Consolidated statement of financial position

As at 30 June 2016

Consolidated statement of cash flows

For the six months ended 30 June 2016

Notes to the Interim Financial Information

1. Basis of preparation and accounting policies

The Group interim financial information has been prepared in accordance with International Financial Reporting Standards and the accounting policies adopted are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 December 2016. The interim financial information was approved by the Board of Directors on 27 September 2017.

The interim consolidated financial statements do not constitute statutory financial statements and therefore do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2016 which are available on the Group's website www.sanleonenergy.com.

The interim consolidated financial statements are presented in Euro ("€").

2. Other income

The bargain purchase on acquiring a 40% interest in Midwestern Leon Petroleum Limited (MLPL) is calculated as follows:

3. Loss on disposal on equity accounted investments

In November 2016, the Company sold its 35% interest in the Rawicz gas field held through TSH Energy Joint Venture B.V. for a cash consideration of €8.5 million (US$9.0 million), and the release of certain San Leon liabilities.

These liabilities included loans which were advanced by Palomar to the Company as a temporary carry of the drilling and testing costs of the Rawicz-12 and Rawicz-15 wells, and amount each to approximately €2.8 million (US$3.0 million).

The Company also sold its 35% interest in the Poznan assets held through Poznan Energy B.V (largely the Siekierki field) for a consideration of €1 plus a 10% Net Profit Interest ("NPI") in the Poznan assets. The NPI removes any further cost exposure to San Leon, while providing an interest in any future profits made by Palomar on the Poznan assets. A nil value has been placed on the NPI at this stage, since no agreed work programmes are in place for the asset. The first €2.1 million (US$2.2 million) was received on closing, the next €2.1 million (US$2.3 million) was received on 30 November 2016 and the remaining €4.3 million (US$4.5 million) is due to be paid to San Leon on or before 1 October 2017. An interest charge of LIBOR plus 5% is being applied to any sum not paid by 1 February 2017.

4. Finance expense

5. Finance income

6. Finance income - OML 18 Production Arrangement

7. Intangible assets

Exploration and evaluation assets

An analysis of exploration assets by geographical area is set out below:

The Directors have considered the licence, exploration and appraisal costs capitalised in respect of exploration and evaluation assets, which are carried at historical cost. Those assets have been assessed for impairment and in particular with regard to remaining licence terms, likelihood of licence renewal, likelihood of further expenditures and on-going appraisals for each year. The directors are satisfied that there are no current indications of impairment, but recognise that the future realisation of these exploration and evaluation assets is dependent on future successful exploration and appraisal activities and the subsequent economic production of oil and gas reserves.

8. Equity accounted investments

Midwestern Leon Petroleum Limited

Equity investment of €27.5 million plus bargain purchase of €30.0 million (Note 2).

Other equity accounted investments

9. Property, plant and equipment

Assets under construction related to the Group's Oil Shale Project in Morocco. The Directors have considered the classification of 'assets under construction' and made the decision to transfer the carrying value to 'Intangible assets' as the project is not yet at the stage of development and is still being evaluated.

10. Financial assets

(i)     OML 18 Production Arrangement

The Company secured an initial 9.72% indirect economic interest in the OML 18 Production Arrangement, onshore Nigeria for a total consideration of €169 million (US$188.4 million).

The fair value assessment of the loan notes as referred to below is calculated as follows:

The fair value of loan notes attributable to the equity investment is calculated using a discount factor of management's estimate of a market rate of interest of 8% above the coupon rate of 17% over the term of the loan notes.

The Company undertook a number of steps to effect the purchase of its interest in the OML 18 Production Arrangement in 2016. Midwestern Leon Petroleum Limited (MLPL), a company incorporated in Mauritius of which San Leon Nigeria B.V. has a 40% shareholding, was established as a special purpose vehicle to complete the transaction by purchasing all of the shares in Martwestern Energy Limited (Martwestern), a company incorporated in Nigeria. Martwestern holds a 50% shareholding in Eroton Exploration and Production Company Limited (Eroton), a company incorporated in Nigeria and the Operator of OML 18.

To partly fund the purchase of 100% of the shares of Martwestern, MLPL borrowed €156.6 million (US$174.5 million) in incremental amounts by issuing Loan Notes under a Loan Note Instrument which attracts a coupon of 17 per cent. Midwestern Oil and Gas Company Limited is the 60% shareholder of MLPL and transferred its shares in Martwestern to MLPL as part of the full transaction. Following its Placing in September 2016, San Leon Energy PLC purchased all of the outstanding Loan Notes issued of €103.7 million (US$115.5 million) and subscribed for further €52.9 million (US$58.9 million) of newly issued loan notes and is therefore the beneficiary and holder of all Loan Notes issued by MLPL. SLE will be repaid the full €156.6 million (US$174.5 million) plus the 17% coupon once certain conditions have been met and using an agreed distribution mechanism. SLE is also a beneficiary of any dividends that will be paid by MLPL as a 40% shareholder in MLPL, but the Loan Note repayments must take priority over any dividend payments made to the MLPL shareholders.

Through its 50% shareholding in Eroton and other agreements, Martwestern holds an initial indirect 24.3% economic interest in the OML 18 Production Arrangement. Through the ownership of MLPL and other commercial agreements, SLE is an indirect shareholder of Eroton, and the Company holds a 9.72% initial economic interest in OML 18.

The key information relevant to the fair value of the Loan Notes is as follows:

The recoverability of the group and company's equity and loan note investments in the MLPL (OML 18 Production) arrangement is dependent on the ability of the OML 18 operator, Eroton, to make distributions. Eroton needs to meet certain conditions before its lenders will allow Eroton to make distributions to its shareholders. These distributions need to be made to enable MLPL repay interest and principal to San Leon. At the balance sheet date and at the date of approval of their financial statements these conditions have not been met by Eroton. The directors of San Leon have considered the carrying amounts of the loan notes and equity interest at 31 December 2016 and are satisfied that these are appropriate.

(ii) Barryroe - 4.5% Net Profit Interest (NPI)

The Directors have estimated the fair value of the NPI by reference to a third party evaluation report of contingent resources and cash flows prepared by Netherland Sewell & Associates Inc. (NSAI) in July 2013 for Providence Resources Plc ("Providence").

NSAI reported that the Basal Wealden oil reservoir has an estimated 2C in-place gross on-block volume of 761 MMBO with recoverable resources of 266 MMBO and 187 BCF of associated gas, based on a 35% oil recovery factor. In July 2013, NSAI also provided an estimate of the cash flows attributable to Providence's net interest from the Basal Wealden oil reservoir only. It estimated Providence's net present value at US$2.63 billion in the 2C case (estimated recoverable resources of 266 MMBO and 187 BCF of associated gas) at a 10% discount rate. Further details are available on the Providence website.

Further information has also been made available regarding the revised development plan or development costs which are key inputs into the valuation model.

As San Leon is not the operator of this licence, the Group does not have the ability to commission an independent technical evaluation of the licence area. Therefore, the Directors believe that the NSAI report, when coupled with other information released by Providence and adopted for certain changes in the market, gives the basis for the best estimate of fair value at year end.

With the increase in the oil price since the lows of early 2016 and an increase in farm-out activity, San Leon is confident of the asset value ascribed to Barryroe.

iii) Amedeo Resources plc

During 2017, the Company sold 100,000< ordinary shares in Amedeo Resources plc for cash consideration of €30,998. At 30 June 2017, the Company hold 213,512< ordinary shares with a market value of €28,548 (2016:€139,219).

During 2016, the Company sold 398,738< ordinary shares in Amedeo Resources plc for cash consideration of €139,219.

Adjusted for share consolidation of 1 for 100 in Amedeo Resources plc.

(iv) Ardilaun Energy Limited

As part of the consideration for the sale of Island Oil & Gas Limited to Ardilaun Energy Limited ("Ardilaun") in 2014.

Ardilaun agreed to issue shares equivalent to 15% of the issued share capital of Ardilaun. The original fair value of the 15% interest in Ardilaun was based on a market transaction in Ardilaun shares. The Directors have considered the carrying value of this interest at 31 December 2016 and are satisfied that the carrying value continues to be appropriate in the absence of further market data.

(v) Poznan 1% Net Profit Interest

Please see Note 3 for further details.

11. Trade and other receivables

(i) Other debtors includes €4.3 million (US$4.5 million) due from Palomar for the disposal of equity accounted investments in 2016 (Note 3).

12. Other financial assets

Restricted cash at bank at 30 June 2017 is a deposit account held in support of bank guarantees required under the Moroccan exploration licence, Zag, held by the Group.

After the reporting period, in April 2017, the Company announced that the Office National des Hydrocarbures et des Mines ("ONHYM") has written to the Company regarding the non-performance of the work programme on its Zag Licence, onshore Morocco. ONHYM has assumed control of the existing bank guarantee (listed above as restricted cash), and has requested a penalty of the same amount again to be paid. The Zag licence is in a geographical area which the Company believes justifies a declaration of force majeure due to the regional security situation. The Directors are confident, given their belief in the force majeure status of the licence, with the recoverability of the bank guarantee and that the penalty cannot be enforced. The company is in negotiations with ONHYM regarding the future of the licence including the week programme, and the force majeure status.

13. Cash and cash equivalents

14. Held for sale assets and liabilities

During 2016 efforts to sell, relinquish, or farm-out most of the Company's assets in Poland commenced as part of the strategic realignment and focus on Nigeria. This process is substantially underway and it is anticipated that sale and purchase agreements will be concluded in the second half of 2017 with regard to the held for sale assets, following which various formalities will have to be concluded, in particular with governmental authorities, before completion, expected in 2018.

The assets and liabilities that are up for sale in Poland are as follows:

During 2016 the held for sale exploration and evaluation assets were impaired by €2,861,100 in order to reduce their carrying value to fair value less costs to sell.

There are no other income or expenses related to the held for sale assets.

15. Trade and other payables

16. Loans and borrowings

17. Provisions

Decommissioning

The provision for decommissioning costs is recorded at the value of the expenditures expected to be required to settle the Group's future obligations on decommissioning of previously drilled wells. As part of the sale of TSH and Poznan to Palomar, €1.8 million of the decommissioning provision was transferred with the sale.

Arbitration

On 7 November 2016, Avobone N.V. and Avobone Poland B.V. ("Avobone") (together, "Avobone") and the Company settled a number of ongoing disputes between them and between Avobone and certain of San Leon's subsidiaries, including Aurelian Oil & Gas Limited, Aurelian Oil & Gas Poland Sp. z.o.o, Energia Zachod Holdings Sp. z.o.o and AOG Finance Limited, in Poland, Netherlands, Ireland, England & Wales in respect of various matters including a final award in an ICC arbitration dated 21 May 2015. The total settlement amounts to €23.3 million plus interest to be paid to Avobone. Interest will accrue at a rate of 5% per annum on instalments until paid.

As announced by San Leon on 5 June 2017 an Extension Agreement was entered into with Avobone along with a revised payment schedule in respect of sums owed to Avobone.

A payment of €8,175,000 (inclusive of an extension fee) has been made during 2017 so far.

Further payments are due as follows:

·     During October 2017, San Leon shall pay to Avobone, a further sum of €8,000,000

·     During November 2017, San Leon shall pay to Avobone, a further sum of €6,694,840

Payments totalling €22,869,840 are expected during 2017 (inclusive of extension fees and interest since the 31 December 2016) approximately adding an additional €0.9 million to the provision.

Other

Certain Realm Energy International Corporation shareholders exercised rights of dissent under Canadian law not to accept the terms of acquisition in 2011. Under Canadian law, these dissenting shareholders are eligible to receive a cash payment equal to the fair value of their shareholding at acquisition. The provision represents the Directors' estimate of the cash consideration to be paid to those shareholders taking account of the market price of the Realm shares at acquisition.

In Q1 2017 the amount provided at 31 December 2016 was fully paid in cash to the shareholders.

18. Share capital

(i) On the 17th January 2017 San Leon issued and allotted 3,000,000 new ordinary shares to Robin Management Services and 4,000,000 new ordinary shares to DSA Investments Inc. in respect of options exercised. The options were exercised at a price of 30 pence per share.

(ii) Under an agreement with Yorkville, as announced on the 22 June 2017, San Leon issued 6,254,905 new ordinary shares at a price per share of 32 pence with a value of US$2.6m.

On 21 September 2016, the Company issued 378,400,000 €0.01 New Ordinary Shares as a cash equity placing.

Costs directly attributable to the equity placing amounted to €1,974,311. These costs have been recognised as a deduction from equity.

2,816,668 ordinary shares were issued to Oisín Fanning in lieu of 80% of his salary due to him for the period 1 January 2015 to 31 August 2016. 1,167,485 ordinary shares for the year to 31 December 2015 and 1,649,485 ordinary shares for the period 1 January 2016 to 31 August 2016.