. The key obligation in this period is the acquisition, processing, and interpretation of an aero-magnetic survey which it is anticipated will be completed in the fourth quarter of this year. 5. Petroleum Consultant s Report Your attention is drawn to the full text of the report prepared by Netherland Sewell which is set out in Part IV of this document. 6. Strategy The strategy of the Group is to acquire a balance of low risk production and high reward exploration licenses. In the short term, the Group intends to concentrate on oil and gas production through its US assets in the D J Basin. 7. Current Trading and Prospects The principal focus of the Group s current activities is drilling and development in the DJ Basin, Nebraska. Five wells are planned to be drilled within the next 18 months. In addition, an aero-magnetic survey of the Zag Basin, Morocco is expected to be completed by the end of There is no planned exploration activity in the Tarfaya Basin, Morocco in the short term. 16

17 The Directors believe that the anticipated development schedule of the Amstel Field, The Netherlands indicates a production start date of January 2010 leading to the commencement of royalty income being paid to the Group. The Directors intend to continue to seek additional licences, in particular in Italy where San Leon (Italy) has applied for five licences, and is actively investigating other exploration areas. 8. Board of Directors The Board comprises of 6 directors, brief biographies of whom are set out below. Oisín Fanning (aged 50), Chairman, has over twenty five years experience in structured finance, stockbroking and corporate finance, including ten years specialising in the oil & gas industry. From 1999 to 2006 he was chief executive of Smart Telecom plc, from 1993 to 1998 he was chief executive of MMI Stockbrokers Limited and from 1990 to 1993 he was chief executive of Astley Pearce limited. Philip Thompson (aged 48), Chief Executive Officer, has over twenty five years experience in the oil & gas industry throughout Africa, Europe, North America, and South America. Key projects have included oil & gas discoveries in Chad, offshore Holland, onshore USA and offshore Ireland. He has extensive experience in project management, international oil and gas exploration new-ventures and geophysics with Exxon, Anadarko (formerly Oryx Energy and Kerr-McGee) and Vanco Energy. He has an M.Sc. in Geophysics from Southern Methodist University and a B.Sc. in Geophysics from Texas A&M University. Charles McEvoy (aged 53), Operations Director, has over 25 year operational, engineering and business development experience. He has been involved with major blue chip organisations within the manufacturing and service industries, including Intel, ADT and in business restructuring with Eircom. Paul Sullivan (aged 51), Commercial Director, has over thirty years experience in corporate treasury and operations within banking, including with Nordbanken NY, Standard Chartered Bank, Dublin, and BNP Paribas, Dublin. Jeremy Boak Ph.D (aged 56), Non-Executive Director, is Project Manager with the Colorado Energy Research Institute (CERI), the Los Alamos National Laboratory and the U. S. Department of Energy (DOE). He chaired international symposia on the development of oil shale and he carried out geological investigations for exploration and development in Alaska, Colorado, Oklahoma, Texas and California. He is affiliated to the Geological Society of America, American Association of Petroleum Geologists (AAPG), AAPG Division of Environmental Geology and the American Nuclear Society. Dr Boak is extensively published and has a Ph.D. and BA in Geology from Harvard University and an M.S. Geology from the University of Washington. Raymond King (aged 66), Non-Executive Director, is a qualified Chartered Secretary, Compliance Officer, Information Technologist, Banker and Accountant. He has considerable experience in Finance and IT and has been a Chartered Secretary for 40 years. From 1958 to 1986 he worked for the NatWest Group. He was also associate director of Christiana Bank, general manager of operations of Moscow Narodny Bank, company secretary of SIM Group and chairman of Smart Telecom plc. He has acted in various senior executive and non-executive director roles, such as finance director, managing director and chairman of companies which have been brought to AIM, NASDAQ and OFEX (now PLUS Markets). In all companies he has also acted as company secretary. 9. Corporate Governance The Combined Code It is the Board s intention that, in so far as it is practicable and taking into account the size and nature of the Company, it will comply with the Combined Code on Corporate Governance published in June 2006 by the Financial Reporting Council (the Combined Code ). Where full compliance is not appropriate due to the size of the Company, the Directors will refer to the QCA Guidelines. In addition, the Company will abide by Rule 21 of the AIM Rules (regarding directors dealings) and will take all reasonable steps to ensure compliance by the Directors and applicable employees. The Company is committed to high standards of corporate governance. The Board is accountable to Shareholders for good corporate governance and has adopted procedures it considers appropriate, having regard to the size and best interests of the Company. 17

18 The Board The Board comprises of Oisín Fanning, Philip Thompson, Paul Sullivan, Raymond King, Charles McEvoy and Jeremy Boak. Oisin Fanning, Philip Thompson, Paul Sullivan and Charles McEvoy have entered into full time service agreements with San Leon Services, a subsidiary of San Leon, pursuant to which they have agreed to devote their whole time to the business of the San Leon Group. In order to ensure that the Directors can properly carry out their roles, the members of the Board are provided with comprehensive information and financial details prior to all Board meetings. The Board meets at least six times a year to discuss and decide the Company s business and strategic decisions. In addition, there is a high degree of contact between Board meetings to ensure all Directors are aware of the Company s business. If necessary, the non-executive Directors may take independent advice at the expense of the Company. Remuneration Committee The Remuneration is composed of Raymond King, Oisin Fanning and Paul Sullivan. Raymond King has been appointed chairman. The Remuneration Committee monitors the performance of each of the Company s executive Directors and senior executives to ensure they are rewarded fairly for their contribution. The recommendations of the Remuneration Committee are presented to a meeting of the full Board. The remuneration and terms and conditions of appointment of the non-executive directors are set by the Board as a whole. The Audit Committee The Audit Committee consists of Raymond King and Paul Sullivan. Raymond King has been appointed chairman. The Audit Committee is responsible for ensuring that the Combined Code is implemented in respect to matters relating to the Company s external audit. In addition, the Committee also discusses the scope of the audit before its commencement and it receives reports from the external auditors. The Committee also recommends the appointment of, and will review the fees of, the external auditors. The Audit Committee meets the external auditors and meets internally at least twice per year. It also meets on an ad hoc basis as required. Internal Controls The Board acknowledges its overall responsibility for ensuring that the Company has a system of internal controls in place that is appropriate. However, Shareholders should be mindful that any system can only provide reasonable, not absolute assurance against material misstatement or loss and is designed to manage but not eliminate the risk of failure to achieve business objectives. The key procedures are: a corporate governance policy with clearly defined rules relating to the delegation of authority; preparation of annual budgets for all of the businesses, reviewed by the executive management and subject to Board approval; and monthly review of sales, cash and profitability compared with budget. The Company has adopted a model code for Directors share dealings which is appropriate for an AIM quoted company. The Directors have undertaken to comply with Rule 21 of the AIM Rules relating to Directors dealings and will take all reasonable steps to ensure compliance by the Company s applicable employees as well. 10. Reasons for Admission Application has been made to the London Stock Exchange for the Issued Share Capital to be admitted to trading on AIM. It is expected that Admission will take place and that dealings on AIM will commence on 29 September The Company is seeking Admission for the following reasons: to provide access to capital in order to develop the Group s assets; to facilitate the raising of finance, both equity and debt, and to enable it to offer its quoted shares for any potential acquisitions; and to enhance the Group s profile. 18

19 11. Dividend Policy The Directors intend to commence the payment of dividends only when it becomes commercially prudent to do so, having regard to the resources needed for the Group s growth. 12. Options The Company has entered into Option Agreements with certain of the Directors under which, in aggregate it has granted options to acquire 7,000,000 Ordinary Shares. The Company, through its subsidiary San Leon (Italy) has submitted five applications for Italian licence permits. On the successful granting of an Italian permit, a success fee of 55,000 per licence application (the Success Fee ) will be paid to BWG s.r.l. It has been agreed between BWG s.r.l. and the Company that BWG s.r.l. shall apply its Success Fee by subscribing for 500,000 Ordinary Shares at a subscription price of 0.11 per share. The maximum number of shares that may be issued as a result of the agreement with BWG s.r.l. if the five applications are successful is 2,500,000 Ordinary Shares. Further details of the Options and the agreement relating to the Success Fee are set out in paragraph 3.16 of Part VI of this document. In addition Mr. David Turner has the right in certain circumstances to subscribe for Ordinary Shares pursuant to the Convertible Loan Note details of which are set out in paragraph 3.18 of Part VI of this document. 13. Warrants The Company has 30,697,443 Warrants in issue. Each Warrant entitles the holder to subscribe for one Ordinary Share at a price of 0.11 per share. The Warrants expire three years from the date of Admission. Further details of the Warrants are set out in paragraph 3.17 of Part VI of this document. 14. Regulation Summaries of oil and gas regulation in Nebraska (USA), Morocco and The Netherlands are set out in paragraph 14 of Part VI of this document. 15. Taxation General information relating to taxation is set out in paragraph 16 Part VI of this document. These details are, however, intended only as a general guide to the current tax position under UK and Irish taxation law. This document has been prepared on the basis of current legislation, rules and practice and the advisers interpretation thereof. Such interpretation may not be correct and it is always possible that legislation, rules and practice may change. Any changes in legislation and in particular any changes to bases of taxation, tax relief and rates of tax may affect the availability of reliefs. Shareholders and potential shareholders of the Company who are in any doubt as to their tax position are strongly advised to consult their own financial adviser immediately. 16. Admission and CREST It is expected that Admission will take place and that dealings on AIM will commence on 29 September All of the Ordinary Shares will be in registered form and no temporary documents of title will be issued. The Company has applied for the Ordinary Shares to be admitted to CREST. CREST is a paperless settlement system which allows for the transfer of shares electronically in uncertificated form. The Articles of the Company allow the holding and transfer of Ordinary Shares under the CREST system and it is expected that the Ordinary Shares will be so admitted, and accordingly enabled for settlement in CREST, on the date of Admission. However, CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share certificates will be able to do so. 19

20 17. The Takeover Code San Leon is incorporated in the Republic of Ireland and the place of central management and control of the Company is located outside of the UK, the Channel Islands and the Isle of Man. Accordingly, as the Company is one to which paragraph 3(a)(ii) of the Introduction to the Code applies, the Directors believe that the Company is not subject to the Code and Shareholders will not be afforded any protections under the Code. If circumstances change, including if changes to the Board are made, the Company will consult with the Takeover Panel to ascertain whether this will affect the central place of management of the Company. If the Takeover Panel determines that, as a result of such changes, the place of central management of the Company is located in the UK, the Channel Islands or the Isle of Man such that the Code then becomes applicable to the Company, an announcement will be made. San Leon is subject to the Takeover Rules in Ireland and Shareholders are therefore afforded protections under the Takeover Rules. A summary of these Rules relating to mandatory bids is set out in paragraph 9 of Part VI of this document. 18. Lock-in and Orderly Market Arrangements The Directors and their respective nominees have given undertakings: i) for the purposes of Rule 7 of the AIM Rules for Companies that they will not dispose of any interests they have in Ordinary Shares or other securities of the Company for a period of one year from Admission (the Hard Lock-in Period), except in the strictly limited circumstances permitted by Rule 7 of the AIM Rules and then only with the prior written consent of Daniel Stewart; and ii) not to dispose of any interests they have in Ordinary Shares or other securities of the Company for a further period of one year following the expiry of the Hard Lock-in Period without the prior written consent of Daniel Stewart, which it will not unreasonably withhold. During this period Daniel Stewart will have the exclusive right to effect any such disposal on their behalf. Further details of the lock-in arrangements are set out in paragraph of Part VI of this document. 19. Additional Information Your attention is drawn to Part I of this document, which contains summaries of San Leon Group s licences, Part III of this document which contains risk factors relating to an investment in the Company, Part IV of this document which contains the Petroleum Consultant s Report in respect of San Leon Group s oil and gas assets and Part V which contains financial information on the San Leon Group, as well as further additional information on the San Leon Group contained in Part VI of this document. 20