San Leon poised for make-or-break year (Morocco)

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San Leon poised for make-or-break year

San Leon Energy (SLE) said it was looking forward to a "successful 2013" as it closed the doors on "another progressive and successful year".

In the oil and gas company's final results for the year ended 31 December, pre-tax profits plummeted from €15.6 million (£13.4 million) in 2011 to €470,000 in 2012, despite revenues jumping from €1.04 million to €1.37 million.

Operationally, Poland saw the company complete the Siciny-2 well in the SW Carboniferous Basin, encountering four potential unconventional producing zones. Rogity -1, San Leon's second shale gas exploration well in the Baltic Basin, encountered continuous gas shows over more than 500 metres of the Lower Silurian, Ordovician and Middle Cambrian sections, while Szymkowo-1, the company's third shale gas exploration well in the basin, encountered strong gas shows in the Lower Silurian and Ordovician shales.

"There have been notable successes to date with the Polish acreage, and these are now subject to increased focus on interpretation and analysis," stated analysts at FoxDavies. They pointed out that with the results of Lewino-1G2 - the latest well to be fractured and tested - expected in August, the company was continuing with its technical assessment of its acreage.

The analysts added: "The remainder of 2013 will be a transitional year as San Leon Energy's testing programme starts to approach the sharp end and the results of the work programme start to form an understanding of the commercial potential of its acreage."

In Morocco, San Leon Energy completed farm-outs of its interest in two offshore blocks. Cairn Energy (CNE) acquired a 50% interest in the Foum Draa block in return for back costs and a gross carry of $60 million (£39.4 million) on the first well, while Genel Energy (GENL) acquired a 60% interest in Sidi Moussa in return for back costs and a carried interest in exploration costs, including one well, of up to $50 million.

San Leon also acquired more than 2,280 kilometres of 2D seismic data across its Tarfaya and Zag licences. Finally, it was awarded four additional shallow oil shale blocks in existing Tarfaya Oil Shale Acreage and received an extension of exclusivity period to March 2014.

"2012 and the year to date 2013 has perhaps seen the biggest step forwards for San Leon Energy's Moroccan interests for a significant period of time, with its conventional offshore portfolio benefiting from farm-outs and the firming up of the drilling programme," said FoxDavies. The analysts noted that in San Leon Energy's oil shale acreage, which has a longer-term outlook, there have been positive indications regarding commerciality.

In Albania, interpretation of pre-stack depth migration has identified multiple significant and diverse oil and gas prospects in the Durresi Block; while in Ireland, a third-party competent person's report on the Barryroe field, in which San Leon holds a 4.5% net profit interest, has estimated 2C contingent resources of 346 million barrels of oil equivalent.

Looking ahead, preparations are underway to drill one well in Foum Draa, expected to spud in the second half. The first well in the Sidi Moussa block, offshore Morocco, is due to spud in the first quarter of 2014. Farm-out discussions are in process to fund drilling of the first offshore well in the Durresi Block, Albania, targeted for 2014. Finally, a 3D seismic programme has commenced on the group's Brodina block in Romania to identify a drilling location on the Putna prospect.

"San Leon holds a remarkable acreage position for a company of its size, and the partners we have attracted to our projects in the last year are testament to the potential we believe exists on our licences," stated chairman Oisin Fanning.

"The next 12 months will be the most important in the company's history as we test our major plays and success in any of these projects could prove transformational for the company."

Investor view

On the Interactive Investor discussion boards, user 'PERPETUAL OPTIMIST' agreed with Fanning: "Indeed the next 12 months will make or break this lot.

"Our share price performance during 2012 was better than many of our peers but still disappointing," the user added. "We would have liked to have seen stronger gains.

"We believe this lesser than expected performance partly reflects the market's current view of AIM-listed exploration and production companies, where asset portfolios are being risked significantly."