REG - Sound Energy PLC - Final Results
24/04/2024 07:00
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RNS Number : 7722L Sound Energy PLC 24 April 2024
24 April 2024
SOUND ENERGY PLC
("Sound Energy", "Sound" or the "Company" and together with subsidiaries the
''Group'')
FINAL RESULTS
Sound Energy, the transition energy company, announces its audited final
results for the year ended 31 December 2023.
HIGHLIGHTS
Substantial 2023 Project execution undertaken - positioned for significant
operational and financial progress through development of pivotal Moroccan
Tendrara Production Concession, with rig activities from June 2024 and plant
commissioning planned by year end
· Phase 1 Micro LNG (''mLNG'') project (''Phase 1''):
o Completed mLNG tank foundations and manufacturing of the main components
of the outer and inner LNG storage tank in 2023
o Advanced construction of the access road, which is scheduled for
completion summer 2024
o Design, planning and procurement of equipment for workover of wells TE-6
and TE-7. Initial well works setting packers in each well successfully
completed in Q4 2023 with rig activities scheduled for June 2024
o Processed gas expected at plant by end 2024 with LNG sales thereafter
· Phase 2 Gas (pipeline) development (''Phase 2'') - financing to
be concluded in 2024
o Receipt of binding conditioned term sheet in June 2023, for project
financing from exclusive lead arranger, Attijariwafa Bank, Morocco's largest
bank
Corporate - strengthening of financial position
· In June 2023 the Company entered into a non-binding term sheet
with Calvalley Petroleum (Cyprus) Limited for a partial divestment of a net
40% working interest in the Tendrara Production Concession and the Grand
Tendrara exploration permit
· In May 2023 the Company entered into a full and final settlement
of its tax disputes with the Moroccan tax authorities and received court
papers in June 2023 confirming the withdrawal of the cases between the Company
and Moroccan tax authority
· In June 2023 the Company made a drawdown of £2.5 million of up
to £4.0 million senior unsecured convertible bond instrument.
· In December 2023, restructured the Eurobond such that it will now
not be fully redeemed until December 2027 rather than partially from December
2023
· Phase 2 financing planned to be concluded in 2024 through Project
debt and conclusion of partial asset divestment
Graham Lyon, Executive Chairman said:
''Whilst substantial progress had been made in advancing mLNG and the
financial foundations for Phase 2, execution and closing of documentation
experienced delays. However, timely conclusion of the proposed partnering
arrangement and bank debt financing in 2024 will facilitate progress on the
pipeline development at Tendrara, as well as funding for further exploration
on Grand Tendrara.
The micro-LNG development at Tendrara construction has suffered from supplier
delays and is now expected to be ready to receive gas into the plant by the
end of 2024 with LNG sales thereafter. The Company continues to uphold strong
ESG values and deliver our work in a manner commensurate with our principles.
We are pleased to have settled our outstanding tax matters such that we can
optimise our resources on field development. We have enjoyed a supportive
working relationship with ONHYM, the Ministry and our various contractors in
Morocco, and, most importantly, we continue to benefit from the hard work and
dedication of our own staff. We will continue to work diligently to deliver
value and progress for all our stakeholders during 2024 and beyond, as we
focus on delivering material developments in transition energy.''
For further information, visit www.soundenergyplc.com
(http://www.soundenergyplc.com) or follow us on twitter @soundenergyplc
Enquiries:
Flagstaff Strategic and Investor Communications Tel: 44 (0)20 129 1474
Tim Thompson soundenergy@flagstaffcomms.com
Mark Edwards
Alison Allfrey
Sound Energy Chairman@soundenergyplc.com
Graham Lyon, Executive Chairman
Cavendish Capital Markets - Nominated Adviser Tel: 44 (0)20 7220 0500
Ben Jeynes
Peter Lynch
Zeus - Broker Tel:44 (Tel:44) (0)20 3829 5000
Simon Johnson
Gneiss Energy Limited - Financial Adviser Tel:44 (Tel:44) (0)20 3983 9263
Jon Fitzpatrick
Paul Weidman
Doug Rycroft
Tel:44 (Tel:44) (0)20 3829 5000
Gneiss Energy Limited - Financial Adviser
Jon Fitzpatrick
Paul Weidman
Doug Rycroft
Tel:44 (Tel:44) (0)20 3983 9263
STATEMENT FROM THE EXECUTIVE CHAIRMAN
Introduction
2023 was a year of continued progress, advancing the Tendrara concession
development on all fronts: the Phase 1 mLNG development, the Phase 2 Pipeline
development and funding, and the announcement of our potential asset partner,
in Eastern Morocco.
Phase 1 of the development, the mLNG project, progressed with equipment
fabrication, site preparation and construction works undertaken. Materials
were purchased, contracts awarded and the two well recompletion preparation
work commenced.
Fabrication of equipment and site preparation for the Phase 1 mLNG facility
proceeded, delivery and installation work slowed in the second half of 2023
due to the main contractor (Italfluid Geoenergy S.r.l ("Italfluid"))
experiencing cost increases and supply chain issues. Italfluid took steps to
mitigate its financing obligations and phase its expenditures. The updated
schedule shows that the LNG storage tank erection work remains on the critical
path and that mechanical completion and commissioning of the processing
equipment should occur in 2024 with first gas available for delivery to the
gas plant in late 2024 and LNG sales thereafter. Sound Energy is evaluating
temporary LNG storage facilities to facilitate LNG sales.
The Phase 2 pipeline gas project requires financing to be arranged and
finalised prior to taking a Final Investment Decision (FID). In October 2023,
the Company announced an extension to its approximately $235 million debt
funding term sheet with Attijariwafa bank, Morocco's largest bank, subject to
certain key conditions being concluded. At year end whilst project debt
financing, a gas sales agreement and an equity partner had been identified and
matured, the associated legal documentation and/or conditions precedent had
not been completed or satisfied. 2024 requires that these key agreements are
finalised and are unconditional such that financing of the pipeline project
can be concluded. During 2024, the Company also plans to refresh the FEED
(front end engineering design) that was completed in 2019 before tendering for
Phase 2 engineering, procurement and construction (EPC) services in readiness
for FID. The Company also announced an extension to the conditional gas sale
and purchase agreement with ONEE (Office National de l'Electricité et de
l'Eau potable).
As part of our wider efforts to bring funding into our plans for Phase 2, it
was announced in June, that the Company had identified Calvalley as a partner
for the Tendrara Production Concession and the surrounding Grand Tendrara
exploration permits. As at year end, the definitive contractual documentation
with Calvalley had not concluded although the process was advancing. The
transaction would see Calvalley enter the Concession and Grand Tendrara
exploration permits in exchange for development and exploration financing.
Returning to exploration offers the near-term opportunity to expand the
Company's resource base and unlock its significant basin potential.
It was agreed with ONHYM that all exploration permits were either extended or
advanced into the first Complementary Period (at year end we are awaiting the
various Authorities final approval of the agreed licences amendments).
We were pleased that the long-running dispute with the Moroccan authorities
over tax was settled mid-year, with modest payments phased over a six-year
period. The removal of this tax overhang helped unlock financing and
partnering opportunities at Tendrara, smoothing the pathway towards Phase 2
FID and, hopefully, further exploration success.
Corporate
In June, we successfully raised £2.5 million through a convertible equity
issue, which was priced at 2.25 pence per share (a premium to the prevailing
share price at the time), with the funds earmarked for pre-FID activities on
Phase 2, new ventures activities and corporate G&A. In line with the
terms of debt issue, the Company issued shares following the conversion of
£2.25 million into shares during the second half of the year. In December,
the Company successfully gained noteholders' support to modify the Euro bond
amortisation obligation (in respect of its Company's Luxembourg listed EUR
28.8m 5.0% senior secured notes), such that the bond will now not be fully
redeemed until December 2027 rather than partially from December 2023. This,
in turn, improved the Company's working capital position as it moves towards
first gas and first revenue, on its Phase 1 project.
Preparing key elements for Phase 2 documentation for the Final Investment
Decision, has taken longer than expected, but we anticipate the final stages
to be completed in 2024. We have appreciated the ongoing support of our
stakeholders and investors throughout the process.
ESG and keeping our people safe sits at the heart of our business and, as
operations continued, we have actively monitored and taken timely action on
safety or environmental issues, reports or alerts, as they have arisen. The
Company has a robust health and safety management system in place, and works
hand in hand with our contractors and under the umbrella of our corporate
environmental and safety standards. Thanks to strong monitoring and constant
improvement of working practices, we have had no serious accidents over the
year. Any environmental issues are also recorded and monitored. Finally, we
engage proactively with our local communities and have taken steps not only to
employ locals where we can, but to keep relevant stakeholders and communities
in Morocco informed about our activities. Good corporate governance is
maintained at all levels in particular, we note the new amendments to the QCA
governance code and will implement these in due course.
The Company continues to manage its financial resources prudently whilst
making significant capital investments in pursuing its strategy. The bridge to
fund the company until first revenues from Phase 1 is always under review and
a variety of working capital sources evaluated.
Board
During 2023, the Board continued to meet regularly and oversee effective
implementation of the Company's strategy. A review of the Board's
effectiveness was conducted in 2022. Scope for improvement was identified with
many resultant initiatives implemented in the Board's 2023 activities. For
example, the Board undertook a focused strategy review session during 2023
reviewing all aspects of the Company business, reflecting on its position in
the market, risk profile, asset opportunity, structuring, and scenario
planning.
We welcomed Simon Ashby-Rudd as new independent director as Marco Fumagalli
stepped down. Simon brings a wealth of knowledge, financial skills and
deal-making experience to the Company. We thank Marco for his 9 years of
valued service, advice, and support to the Company.
Conclusion
I am pleased that the Company is on a stronger footing both operationally and
financially for 2024 and look forward to our delivering upon the compelling
investment opportunity open to us in transition energy this year and beyond.
Graham Lyon
Chairman (Executive)
PORTFOLIO REVIEW
A blended portfolio of gas assets
Eastern Morocco
Tendrara Production Concession
Permit Area
Located proximate to Gazoduc Maghreb Europe ("GME") pipeline, approximately
120 kilometres to the North. The 522 kilometre-long Moroccan section is owned
by the Moroccan State and operated by ONHYM. The pipeline connects Morocco to
Spanish/Portuguese gas grids as well as Moroccan gas-fired power stations.
Geology
The gas is trapped within the Triassic TAGI 1 reservoir within the structural
fault block, termed the Tendrara TE-5 Horst, and sealed by the overlying salt.
Reservoir characteristics are significantly enhanced by application of proven
hydraulic stimulation techniques to increase gas flow rates.
Ongoing and Planned Developments
Planned development of our discovered TE-5 gas to address gas demand in a
phased manner is progressing, with Phase I being the implementation of a
micro-LNG development scheme (currently underway) and a future Phase 2 being
the development of a larger scale central processing facility ("CPF") and gas
export pipeline to GME.
Phase 1
Supply of LNG displacing higher carbon footprint energy (such as heavy fuel,
petcoke or imported LPG).
Phase 1 Micro LNG Development - Funding arranged to meet Sound Energy's share
of sanctioned pre first gas development costs.
Deployment of field gas treatment, processing, liquefaction and storage
facilities to deliver mobile LNG to buyer at site. The LNG buyer will
distribute and sell on to its growing Moroccan industrial consumers within the
domestic gas market.
Supplies of LNG are to be an annual contractual quantity equivalent to
approximately 100 million Normal cubic metres of gas (approximately 3.5
billion standard cubic feet of gas per year) over a ten-year period.
Binding gas sales agreement and associated funding are in place with Afriquia
Gaz, one of the largest LPG distributor in Morocco. A ten-year commitment from
first gas to sell annual contractual quantity of 100 million Normal cubic
metres per annum with take or pay agreement priced at $6-$8.346 per mmBTU ex
plant.
Development utilises the existing wells TE-6 and TE-7, with the drilling of
one new well, as required, to maintain the ten-year period of production at
the plateau.
LNG Central Processing Facility is under construction by Italfluid
Micro LNG Plant to be designed, constructed, commissioned, operated and
maintained by Italfluid with guarantees for plant operability and delivery.
Lease structure (with option to buy):
• Minimal LNG tank construction capital payments at and from FID,
and following successful completion of Micro LNG Plant commissioning
(including production build-up)
• Leasing solution substantially lowers capital investment
requirements of Phase 1 development
• Daily rental payment paid to Italfluid on guaranteed daily volume
only
• Performance guarantees on plant availability
Phase 2 - Tendrara TE-5 Development
Concept - Processed gas as a transition fuel flowing to the GME pipeline:
• 20 inch, 120km Tendrara Gas Export Pipeline ("TGEP"):
• Tie-in to existing GME pipeline (Station M04), approved by the GME
operator ONHYM
• Pipeline EIA permit approved and pipeline corridor fully secured.
Lease agreements signed with the landowners and the first lease payments have
been paid.
• CPF EIA permit approved
• Gas Sales Agreement ("GSA") with ONEE (Office National de
l'Electricité et de l'Eau potable) signed November 2021 for domestic power
plants for gas-to-power generation (transit via GME line), minimum volume of
0.3 bcm/year (approximately 10.5 billion standard cubic feet of gas per year)
at a fixed sale price over a ten-year term. Extended in 2023.
• Up to six horizontal wells planned to achieve First Gas (Phase 2)
• Exclusive partnership with Attijariwafa Bank (which is one of the
top banks in Morocco and in Africa and which is part of the Moroccan King's
holding, MADA) acting as Lead Debt Arranger in order to fund a substantial
part of Phase 2 project. Technical and Legal Due Diligence completed.
Exploration
Grand Tendrara - two Triassic TAGI(1) discoveries
Permit Details
Area 14,411 km(2)
Status Petroleum Agreement: Exploration
Effective date 1 October 2018
Term 8 years
Resource Potential Exploration potential in the Triassic TAGI reservoir of 7.52 Tcf gross/5.64
Tcf net (arithmetical sum of mid-case un-risked GIIP) identified in sub-salt
concepts, leads and prospects.
Permit Area
Surrounds the Tendrara Production Concession.
Located for access to Gazoduc Maghreb Europe ("GME") pipeline approximately
120 kilometres to the north. The 522 kilometres long Moroccan section is owned
and operated by the Moroccan State. The pipeline connects Morocco to the
Spanish/Portuguese gas grids as well as the Moroccan gas-fired-power stations.
Geology
Only eight wells drilled across the entire area, all encountered evidence of a
petroleum system. The primary reservoir is the Triassic TAGI1 charged from
Palaeozoic petroleum source rocks and sealed by the overlying Triassic salt,
which is present across much of the basin. This petroleum play is regionally
extensive and extends into Morocco from Algeria.
Two Triassic TAGI(1) gas discoveries exist within the permit area:
• SBK-1 tested by the previous permit holder at a peak rate of 4.41
mmscf/d in July 2000
• TE-10 flowed gas at non-commercial rates in May 2019
Exploration potential in the Triassic TAGI(1) reservoir of 7.52 Tcf gross/5.64
Tcf net (mid-case unrisked GIIP) identified in sub-salt concepts, leads and
prospects.
Future Developments
A number of targets are available for near-term drilling with two features,
the SBK structure and the TE-4 Horst, high-graded for drilling. Both these
structures were drilled by SBK-1 and TE-4, in 2000 and 2006, respectively, and
both encountered gas shows in the TAGI reservoir. SBK-1 flowed gas to surface
during testing in 2000 at a peak rate of 4.41 mmscf/d post acidification but
was not tested with hydraulic stimulation. TE-4 was tested in 2006 but did not
flow gas to the surface. Hydraulic stimulation has proven to be a key
technology to commercially unlock the potential of the TAGI gas reservoir in
the Tendrara TE-5 Horst gas accumulation and, accordingly, the Company
believes this offers potential to develop commercial operations elsewhere in
the basin.
The gross exploration potential of these high-graded structures, expressed as
GIIP(2), is as follows:
Target name Unrisked Volume Potential Gas Initially in Place (Bcf) Chance of Success
Gros
s
(100
%)
basi
s
Low Best High Mean
TE-4 Horst Structure 153 260 408 273 36%
SBK-1 Structure 71 130 225 140 50%
A discovery in either structure would have the potential to be commercialised
through the proposed development infrastructure centred on the TE-5 Horst,
with sufficient capacity in the planned Tendrara Export Pipeline or as
standalone mLNG projects.
Subject to approval by the Ministry of Energy and Ministry of Finance, the
Company has elected to enter the voluntary first Complementary period, which
commenced mid-October 2022 with one well commitment to be drilled before
October 2024. A well drilled on either the SBK structure or the TE-4 Horst
would satisfy this commitment.
1. Trias Argilo-Gréseux Inférieur ("TAGI") are sandstones deposited
in a fluvial-alluvial environment and are significant oil and gas reservoirs
across Algeria, extending into Morocco
2. Internal exploration potential estimates, arithmetical sum of
mid-case unrisked Gas Initially In Place ("GIIP")
Anoual
Permit Details
Area 8,873 km(2)
Status Petroleum Agreement: Exploration
Effective date 8 September 2017
Term 10 years
Resource Exploration potential in the Triassic TAGI reservoir of 11.51 Tcf gross/8.63
Tcf net (mid-case un-risked GIIP(2)) identified in sub-salt concepts, leads
Potential and prospects
Permit Area
Located for access to Gazoduc Maghreb Europe ("GME") pipeline approximately
120 kilometres to the North. The 522 kilometre-long Moroccan section is owned
and operated by the Moroccan State. The pipeline connects Morocco to the
Spanish/Portuguese gas grids as well as the Moroccan gas-fired power stations.
Geology
Only one well drilled across the entire area. The primary reservoir is the
Triassic TAGI(1) charged from Palaeozoic petroleum source rocks and sealed by
the overlying Triassic salt, which is present across much of the basin. This
petroleum play is regionally extensive and extends into Morocco from Algeria.
Committed geophysical surveying completed with a single well commitment
remaining. Exploration potential in the Triassic TAGI reservoir of 11.51 Tcf
gross/8.63 Tcf net (mid-case un-risked GIIP(2)) identified in sub-salt
concepts, leads and prospects.
Future Developments
"M5" prospect high graded for drilling a TAGI(1) target, operational planning
is progressing. The Company's estimation of the gross exploration potential of
the M5 exploration prospect, a possible candidate for the exploration well,
expressed in GIIP(2), is as follows:
Target name Unrisked Volume Potential Gas Initially In Place (Bcf) Chance of Success
Gros
s
(100
%)
basi
s
Low Best High Mean
M5 Exploration 332 800 1728 943 21%
(1. ) Trias Argilo-Gréseux Inférieur ("TAGI") are
sandstones deposited in a fluvial-alluvial environment and are significant oil
and gas reservoirs across Algeria, extending into Morocco
(2. ) Internal exploration potential estimates, arithmetical
sum of mid-case unrisked Gas Initially In Place ("GIIP")
Sidi Mokhtar
Permit Details
Area 4,712 km(2)
Status Petroleum Agreement: Exploration
Effective date April 2018
Term 10 years
Resource Potential Unrisked exploration potential of 8.9 Tcf mid-case unrisked GIIP(2) following
interpretation of the historical 2D seismic
Permit Area
The permit in which Sound Energy has a 75% interest is located onshore on the
Atlantic seaboard of Morocco, approximately 100 kilometres to the west of
Marrakech.
In July 2017, the Company reported the results of the re-entry, completion,
perforation and flow testing of the existing Koba-1 well, with a focus on
previously producing relatively shallow gas reservoir.
Strategically, the Company has shifted its focus on the Sidi Mokhtar area
towards what it believes has the potential to be the most significant
opportunity amongst the deeper Triassic TAGI(1) and Palaeozoic gas plays in
the region already demonstrated by the gas and condensate producing adjacent
Meskala Field operated by our partner ONHYM. In June 2018, the Company was
awarded a new eight-year Petroleum Agreement and is now actively seeking a
partner to participate in a geophysical survey programme focused on these
deeper objectives.
In December 2020, the Company announced a further one-year extension to the
initial period of the Sidi Mokhtar permit and that the work programme for the
initial period of the Sidi Mokhtar permit remained unchanged.
Geology
There is initial un-risked exploration potential of up to 8.9 Tcf gross gas
following interpretation of the historical 2D seismic. The Company believes
the pre-salt plays have been overlooked in the region with limited drilling to
specifically target these deeper successions.
The sub-salt plays are underexplored with more than 60 historical exploration
wells focused on shallower objectives in the Jurassic post-salt carbonate
successions. The few historical sub-salt tests were drilled on poor sub-salt
seismic imaging. Recent improvements in seismic acquisition and processing
technologies are expected to provide enhanced imaging of the sub-salt
structure and geology.
Future Developments
Our next step is to mature the identified leads to drillable prospects with
improved seismic imaging. We aim to acquire new, high-quality 2D seismic data,
focused on improving the sub-salt imaging. This work is hoped to lead to an
exploration well targeting a high-impact gas prospect.
(1. ) Trias Argilo-Gréseux Inférieur ("TAGI") are
sandstones deposited in a fluvial-alluvial environment and are significant oil
and gas reservoirs across Algeria, extending into Morocco
(2. ) Internal exploration potential estimates, arithmetical
sum of mid-case unrisked Gas Initially In Place ("GIIP")
Financial Review
Income Statement
The pre-tax loss for the year from continuing operations was £7.2 million
(2022: £6.6 million, profit). Results of an impairment test on the Tendrara
Production Concession carrying amount indicated that no impairment charge was
required (2022: £5.7 million impairment reversal). The discount rate and
forecast gas price are the significant estimates used by the Company to
determine the recoverable amount when undertaking impairment testing of the
Company's Tendrara Production Concession.
Administrative costs at £2.4 million were lower than 2022 administration
costs (£3.2 million) as no nil cost options were issued to staff in 2023, as
was the case in 2022.
Foreign exchange losses primarily related to intra-Group loans, which were
partially offset by exchange gains in US dollar and Euro-denominated
borrowings. Foreign exchange gains and losses arising from inter-company loans
that originated on acquisition of Moroccan permits are recognised in the other
comprehensive income section of the statement of comprehensive income.
Cash Flow/Financing
During 2023, proceeds from borrowings were approximately £4.4 million (2022:
£7.2 million) net of issue costs. There were no proceeds from equity issues
during the year (2022: £3.7 million).
Financing costs during the year were £2.0 million (2022: £1.4 million),
primarily due to the amortised costs of the Company's Euro denominated loan
notes, the US dollar Afriquia loan note facility and Convertible Bonds
facility drawdowns, net of interest capitalised to the development and
exploration permits of £0.3 million (2022: £0.1 million). The increase in
finance costs arose due to a further $2.5 million drawdown from the Afriquia
facility and £2.5 million drawdown from a convertible loan note facility that
was entered into during the year. The convertible loan note facility has a
term of five years with interest of 15% per annum, payable bi-annually in cash
or capitalised to the principal, at the Company's election. The first tranche
of the Convertible Notes comprised £2.5 million with a fixed conversion price
of 2.25 pence per ordinary share, a premium of approximately 28% to the
closing price of 1.76 pence per ordinary share on 12(th) June 2023. In
connection with the drawdown of the first tranche, the Company issued
33,333,333 warrants (to the investors) to subscribe for new ordinary shares in
the Company at an exercise price of 2.25 pence per ordinary share with a term
of three years. The Company successfully restructured its Euro denominated
loan notes leading to removal of 5% semi-annual partial repayment of the
principal amount that was due to commence in December 2023.
The Group spent £2.9 million (2022: £6.2 million) on investing activities
during 2023 primarily related to the Group's Micro-LNG project with the
balance relating to expenditure on the Group's exploration permits in Morocco
and capitalised general and administrative expenses. As part of the 2018 Italy
divestment agreement, the Company was entitled to receive the proceeds, upon
sale, of land associated with the former Badile onshore Exploration Permit
(''Badile land''). The sale of the remaining area of Badile land completed in
Q2 2023 and the Company received net proceeds of approximately €153,000
(£134,000).
Balance Sheet
As at 31 December 2023, the carrying amount of property, plant and equipment
was £157.9 million (2022: £163.4 million), primarily related to the
development and production assets in Morocco with a carried value of £157.8
million (2022: £163.1 million) after taking account of impairment reversal,
additions and foreign exchange movement.
Intangible assets, with a carrying amount of £35.0 million (2022: £36.0
million), primarily relates to the Group's investment in its exploration
permits in Morocco. The addition of £0.7 million to intangible assets
primarily consisted of capitalised general and administrative expenses and
£1.8 million foreign exchange movement recognised.
Non-current prepayments of £5.1 million (2022: £4.3 million) relate to the
Group's Phase 1 mLNG project. Other receivables, amounting to £0.9 million
(2022: £2.8 million), primarily related to receivables from our partners in
Morocco permits and recoverable VAT in Morocco.
Trade and other payables amounting to £2.5 million (2022: £1.9 million)
primarily related to payables and accruals for the operations in the Group's
permits in Morocco, where the Group, as operator, recognises 100% of the
liability and receives funds from partners to pay the partners' share.
During 2023, the Company issued 114,420,005 ordinary shares which were all
non-cash share issues. The primary non-cash share issues related to
99,9999,994 new shares issued following the conversion of £2.25 million of
Convertible bonds into shares.
Going Concern
As detailed in note 1 to the financial statements, the Company's cash flow
forecasts, for the next twelve-month period to April 2025, indicate that
additional funding will be required to enable the Company to continue to meet
its obligations. This condition indicates the existence of a material
uncertainty regarding the Company's ability to continue as a going concern.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
Notes 2023 2022
£'000s £'000s
Continuing operations
Revenue - -
Other income 42 43
Reversal of impairment on development assets and exploration costs - 5,678
Gross profit 42 5,721
Administrative expenses (2,396) (3,175)
Group operating (loss)/profit from continuing operations (2,354) 2,546
Finance revenue 42 13
Foreign exchange (loss)/gain (2,846) 5,462
Finance expense 11 (1,994) (1,446)
(Loss)/profit for the year before taxation (7,152) 6,575
Tax expense 4 (8) (1,602)
(Loss)/profit for the year after taxation (7,160) 4,973
Other comprehensive income
Items that may subsequently be reclassified to the profit and loss account
Foreign currency translation (loss)/gain (6,555) 13,373
Total comprehensive (loss)/profit for the (13,715) 18,346
year
(Loss)/profit for the year attributable to:
Owners of the Company (13,715) 18,346
Notes 2023 2022
Pence Pence
Basic and diluted (loss)/profit per share for the year attributable to the 5 (0.38) 0.28
equity shareholders of the parent (pence)
Consolidated Balance Sheet as at 31 December 2023
Notes 2023 2022
£'000s £'000s
Non-current assets
Property, plant and equipment 6 157,927 163,362
Intangible assets 7 35,002 36,007
Prepayments 8 5,092 4,272
Interest in Badile land - 637
198,021 204,278
Current assets
Inventories 915 963
Other receivables 924 2,815
Prepayments 8 1,342 139
Cash and short-term deposits 3,016 3,861
6,197 7,778
Total assets 204,218 212,056
Current liabilities
Trade and other payables 2,495 1,868
Tax liabilities 4 199 126
Lease liabilities 121 162
Loans and borrowings 11 - 1,121
2,815 3,277
Non-current liabilities
Lease liabilities - 121
Tax liabilities 4 1,410 1,505
Loans and borrowings 11 33,285 29,068
34,695 30,694
Total liabilities 37,510 33,971
Net assets 166,708 178,085
Capital and reserves
Share capital and share premium 39,898 38,621
Shares to be issued 374 404
Accumulated surplus 122,443 129,004
Warrant reserve 2,071 1,607
Convertible bond reserve 28 -
Foreign currency reserve 1,894 8,449
Total equity 166,708 178,085
Consolidated Statement of Changes in Equity
Notes Share capital £'000s Share premium £'000s Shares to be issued Accumulated surplus Warrant reserve £'000s Convertible Foreign currency reserves £'000s Total
£'000s £'000s Bond equity £'000s
reserve
£'000s
At 1 January 2023 18,487 20,134 404 129,004 1,607 - 8,449 178,085
Total loss for the year - - - (7,160) - - - (7,160)
Other comprehensive loss - - - - - - (6,555) (6,555)
Total comprehensive loss - - - (7,160) - - (6,555) (13,715)
Issue of share capital on conversion of bond 11 1,000 46 - - - - - 1,046
Other share capital issues 114 87 - - - - - 201
Transfer to share capital on issue of shares 30 - (30) - - - - -
Fair value of warrants issued during the year - - - - 464 - - 464
Equity component of convertible bond - - - - - 562 - 562
Cost of issue allocated to equity component - - - - - (174) - (174)
Transfer to accumulated surplus on bond conversion to shares - - - 360 - (360) - -
Share-based payments 10 - - - 239 - - - 239
At 31 December 2023 19,631 20,267 374 122,443 2,071 28 1,894 166,708
Notes Share Share Shares to be issued Accumulated surplus Warrant reserve Foreign Total
capital £'000s premium £'000s £'000s £'000s £'000s currency reserves equity £'000s
£'000s
At 1 January 2022 16,292 18,281 - 123,872 1,534 (4,924) 155,055
Total profit for the year - - - 4,973 - - 4,973
Other comprehensive income - - - - - 13,373 13,373
Total comprehensive income - - - 4,973 - 13,373 18,346
Issue of share capital 2,195 2,246 - - - - 4,441
Share issue costs - (393) - - - - (393)
Fair value of warrants issued during the year - - - - 73 - 73
Vested nil options bonus awards - - 404 - - - 404
Share-based payments 10 - - - 159 - - 159
At 31 December 2022 18,487 20,134 404 129,004 1,607 8,449 178,085
Consolidated Statement of Cash Flows
For the year ended 31 December 2023
Notes 2023 2022
£'000s £'000s
Cash flow from operating activities
Cash flow from operations (1,403) (3,928)
Interest received 42 13
Tax paid (134) (7)
Net cash flow from operating activities (1,495) (3,922)
Cash flow from investing activities
Capital expenditure (1,600) (1,519)
Exploration expenditure (660) (399)
Prepayment for Phase 1 the mLNG project (820) (4,272)
Receipt from interest in Badile land 134 -
Net cash flow from investing activities (2,946) (6,190)
Cash flow from financing activities
Net proceeds from equity issue - 3,680
Net proceeds from borrowings 4,442 7,233
Interest payments 11 (441) (431)
Lease payments (180) (58)
Net cash flow from financing activities 3,821 10,424
Net (decrease)/increase in cash and cash equivalents (620) 312
Net foreign exchange difference (225) 636
Cash and cash equivalents at the beginning of the year 3,861 2,913
Cash and cash equivalents at the end of the year 3,016 3,861
Notes to Statement of Cash Flows
2023 2022
£'000s £'000s
Cash flow from operations reconciliation
(Loss)/profit for the year before tax (7,152) 6,575
Finance revenue (42) (13)
Decrease/(increase) in drilling inventories 48 (92)
Decrease/(increase) in receivables and prepayments 688 (2,071)
(Decrease)/increase in accruals and short-term payables (343) 190
Reversal of impairment on development assets and exploration costs - (5,678)
Impairment of interest in Badile land 125 107
Depreciation 194 101
Share-based payments charge and remuneration paid in shares 239 969
Finance expense and exchange adjustments 4,840 (4,016)
Cash flow from operations (1,403) (3,928)
Non-cash transactions during the period included the issue of 99,999,994
ordinary shares, following partial conversion of the convertible bond.
11,404,221 ordinary shares were issued to third parties in settlement of
approximately £0.2 million due for services provided and 3,015,790 ordinary
shares were issued following the exercise of nil cost options by a member of
staff. The Group has provided collateral of $1.75 million (2022: $2.5 million)
to the Moroccan Ministry of Petroleum to guarantee the Group's minimum work
programme obligations for the Anoual, and Sidi Mokhtar permits. The cash is
held in a bank account under the control of the Company and, as the Group
expects the funds to be released as soon as the commitment is fulfilled, on
this basis, the amount remains included within cash and cash equivalents.
Notes to the Financial Statements for the year ended 31 December 2023
1. Accounting Policies
Sound Energy plc is a public limited Company registered and domiciled in
England and Wales under the Companies Act 2006. The Company's registered
office is 20 St Dunstan's Hill, London EC3R 8HL.
The consolidated financial information contained within this announcement does
not constitute statutory accounts for the year ended 31 December 2023 within
the meaning of Section 434 of the Companies Act 2006 but is derived from those
audited accounts. The auditors reported on those accounts and their report was
unqualified and did not contain any statement under section 498(2) or section
498(3) of the Companies Act 2006. The statutory accounts for the year ended 31
December 2023 will be delivered to the Registrar of Companies in due course.
The annual report and statutory accounts will be sent to shareholders and will
be made available to the public on the Company's website:
www.soundenergyplc.com or, upon request, copies may be obtained from the
Company Secretary at the registered office of Sound Energy plc 20 St Dunstan's
Hill, London, EC3R 8HL.
(a) Basis of preparation
The financial statements of the Group and its parent Company have been
prepared in accordance with UK-adopted International Accounting Standards.
The consolidated financial statements have been prepared under the historical
cost convention, except to the extent that the following policies require fair
value adjustments. The Group and its parent Company's financial statements are
presented in sterling (£) and all values are rounded to the nearest thousand
(£'000) except when otherwise indicated.
The principal accounting policies set out below have been consistently applied
to all financial reporting periods presented in these consolidated financial
statements and by all Group entities, unless otherwise stated. All amounts
classified as current are expected to be settled/recovered in less than 12
months unless otherwise stated in the notes to these financial statements. The
Group and its parent Company's financial statements for the year ended 31
December 2023 were authorised for issue by the Board of Directors on 23 April
2024.
Going concern
As at 31 March 2024, the Group's cash balance was £2.5 million (including
approximately £0.8 million held as collateral for a bank guarantee against
permit commitments). The Directors have reviewed the Company's cash flow
forecasts for the next 12-month period to April 2025. The Company's forecasts
and projections indicate that, to fulfil its other obligations, primarily the
Company's exploration permits commitments, the Company will require
additional funding. The Company commenced its Phase 1 of the Concession upon
taking FID on the micro-LNG project, and has continued to actively monitor the
project schedule, costs and financing. The Company is progressing towards a
final investment decision for Phase 2, pipeline led development of the
Concession and received a conditional offer for partial financing of the Phase
2 development and continue to work to satisfy the conditions precedents and
other elements necessary for the taking of Phase 2 FID.
The need for additional financing indicates the existence of a material
uncertainty, which may cast significant doubt about the Group and Company's
ability to continue as a going concern. These financial statements do not
include adjustments that would be required if the Company was unable to
continue as a going concern. The Company continues to exercise rigorous cost
control to conserve cash resources, and the Directors believe that there are
several corporate funding options available to the Company, including a
farm-down on some of the Company's permits, and various debt funding options.
Furthermore, based upon the Company's proven track record in raising capital
in the London equity market, and based on feedback from ongoing financing
discussions, the Directors have a reasonable expectation that the Company and
the Group will be able to secure the funding required to continue in
operational existence for the foreseeable future, and have made a judgement
that the Group will continue to realise its assets and discharge its
liabilities in the normal course of business. Accordingly, the Directors have
adopted the going concern basis in preparing the consolidated financial
statements.
Use of estimates and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, as well as the disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. The Group based its assumptions and
estimates on parameters available when the consolidated financial statements
were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances
arising that are beyond the control of the Group. Such changes are reflected
in the assumptions when they occur.
Estimation and assumptions
The key sources of estimation uncertainty, that have a significant risk of
causing material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are the impairment of intangible exploration
and evaluation ("E&E") assets, impairment of development and production
assets, investments, warrants, and the estimation of share-based payment
costs.
E&E, development and production assets
When considering whether E&E assets are impaired, the Group first
considers the IFRS 6 indicators set out in note 7. The making of this
assessment involves judgement concerning the Group's future plans and current
technical and legal assessments. In considering whether development and
production assets are impaired, the Group considers various impairment
indicators and whether any of these indicates existence of an impairment. If
those indicators are met, a full impairment test is performed.
Impairment test
When value in use calculations are undertaken, management estimates the
expected future cash flows from the asset and chooses a suitable discount rate
to calculate the present value of those cash flows. In undertaking these value
in use calculations, management is required to make use of estimates and
assumptions similar to those described in the treatment of E&E assets
above. Further details are given in note 7.
At 31 December 2023, the Company's market capitalisation was £14.0 million,
which is below the Group and Company's net asset value of £166.8 million and
£156.8 million, respectively. Management considers this to be a possible
indication of impairment of the Group and Company's assets. A significant
portion of the Group's net assets is the carrying value of the development and
producing assets and disclosures relating to management's assessment of
impairment for these assets and the investment in subsidiaries are included in
note 6, on the basis that the recoverability of the investment in subsidiaries
in the Company balance sheet is linked to the value of the development and
producing assets as, ultimately, the cash flows these generate will determine
the subsidiaries' ability to pay returns to the Company.
Impairment exists when the carrying value of an asset or cash generating unit
exceeds its recoverable amount, which is the higher of its fair value less
costs of disposal and its value in use. The fair value less costs of disposal
calculation is based on available data from binding sales transactions,
conducted at arm's length, for similar assets or observable market prices less
incremental costs of disposing of the asset. The fair value is estimated using
a discounted cash flow model ('DCF model''). The cash flows are derived from
the latest budgets, expenditure and price data in signed gas sales agreements
(for contracted gas sales volumes), market based price data (for uncontracted
gas sales volumes), project contract or agreed heads of terms, and the latest
management plans on project phasing. The recoverable amount is sensitive to
the discount rate and gas price assumption as well as the Brent price
assumption that impacts condensate sales pricing in the DCF model. The
impairment test indicated that there was sufficient headroom and therefore no
impairment charge was recognized as at 31 December 2023. The key assumptions
used to determine the recoverable amount of the development and production
assets are disclosed in note 6.
Share-based payments
The estimation of share-based payment costs requires the selection of an
appropriate valuation model, consideration as to the inputs necessary for the
valuation model chosen, and the estimation of the number of awards that will
ultimately vest, inputs for which arise from judgements relating to the
continuing participation of key employees (note 10).
Fair value of warrants
Significant judgement and estimation is also required in the determination of
the fair value of warrants.
Fair value of convertible bonds
The calculation of fair value on convertible bonds requires estimation of the
discount rate to use when discounting outstanding principal and interest
amounts at each reporting date. The discount rate is a significant input into
the discounted cashflow model used by the Company to estimate the fair value
of the convertible bonds.
Taxation
The Group seeks professional tax and legal advice to make a judgement on
application of tax rules on underlying transactions within the Group or with
third parties. Tax treatment adopted by the Group may be challenged by tax
authorities. The Group had tax cases where Morocco Tax Authority had claimed
taxes relating to the Group historical permits transfers and intragroup
transactions. During 2023, a settlement on the tax cases was agreed upon as
disclosed in note 4.
Intercompany loans
The Company has funded its subsidiaries through non-interest bearing loans
payable on demand. Given that the Company has no intention to call in the
loans in the foreseeable future, the loans are classified as non-current
investments. Other sources of estimate concern IFRS 9 on intercompany loans at
parent Company level.
(b) Investment in subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies, is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. Such power, generally but not
exclusively, accompanies a shareholding of more than one-half of the
voting rights. The Group uses the purchase method of accounting for the
acquisition of subsidiaries. The cost of an acquisition is measured as the
fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange. Costs of acquisition are expensed
during the period they are incurred.
(c) Foreign currency translation
The functional currency of the Company is GBP sterling. The Group also has
subsidiaries whose functional currencies are US dollar.
Transactions in foreign currencies are initially recorded in the functional
currency by applying the spot exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of exchange ruling at the
balance sheet date. All differences are taken to the income statement.
On consolidation, the assets and liabilities of foreign operations are
translated into sterling at the rate of exchange ruling at the balance sheet
date. Income and expenses are translated at weighted average exchange rates
for the year unless this is not a reasonable approximation of the rates on the
transaction dates. The resulting exchange differences are recognised in other
comprehensive income and held in a separate component of equity. On disposal
of a foreign entity, the deferred cumulative amount recognised in equity
relating to that foreign operation is recognised in the income statement.
2. Segment information
The Group categorises its operations into three business segments based on
corporate, exploration and appraisal, and development and production.
In the year ended 31 December 2023, the Group's development, exploration and
appraisal activities were primarily carried out in Morocco.
The Group's reportable segments are based on internal reports about components
of the Group, which are regularly reviewed and used by the Board of Directors,
being the Chief Operating Decision Maker ("CODM"), for strategic decision
making and resource allocation, in order to allocate resources to the segment
and to assess its performance.
Details regarding each of the operations of each reportable segments are
included in the following tables.
Segment results for the year ended 31 December 2023:
Corporate £'000s Development and production £'000s Exploration and appraisal £'000s Total
£'000s
Other income - - 42 42
Impairment of development assets and exploration costs - - - -
Administration expenses (2,396) - - (2,396)
Operating (loss)/profit segment result (2,396) - 42 (2,354)
Interest receivable 42 - - 42
Finance expense and exchange adjustments (4,840) - - (4,840)
(Loss)/profit for the period before taxation from continuing operations (7,194) - 42 (7,152)
The segments assets and liabilities at 31 December 2023 is as follows:
Corporate £'000s Development and production £'000s Exploration and appraisal £'000s Total
£'000s
Non-current assets 137 162,908 34,976 198,021
Current assets 1,959 2,897 1,341 6,197
Liabilities attributable to continuing operations (23,551) (11,368) (2,591) (37,510)
The geographical split of non-current assets is as follows:
UK Morocco £'000s
£'000s
Development and production assets - 157,816
Fixtures, fittings and office equipment 4 6
Right of use assets 101 -
Software 18 8
Prepayments - 5,092
Exploration and evaluation assets - 34,976
Total 123 197,898
Segment results for the year ended 31 December 2022 were as follows:
Corporate £'000s Development and production £'000s Exploration and appraisal £'000s Total
£'000s
Other income - - 43 43
Reversal of impairment of development assets and exploration costs - 5,678 - 5,678
Administration expenses (3,175) - - (3,175)
Operating profit/(loss) segment result (3,175) 5,678 43 2,546
Interest receivable 13 - - 13
Finance costs and exchange adjustments 4,016 - - 4,016
Profit/(loss) for the period before taxation from continuing operations 854 5,678 43 6,575
The segments assets and liabilities at 31 December 2022 were as follows:
Corporate £'000s Development and production £'000s Exploration and appraisal £'000s Total
£'000s
Non-current assets 944 167,346 35,988 204,278
Current assets 4,224 2,141 1,413 7,778
Liabilities attributable to continuing operations (23,024) (8,301) (2,646) (33,971)
The geographical split of non-current assets were as follows:
Europe Morocco £'000s
£'000s
Development and production assets - 163,074
Interest in Badile land 637 -
Fixtures, fittings and office equipment 5 9
Right of use assets 274 -
Software - 19
Prepayments - 4,272
Exploration and evaluation assets - 35,988
Total 916 203,362
4. Taxation
(a) Analysis of the tax charge for the year:
2023 2022
£'000s £'000s
Current tax
UK corporation tax - -
Adjustment to tax expense in respect of prior years (8) (7)
Tax cases settlement (overseas tax) - (1,595)
Total current tax (charge)/credit (8) (1,602)
Deferred tax credit arising in the current year - -
Total tax (charge)/credit (8) (1,602)
(b) Reconciliation of tax charge
2023 2022
£'000s £'000s
(Loss)/profit before tax (7,152) 6,575
Tax (charge)/credit charged at UK corporation tax rate of 23.5% (2022: 19%) 1,681 (1,249)
Tax effect of:
Expenses not deductible for tax purposes (82) (49)
Settlement of tax cases - (1,595)
Tax losses not recognised (1,264) 1,276
Change in UK tax rate (322) -
Differences in overseas tax rates (21) 15
Total tax (charge)/credit (8) (1,602)
Deferred tax assets have not been recognised in respect of tax losses
available due to the uncertainty of the utilisation of those assets.
Unrecognised tax losses as at 31 December 2023 were estimated to be
approximately £14.8 million (2022: £8.8 million).
The Group had tax cases where Morocco Tax Authority had claimed taxes relating
to the Group historical permits transfers and intragroup transactions. In May
2023, the Company entered into a settlement agreement with Morocco Tax
Authority on a phased payment schedule back ended over 6 years. The amount
paid on entry into the settlement agreement was approximately £126k (after
taking account of exchange rate movements). The discounted non-current
liability amounted to approximately £1.6 million as at 31 December 2023.
The table below sets out the current and non-current tax liability and the
movement during the year.
2023 2022
£'000s £'000s
Amounts due within one year 199 126
Amounts due after more than one year 1,410 1,505
1,609 1,631
The movement during the year is as below:
As at 1 January 1,631 -
Tax settlement - 1,631
Unwinding of discount 101 -
Tax payment (126) -
Exchange adjustment 3 -
As at 31 December 1,609 1,631
5. (Loss)/profit per share
The calculation of basic profit/(loss) per ordinary share is based on the
profit/(loss) after tax and on the weighted average number of ordinary shares
in issue during the year. The calculation of diluted profit/(loss) per share
is based on profit/(loss) after tax on the weighted average number of ordinary
shares in issue, plus the weighted average number of shares that would be
issued if dilutive options and warrants were converted into shares. Basic and
diluted profit/(loss) per share is calculated as follows:
2023 2022
£'000s £'000s
Loss for the year after taxation (7,160) 4,973
2023 2022
Million Million
Basic weighted average shares in issue 1,882 1,752
Dilutive potential ordinary shares - 7
Diluted weighted average number of shares 1,882 1,759
2023 2022
Pence Pence
Basic (loss)/profit per share (0.38) 0.28
Diluted (loss)/profit per share (0.38) 0.28
Due to loss during the year, the effect of the potential dilutive shares on
the earnings per share would have been anti-dilutive and therefore were not
included in the calculation of the dilutive earnings per share. In 2022, LTIP
options awards and warrants totalling 138.8 million were all anti-dilutive and
were not included in the calculation of diluted weighted average number of
shares.
6. Property, Plant and Equipment
Development and production assets Fixtures, fittings and office equipment Right-of-use assets 2023
£'000s £'000s £'000s £'000s
Cost
At 1 January 2023 163,074 656 331 164,061
Additions 2,737 2 - 2,739
Exchange adjustments (7,995) (14) - (8,009)
At 31 December 2023 157,816 644 331 158,791
Impairment and depreciation
At 1 January 2023 - 642 57 699
(Reversal)/charge for period - 4 173 177
Exchange adjustments - (12) - (12)
At 31 December 2023 - 634 230 864
Net book amount 157,816 10 101 157,927
Development and production assets Fixtures, fittings and office equipment Right-of-use assets 2022
£'000s £'000s £'000s £'000s
Cost
At 1 January 2022 144,735 626 - 145,361
Additions 1,597 4 331 1,932
Disposal - (3) - (3)
Exchange adjustments 16,742 29 - 16,771
At 31 December 2022 163,074 656 331 164,061
Impairment and depreciation
At 1 January 2022 5,107 588 - 5,695
(Reversal)/charge for period (5,678) 30 57 (5,591)
Disposal - (2) - (2)
Exchange adjustments 571 26 - 597
At 31 December 2022 - 642 57 699
Net book amount 163,074 14 274 163,362
Change in estimate
The discount rate and forecast gas price are significant estimates used by the
Company to determine the recoverable amount when undertaking impairment
testing of the Company's Tendrara Production Concession. The Company has taken
account of changes in market conditions and certain corporate parameters
during the period and accordingly revised the discount rate to 11.25% as at 31
December 2023 from 12.5% at 31 December 2022. The Company at 31 December 2022
used an average of forecast gas price referenced to the Title Transfer
Facility (''TTF'') in the Netherlands and the UK National Balancing Point
(''NBP'') for pricing the forecasted uncontracted gas sales volumes for
impairment testing. At 31 December 2023 the Company has used average TTF
prices only since future gas sales contracts the Company is likely to enter
into are expected to be priced in reference to TTF and in addition, the
Company received an indicative non-binding gas pricing term sheet referenced
to TTF. For the impairment testing, the average TTF gas price projections,
from leading independent industry consultants, used for the period to 2032
(and increasing at 2% inflationary rate thereafter) was 14.39 US$/MMBtu. The
average TTF and NBP gas price projections for the period to 2032 was 14.45
US$/MMBtu.
The Company's market capitalisation was £14.0 million as at 31 December 2023,
which is below the Group's net assets of £166.8 million and the Company's net
assets of £156.8 million. An impairment indicator therefore exists. The
Company is pursuing a micro-LNG development (phase 1) followed by full field
development (phase 2) of its TE-5 Horst concession at the Group's Tendrara
permit and an impairment test was undertaken on the carrying amount of the
Tendrara Production Concession. The Company used a DCF model ('Model'') to
calculate the recoverable amount for the Company's share of the Tendrara
Production Concession. The Model has an NPV of $214.3 million (£168.3
million) which when compared to the carrying amount of the development
expenditure of £157.8 million indicated that no impairment was required.
The Model covers the period 2024 to 2049. The input to the Model included a
discount rate of 11.25% and phase 1 gas price of $8.0 per mmbtu rising to the
phase 1 gas price ceiling of $8.346 per mmbtu, indexed using a combination of
the TTF and United States Henry Hub benchmark indexes. Phase 2 gas price used
is a fixed price for the first 10 years for annual volume of 0.3 bcm and the
price for uncontracted volumes referenced to an average forecast price of TTF
and NBP with price range of US$12.10 per mmBTU in 2024 and $14.68 per mmBTU in
2033, increasing at 2% per annum thereafter, consistent with published
sources. The base gas prices used are consistent with LNG GSA for the Phase 1
development and Phase 2 gas price is based on GSA signed with ONEE for the
first ten years. The production volumes data was based on the 2018 CPR for
Tendrara TE-5 Horst.
The well cost assumptions used were based on management's past experience;
mLNG plant leasing costs were based on contract with the micro-LNG plant
contractor; and pipeline related costs were based on Head of Terms entered
into with a consortium of partners that had offered to provide a build, own,
operate and transfer (''BOOT'') solution for the Phase 2 of the development.
The Company's latest forecast covered the period to 2027, but the model
extends to 2049, as that is the period required to produce the gas resources
at Tendrara Production Concession and the economic cut-off. A change in the
discount rate by 1% has a $23.2 million (£18.3 million) impact on the NPV and
change in average TTF and NBP forecast gas price by $1/bbl has a $11.4 million
(£9.0 million) impact on the NPV.
7. Intangibles
Software £'000s Exploration & Evaluation Assets 2023
£'000s £'000s
Cost
At 1 January 2023 375 46,594 46,969
Additions 22 729 751
Exchange adjustments (15) (1,741) (1,756)
At 31 December 2023 382 45,582 45,964
Impairment and depreciation
At the start of the year 356 10,606 10,962
Charge for the year 17 - 17
Exchange adjustments (17) - (17)
At 31 December 2023 356 10,606 10,962
Net book amount 26 34,976 35,002
Software £'000s Exploration & Evaluation Assets 2022
£'000s £'000s
Cost
At 1 January 2022 352 42,204 42,556
Additions 23 813 836
Exchange adjustments - 3,577 3,577
At 31 December 2022 375 46,594 46,969
Impairment and depreciation
At the start of the year 352 10,606 10,958
Charge for the year 14 - 14
Exchange adjustments (10) - (10)
At 31 December 2022 356 10,606 10,962
Net book amount 19 35,988 36,007
Exploration and evaluation assets
Details regarding the geography of the Group's E&E assets is contained in
note 2. The Directors assess for impairment when facts and circumstances
suggest that the carrying amount of an E&E asset may exceed its
recoverable amount. In making this assessment, the Directors have regard to
the facts and circumstances noted in IFRS 6 paragraph 20. In performing their
assessment of each of these factors, at 31 December 2023, the Directors have:
a. reviewed the time period that the Group has the right to explore the
area and noted no instances of expiration, or permits that are expected to
expire in the near future and not be renewed;
b. determined that further E&E expenditure is either budgeted or
planned for all permits;
c. not decided to discontinue exploration activity due to there being a
lack of quantifiable mineral resource; and
d. not identified any instances where sufficient data exists to indicate
that there are permits where the E&E spend is unlikely to be recovered
from successful development or sale.
On the basis of the above assessment, the Directors are not aware of any facts
or circumstances that would suggest the carrying amount of the E&E asset
may exceed its recoverable amount. During the year, the Group had capitalised
interest costs of approximately £0.3 million (2022: £0.1 million).
8. Prepayments
Non-current prepayment of £5.1 million (2022: £4.3 million) and current
prepayment of £1.3 million (2022; nil) relates to activities of the Company's
Phase 1 mLNG Project in the Concession. Non-current prepayment of £5.1
million (2022: £4.3 million) and current prepayment of £1.3 million (2022;
nil) relates to activities of the Company's Phase 1 mLNG Project in the
Concession.
9. Capital and Reserves
2023 £'000s 2022 £'000s
Number Number
of shares of shares
Ordinary shares - 1p 1,963,122,679 19,631 1,848,702,674 18,487
2023 2022
Number Number
of shares of shares
At 1 January 1,848,702,674 1,629,183,907
Issued during the year for cash - 200,000,000
Non-cash share issue 114,420,005 19,518,767
At 31 December 1,963,122,679 1,848,702,674
The share issues described below were all non-cash transactions.
Share issues
In June 2023, the Company issued 11,404,221 shares to third parties in
settlement of services provided to the Company amounting to approximately
£0.2 million.
In July 2023, the Company issued 3,015,790 shares following the exercise of
nil cost options by a member of staff.
In August 2023, the Company issued 22,222,221 shares following a partial
conversion amounting to £500,000 by the holders of the Company's £2.5
million convertible bonds (''the convertible bonds'').
In September 2023, the Company issued 22,222,221 shares following a partial
conversion amounting to £500,000 by the holders of the convertible bonds.
In October 2023, the Company issued 22,222,221 shares following a partial
conversion amounting to £500,000 by the holders of the convertible bonds.
In November 2023, the Company issued 22,222,221 shares following a partial
conversion amounting to £500,000 by the holders of the convertible bonds.
In December 2023, the Company issued 11,111,110 shares following a partial
conversion amounting to £250,000 by the holders of the convertible bonds.
Reserves
In 2018, the Company sought, and was granted, a court order approving a
capital reduction following the cancellation of the share premium account.
This resulted in the transfer of £277.7 million to distributable reserves.
10. Share based payments
2023 2022
£'000s £'000s
Expense arising from equity settled LTIP 239 159
Bonuses paid in shares and nil cost options - 810
239 969
LTIP Awards
In 2022, the Company adopted a new long term incentive plan (the ''LTIP''),
designed to reward, incentivise and retain the Company's Executives and senior
management to deliver sustainable growth for shareholders.
The maximum number of awards that may be issued under the LTIP from time to
time will be limited to 3% of the Company's issued share capital on the date
of grant of awards, and, together, with all other options issued by the
Company under any employee share scheme from time to time, will not exceed an
aggregate of 15% of the Company's issued ordinary share capital in a rolling
ten year period. Awards granted under the LTIP will, generally, be subject to
a three-year vesting period from the date of grant, the number of awards,
ultimately, vesting dependent on the grantee's continued service and on
additional performance conditions set by the Remuneration Committee.
The Company issued 48,875,515 options to subscribe for new ordinary shares
under the LTIP, out of which 31,769,085 options were allocated to qualifying
Executives and senior management and the balance of 17,106,430 was retained
for future allocations. The LTIP awards are exercisable at 2.4 pence per share
and expire ten years after the grant.
The fair value of LTIP awards granted was estimated at the date of grant using
a Black-Scholes model, taking account of the terms and conditions upon which,
the awards were granted.
The expected life of the LTIP award is based on the maximum award period and
is not necessarily indicative of exercise patterns that may occur. Expected
volatility was determined by reference to the historical volatility of the
Company's share price over a five-year period. The expected volatility
reflects the assumption that the historical volatility is indicative of future
trends, which may not necessarily be the actual outcome. The valuation assumed
an expected life of ten years and used the following additional assumptions
for the LTIP awards granted during the year:
(i) Share price on grant date: n/a (2022: 2.53 pence)
(ii) Average risk free interest rate: n/a (2022: 1.79%)
(iii) Expected volatility: n/a (2022: 99.11%)
(iv) Assumed forfeitures: n/a (2022: 0%)
(v) Expected dividends: n/a (2022: nil)
No other features of the LTIP awards were incorporated into the measurement of
fair value. The fair value of the LTIP award granted was n/a (2022: 2.26
pence). The remaining contractual life of the LTIP awards outstanding at 31
December 2023 is 8.3 years. If all the 31,769,085 LTIP awards were exercisable
immediately, new ordinary shares equal to approximately 1.6% (2022: 1.7%) of
the shares currently in issue, would be created.
Share options
All previously outstanding share options expired in 2022.
2023 Weighted average exercise price 2022 Weighted average exercise
Number Pence Number price
Pence
Share options outstanding at the start of the year - - 5,450,000 66.47
Share options granted - - - -
Share options expired - - (5,450,000) 22.29
Share options exercised - - - -
Share options outstanding at the end of the year - - - -
All RSU awards vested or expired in 2022.
2023 2022
Number Number
RSU awards outstanding at the start of the year - 1,165,400
Granted during the year - -
Expired during the year - (108,189)
Vested during the year - (1,057,211)
RSU awards outstanding at the end of the year - -
The weighted average share price at the date of vesting of the RSU awards was
n/a (2022: 2.5 pence).
Warrants
As at 31 December 2023, the Company had the following outstanding warrants to
subscribe to the Company's ordinary shares.
2023 Exercise price Expiry date Number at Granted Expired Number at
Pence 1 January /(exercised) 31 December
2023 Warrants 2.25 13 June 2026 - 40,476,190 - 40,476,190
2022 Warrants 2.75 13 June 2025 7,056,875 - - 7,056,875
2021 Warrants 2.75 21 December 2027 99,999,936 - - 99,999,936
107,056,811 40,476,190 - 147,533,001
2022 Exercise Expiry date Number at Granted Expired Number at
price 1 January /(exercised) 31 December
Pence
2022 Warrants 2.75 13 June 2025 - 7,056,875 - 7,056,875
2021 Warrants 2.75 21 December 2027 99,999,936 - - 99,999,936
99,999,936 7,056,875 - 107,056,811
11. Loans and borrowings
Secured Loan note- Afriquia Convertible Bonds
Bonds £'000s £'000s 2023
£'000s Total
£'000s
Current liabilities
At 1 January 1,121 - - 1,121
Reclassification to non-current liability (1,121) - - (1,121)
At 31 December - - - -
Non-current liabilities
At 1 January 20,855 8,213 - 29,068
Gross amount of loan drawdown during the year - 2,017 2,500 4,517
Amortised finance charges 890 532 - 1,422
Unwinding of discount - - 137 137
Interest payments (441) - - (441)
Gross equity component at date of issue - - (562) (562)
Debt conversion to equity - - (1,046) (1,046)
Exchange adjustments (445) (486) - (931)
Reclassification from current liabilities 1,121 - - 1,121
At 31 December 21,980 10,276 1,029 33,285
Secured Loan note- Afriquia Total
bonds £'000s 2022
£'000s £'000s
Current liabilities
At 1 January - - -
Amount converted into ordinary shares of the Company - - -
Fair value of warrants issued - - -
Amortised finance charges - - -
Interest payments - - -
Exchange adjustments - - -
Reclassification from/(to) non-current liability 1,121 - 1,121
At 31 December 1,121 - 1,121
Non-current liabilities
At 1 January 20,039 - 20,039
Drawdown during the year - 7,233 7,233
Amortised finance charges 1,245 324 1,569
Interest payments (431) - (431)
Exchange adjustments 1,123 656 1,779
Reclassification (to)/from current liabilities (1,121) - (1,121)
At 31 December 20,855 8,213 29,068
The Company has €25.32 million secured bonds (the "Bonds"). The Bonds mature
on 21 December 2027. The outstanding principal amount of the Bonds was
initially expected to partially repaid at a rate of 5% every six months,
commencing on 21 December 2023, but this requirement was removed in early
December 2023. Until maturity, the Bonds bear 2% cash interest paid per annum
and a 3% deferred interest per annum to be paid at redemption. The Company has
the right, at any time until 21 December 2024, to redeem the Bonds in full for
70% of the principal value then outstanding together with any unpaid interest
at the date of redemption. The Company issued to the Bondholders 99,999,936
warrants to subscribe for new ordinary shares in the Company at an exercise
price of 2.75 pence per share. The warrants expire on 21 December 2027. The
Bonds are secured on the issued share capital of Sound Energy Morocco South
Limited. After taking account of the terms of the Bonds, the effective
interest is approximately 6.5%.
The Company has drawn down $12.0 million from the Company's $18.0 million 6%
secured loan note facility with Afriquia Gaz maturing in December 2033 (the
''Loan''). The drawn down principal bears 6% interest per annum payable
quarterly, but deferred and capitalised semi-annually, until the second
anniversary of the issue of Notice to Proceed. Thereafter, principal and
deferred interest will be repayable, annually, in equal installments
commencing December 2028. The Loan is secured on the issued share capital of
Sound Energy Meridja Limited. The weighted effective interest on the drawdowns
made is approximately 6.2%.
In June 2023, the Company issued £2.5 million convertible bonds from a senior
unsecured convertible bond facility of up to £4.0 million. The £2.5 million
Convertible bonds have a fixed conversion price of 2.25 pence per ordinary
share. The term of the Convertible bonds is 5 years from drawdown date, with
interest of 15% per annum payable bi-annually in cash or capitalised to the
principal, at the Company's election.
Other key terms of the Convertible bonds (''Bonds'') are:
1) Issue price and redemption price on maturity is 100% of par value;
2) Early redemption/change of control: callable in cash by the Company at
any time after drawdown or in the event of a change of control of the Company
at 110% of par value together with all unpaid interest. If the Bonds are
redeemed by the Company, the maximum amount of future interest payable by the
Company in respect of any early redemption occurring on or prior to the second
anniversary will be 15% of the Bonds and after second anniversary, 10% of the
Bonds;
3) Convertible into the Company's ordinary shares at the fixed conversion
price. Upon conversion, interest shall be rolled up and paid as if the Bonds
were held to the redemption date, with such interest convertible at the lower
of the applicable fixed conversion price and the average of the 5 daily value
weighted average price calculations selected by the holder out of the 15
trading days prior to the conversion date;
4) The Company issued to Bonds holders 33,333,333 warrants to subscribe
for new ordinary shares in the Company at an exercise price of 2.25 pence per
ordinary share with a term of 3 years.
During the year, the Company issued 99,999,994 new shares following the
conversion of £2,250,000 of the Bonds. The carrying amount of the Bonds is
stated at fair value and is measured using the discounted cashflow method. A
discount rate of 17.7% was used to discount the outstanding principal and
capitalised interest over the outstanding term of the bonds.
Reconciliation of liabilities arising from financing activities
Non-cash changes
2023 1 January 2023 Cash flows £'000s Finance charges £'000s Exchange adjustments £'000s Convertible Bonds non-cash movements 31 December 2023
£'000s £'000s £'000s
Long-term borrowings 30,189 4,001 1,559 (931) (1,533) 33,285
Leases 283 (180) 18 - - 121
Total liabilities from financing activities 30,472 3,821 1,577 (931) (1,533) 33,406
Non-cash changes
2022 1 January 2022 Cash flows £'000s Amortised finance charges £'000s Exchange adjustments £'000s Office lease entry 31 December 2022
£'000s £'000s £'000s
Long-term borrowings 20,039 6,802 1,569 1,779 - 30,189
Leases - (58) 10 - 331 283
Total liabilities from financing activities 20,039 6,744 1,579 1,779 331 30,472
Reconciliation of finance expense
2023 2022
£'000s £'000s
Amortised finance charges 1,422 1,569
Unwinding of discount 256 10
Bond issue costs expensed 601 -
Less capitalised interest (285) (133)
Total finance expense for the year 1,994 1,446
12. Post Balance Sheet events
In March 2014, the Company announced that receipt of conversion notices to
issue 30 million new ordinary shares (''Conversion Shares'') at a conversion
price of 1 pence per share under the terms of an existing Convertible Loan
Note Agreement (the ''Convertible Loan Note''). The Convertible Loan Note has
a remaining principal outstanding of £250,000 and the issue of the Conversion
Shares reduces the interest owing on the converted portion of the Convertible
Loan Notes by £300,000 to £1,387,500. The Conversion Shares were admitted to
trading on AIM in April 2024.
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