REG - Sound Energy PLC - Half-year Report
21/09/2023 07:00
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RNS Number : 1346N Sound Energy PLC 21 September 2023
21 September 2023
SOUND ENERGY PLC
("Sound Energy", "Sound" or the "Company" and together with subsidiaries the
''Group'')
HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2023
Sound Energy, the transition energy company, announces its unaudited half-year
report for the six months ended 30 June 2023.
HIGHLIGHTS
Development of the Moroccan Tendrara Production Concession
· Phase 1 Micro LNG (''mLNG'') project (''Phase 1'')
o Site preparation activities completed by March 2023
o Completed mLNG tank foundations by May 2023
o Currently, extensive activity taking place offsite with our contractor and
its sub-contractors designing and constructing plant equipment for delivery to
site late 2023, early 2024
o Design, planning and procurement of equipment of workover of the wells
TE-6 and TE-7 progressing with rigless activities planned for later 2023and
rig activities scheduled for early 2024.
o Phase 1 LNG delivery scheduled to commence in 2024
· Phase 2 Gas (pipeline) development (''Phase 2'')
o Receipt of binding conditioned term sheet in June 2023, for project
financing from exclusive lead arranger, Attijariwafa Bank, Morocco's largest
bank
Corporate
· In June 2023 entered into an exclusivity period and 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
· We have expressed our condolences to all those affected by the
Morocco Earthquake of 8th September, and we have offered and given our support
in country and continue to do so. As previously announced to the market at the
time, our Sidi Moktar well assets are located some 100 kilometres to the
northwest of the earthquake epicentre within our Sidi Moktar Onshore
exploration permits, these have not been impacted by the earthquake in any
way. Our operations and site development work at Tendrara Concession, Anoual
and Grand Tendrara exploration permits some 600 kilometres away are
unaffected.
Financial
· Drawdown of £2.5 million of up to £4.0 million senior unsecured
convertible bond instrument in June 2023
· Full and final settlement of its tax disputes with the Moroccan
tax authorities - phased payment schedule of approximately US$2.5 million as a
full and final settlement against a claim of approximately US$24.0 million
· As at 31 August 2023, the Group had unaudited cash and short-term
deposits of approximately £4.0 million (£1.4 million held as collateral for
a bank guarantee against licence commitments)
· Post period end receipt of Tendrara Concession receivable of
approximately £2.3 million
Graham Lyon, Executive Chairman said:
''I am grateful for continued support of all our shareholders and can say that
the first half of 2023 saw significant advances preparing the Company for
revenue generation. Significantly, we have laid out a funding plan for Phase
2; have made steady progress on Phase 1 with mLNG tank construction and tank
site preparation, well preparation and design engineering; have identified a
potential partner to enter the Tendrara area to work alongside us; removed the
tax claim overhang; brought in new bridge funding and collected the
receivables. All in all, a busy first half of the year.
There is much to do in closing and completing on these various initiatives and
in positioning the Company for production and for further growth. As our key
project in Morocco is considered of strategic importance in the country all
efforts must be placed in ensuring a safe and efficient execution of our
business plan within the resources available.
I would like to thank the Ministries in Morocco and ONHYM our state partner
for their continued co-operation and increased support.''
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 Securities - Nominated Adviser Tel: 44 (0)20 7397 8900
Ben Jeynes
Peter Lynch
SP Angel Corporate Finance LLP- Broker Tel:44 (Tel:44) (0) 7789 865 095
Richard Hail
Gneiss Energy Limited- Financial Adviser Tel:44 (Tel:44) (0)20 3983 9263
Jon Fitzpatrick
Paul Weidman
Doug Rycroft
Tel:44 (Tel:44) (0) 7789 865 095
Gneiss Energy Limited- Financial Adviser
Jon Fitzpatrick
Paul Weidman
Doug Rycroft
Tel:44 (Tel:44) (0)20 3983 9263
The information contained within this announcement is deemed by the Company to
constitute inside information pursuant to Article 7 of EU Regulation 596/2014
as it forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 as amended. Upon the publication of this announcement
via a Regulatory Information Service, this inside information is now
considered to be in the public domain.
STATEMENT FROM THE EXECUTIVE CHAIRMAN
Continuing to execute on our strategy to deliver revenue generation
Our strategy of the phased development of the Tendrara gas discovery is well
defined and whilst the economic and geo-political environment continued to
present challenges, the Company continues to make progress towards revenue
generation.
Phase 1 Tendrara Micro LNG Project (mLNG)
Post the completion of site preparation in March 2023, the Company finalised
the main civil works including the mLNG tank foundations by May 2023.
Additionally, activities such as well head inspection and servicing tool
fabrication, flowlines concept selection, engineering and owners engineering
support have been ongoing and are well advanced.
Currently, there is extensive activity taking place offsite with our
contractor Italfluid Geoenergy S.r.l and its sub-contractors designing and
constructing key plant equipment for delivery to site in early 2024. In
addition to Italfluid's project scope of work, Sound Energy is to undertake
well head and flow line preparation, including workovers of TE-6 and TE-7.
Afriquia Gaz S.A is to procure and put in place the LNG transportation
trucking, local storage and regasification facilities. Once on site, the
processing and liquefaction equipment will be commissioned and integrated with
the wells and trucking systems. Whilst the mLNG storage tank fabric has been
manufactured, there has been some supply chain disruption leading to later
than planned delivery to site which remains on the critical path. Despite
this, the Company remains committed to commencing production in 2024.
Phase 2 Tendrara Processing and Pipeline Project
Progress continued to be made with the Phase 2 development project in 2023.
Crucially, significant progress has been made regarding Project funding with
Attijariwafa Bank, Morocco's largest bank, as exclusive lead arranger of a
senior debt financing issuing a binding conditioned term sheet. The bank
completed legal and technical due diligence in respect of the proposed
financing in March, and in June made a conditioned offer for a maximum
financing of MAD 2.365 billion (approximately US$237 million), proposed to be
100% underwritten by the bank, and subject to certain conditions being met
such as Governmental approvals, Gas Sales agreement amendments, further
engineering and Contractor contracts being in place.
Corporate
Following the commencement in 2022 of a process to secure participation of a
strategic partner, in June the Company entered into a period of exclusivity
and non-binding term sheet with Calvalley Petroleum (Cyprus) Limited
("Calvalley") for a partial divestment of a net 40% working interest in the
Tendrara Exploitation Concession and the Grand Tendrara Exploration Permit
which result in, subject to agreement of definitive transaction documentation:
· Funding of the first US$48 million of Sound Energy and
Calvalley's Phase 2 equity funded development costs by Calvalley, subject to
final investment decision
· Funding of 100% of the TE-4 Horst well costs by Calvalley up to a
cap of US$7 million
· Funding of 40% share of Phase 1 costs, including back costs net
to Calvalley of approximately US$8 million (through to July 2023)
· Advancement to Sound Energy of additional Phase 1 and Phase 2
costs, if necessary, and at the Company's election, repayable out of future
revenue.
Post the period, definitive documents are being negotiated with the aim to
conclude the transaction in 2023.
The combination of closing the transactions with Calvalley and Attijariwafa
Bank will allow the Company to take the Final Investment decision and begin
activities to construct the much-needed pipeline infrastructure at Tendrara.
In June the Company received court papers confirming the withdrawal of cases
between the Company and the Moroccan Tax authority for matters with respect to
claims against Sound Energy Morocco East and Sound Energy Morocco SARL AU.
In June the Company raised up to £4.0 million by way of a senior unsecured
convertible bond instrument. The proceeds will, if fully drawn, provide funds
for the Company to continue to execute its Phase 1 development of the Tendrara
Production Concession and bridge group working capital liquidity ahead of
receipt of a receivable as disclosed in the year end results and/or receipt of
Phase 1 back costs from Calvalley if a partial divestment is ultimately
completed. The term of the Convertible Notes is five years from draw down
date, with interest of 15% per annum, payable bi-annually in cash or
capitalised to the principal, at the Company's election. Post the period the
Company announced a partial conversion of the Convertible Loan Note.
Subject to the draw down in full of the Convertible Notes, the Company is now
funded for its near-term working capital requirements until year end 2023.
Board Changes
In May, Mr Marco Fumagalli announced that he would be stepping down in June as
a Non-Executive Director and former Acting Chairman of the company in order to
pursue other business opportunities.
In June, Sound appointed Mr Simon Ashby-Rudd to the Board as Independent
Non-Executive Director. Mr Ashby-Rudd is an international energy banking
specialist with more than 35 years of experience.
I thank Marco for his contribution over the years and look forward to working
with Mr Ashby-Rudd going forward.
Graham Lyon
Chairman (Executive)
OPERATIONS REVIEW
Tendrara Development: Micro LNG
Sound Energy is pursuing the Field Development Plan underpinning the
Concession centred around the TE-5 Horst gas discovery. The development is
progressing in two phases. Phase 1, targeting industrial consumers, is
intended to prioritise early first cash flows from the Concession via a mLNG
production scheme. The planned Phase 2 development provides gas to power via
state energy power stations. It is centred around the installation of a 120km
gas export pipeline to help fully unlock the gas potential of this region and
lower the cost of development for future discoveries. Both phases address
different markets in Morocco; the industrial energy user and the state power
producer, both of which have strong and growing demand, with Tendrara gas
playing an important role in supporting Morocco's strategy to lower carbon
emissions.
Progress of the Phase 1 Development Project
This first phase focuses on the existing TE-6 and TE-7 wells of the TE-5
Horst. First gas will be achieved by tying the currently suspended TE-6 and
TE-7 gas wells with flowlines connected to the inlet of a skid mounted,
combined gas processing and mLNG plant.
In 2021, the Company entered into a contract with Italfluid Geoenergy S.r.l.
(''Italfluid'') for the design, construction, commissioning, operation, and
maintenance of the mLNG facilities under a 10-year lease arrangement. The mLNG
facilities, which will also treat, and process raw gas produced from the wells
prior to liquefaction, is the principal part of the surface facilities
required to be built and operated as part of this first phase of development.
LNG will be delivered to on-site storage from the outlet of the mLNG
facilities whereupon Afriquia Gaz will lift and take title for LNG for
transportation, distribution and sale to the Moroccan industrial market.
Groundworks for the construction of the mLNG facility commenced March 2022
following completion of surveying and remediation works to the access road for
the facility. The raised foundation platform for the LNG storage tank, and
pads for the skid mounted units, including the compressor package, have been
completed. The necessary piping and cabling for the firefighting system have
been installed along with fencing and lighting towers. Facilities
engineering will continue to progress throughout the year with major vendors
and Italfluid has placed purchase orders for the gas processing and
liquefaction package which I ready for factor testing now Whilst the mLNG
storage tank fabric has been manufactured, there has been some supply chain
disruption leading to later than planned delivery. Despite this, the Company
remains committed to commencing production in 2024. The Company has also
completed preliminary engineering of the wellhead facilities, flowlines and
manifold system required to bring the raw gas form the TE-6 and TE-7
wellheads. This work was completed by Kellogg Brown and Root Ltd alongside
the flow assurance work. Inspection and routine maintenance of the wellhead
Christmas tree assemblies on TE-6 and TE-7, was successfully completed by
Petroleum Equipment Supply Engineering Company Ltd.
The Company engaged Bedrock Drilling Ltd to design, plan and execute the
necessary work overs of the TE-6 and TE-7 wells in preparation for turning
these appraisal gas wells into long term gas producers. These works are
planned to be undertaken during Q4 2023 and Q1 2024 in preparation for first
gas.
The next key steps to progress the project include final design, engineering,
procurement and installation of the flowline system and associated well head
facility equipment for the gas gathering system to transport the gas from the
well heads to the mLNG plant. Additionally, Italfluid continues to progress
detailed design, place its remaining purchase orders for equipment packages
and bulks, now the site preparation and commence civils foundation works have
been completed.
Italfluid, Sound Energy and Afriquia Gaz are working together, to supply LNG
to the local industry in 2024 in a safe and efficient manner.
Throughout 2023 and early 2024 the equipment packages are to be completed and
tested in the workshops and later be brought from workshops located around the
world, delivered to site via the main ports in Morocco and assembled on site.
Progress of the Phase 2 Development Project
On 13 June the Company announced that it has now entered into exclusivity for
a period of 45 days on the basis of an otherwise non-binding term sheet with
Calvalley, an associated company of Octavia Energy Corporation Limited.
Whilst the exclusivity has expired the Company continues to support the
ongoing due diligence by Calvalley. The terms of the term sheet would provide
Sound Energy, together with the envisaged project debt financing and under
current cost estimates, with the required funds to achieve first gas under its
Phase 2 development plan whilst also funding the costs of drilling the TE-4
Horst appraisal well, with an estimated unrisked exploration potential of 273
Bcf gross Pmean Gas Initially in Place ('GIIP').
In June 2023, following a period of due diligence and further discussions
between the bank, the Company announced that, on behalf of the Tendrara
Production Concession partners, it had received a conditioned offer from
Attijariwafa Bank for a maximum financing of MAD 2.365 billion (c.US$237
million), proposed to be 100% underwritten by the bank, subject to the
conditions precedent to the conditioned offer being satisfied prior to 30
September 2023.
Eastern Morocco
GREATER TENDRARA
- 8 years from September 2018
75% interest Operated Exploration permit 14,411 km(2) acreage
ANOUAL
- 10 years from September 2017
75% interest Operated Exploration permit 8,873 km(2)
Eastern Morocco licences
TENDRARA CONCESSION
- 25 years from September 2018
75% interest Operated Production permit 133.5 km(2) acreage
Exploration
Our Eastern Morocco Licences comprising the Concession together with the
Anoual and Greater Tendrara exploration permits are positioned in a region
containing a potential extension of the established petroleum plays of
Algerian Triassic Province and Saharan Hercynian Platform. The presence of the
key geological elements of the Algerian Trias Argilo-Gréseux Inférieur or
'TAGI' gas play are already proven within the licence areas with the
underlying Palaeozoic, representing a significant upside opportunity to be
explored.
These licences cover a surface area of over 23,000 square kilometres, but so
far only thirteen wells have been drilled, of which six are either located
within or local to the Concession. Exploration drilling beyond the region of
the Concession has been limited and the Group maintains a portfolio of
features identified from previous operators' studies, plus new targets
identified by Sound Energy from the recent geophysical data acquisition,
subsequent processing and ongoing interpretation studies. These features are
internally classified as either prospects, leads or concepts based upon their
level of technical maturity and represent potential future exploration
drilling targets.
Whilst the Company has strategically prioritised its gas monetisation strategy
through the phased development of the TE-5 Horst (Tendrara Production
Concession), the Company has also re-evaluated its extensive exploration
portfolio within the Greater Tendrara and Anoual exploration permits
surrounding the Concession. By integrating the acquired data and learnings
from previous drilling campaigns with acquired and reprocessed seismic
datasets, the Company has high graded several potential near term subsalt
drilling opportunities within the TAGI gas reservoir, the proven reservoir of
the TE-5 Horst gas accumulation.
In August 2022, the Company launched a farm-out process in the underexplored
but highly prospective Tendrara Basin in Eastern Morocco. This opportunity
provides access to high impact, short term exploration opportunities, in a
stable country with very attractive fiscal terms. The Company has high graded
three potential near term sub-salt drilling opportunities where, importantly,
future discoveries have the potential to be commercialised through the planned
infrastructure of Phase 2. The Company's intention is to seek to secure an
ambitious strategic partner for both the ongoing and planned development of
the Concession together with exploration and appraisal of the Eastern Morocco
exploration permits.
Near term drillable targets include the exploration prospect 'M5' located on
the Anoual permits, together with the potential of the structures previously
drilled on the Greater Tendrara permits, SBK-1 and TE-4. Both SBK-1 and TE-4,
drilled in 2000 and 2006 respectively, 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 mechanical
stimulation. TE-4 was tested in 2006 but did not flow gas to the surface.
Mechanical stimulation has proven to be a key technology to commercially
unlock the potential of the TAGI gas reservoir in the TE-5 Horst gas
accumulation and accordingly the Company believes this offers potential to
unlock commerciality elsewhere in the basin.
Southern Morocco
Southern Morocco licence
SIDI MOKTAR ONSHORE
- 8 years remaining
- Effective date 9/04/2018
75% interest Operated Exploration permit 4,712 km(2)
Southern Morocco Exploration
The Sidi Moktar licence is located in the Essaouira Basin, in Southern
Morocco. The licence covers a combined area of 4,712 km2. The Group views the
Sidi Moktar licences as an exciting opportunity to explore high impact
prospectivity within the sub-salt Triassic and Palaeozoic plays in the
underexplored Essaouira Basin in the West of Morocco.
The Sidi Moktar permit hosts a variety of proven plays. The licence host 44
vintage wells drilled between the 1950s and the present. Previous exploration
has been predominantly focused on the shallower post-salt plays. The licence
is adjacent to the ONHYM operated Meskala gas and condensate field. The main
reservoirs in the field are Triassic aged sands, directly analogous to the
deeper exploration plays in the Sidi Moktar licence. The Meskala field and its
associated gas processing facility is linked via a pipeline to a state-owned
phosphate plant, which produces fertiliser both for domestic and export
markets. This pipeline passes across the Sidi Moktar licence. The discovery of
the Meskala field proved the existence of a deeper petroleum system in the
basin. Specifically, Meskala provides evidence that Triassic clastic
reservoirs are effective, proves the existence of the overlying salt seal and
provides support for evidence of charge from deep Palaeozoic source rocks.
Based on work undertaken by Sound Energy, the main focus of future exploration
activity in the licence is expected to be within this deeper play fairway. The
Company believes that the deeper, sub-salt Triassic and Palaeozoic plays may
contain significant prospective resources, in excess of any discovered volumes
in the shallower stratigraphy.
The Company's evaluation of the exploration potential of Sidi Moktar,
following an independent technical review, includes a mapped portfolio of
sub-salt, Triassic and Palaeozoic leads in a variety of hydrocarbon trap
types. Sound Energy is developing a work programme to mature the licence with
specific focus on the deeper, sub-salt plays. The Company believes
additional seismic acquisition and processing is required to mature these
leads into drillable exploration prospects.
Preparations for this seismic acquisition campaign have commenced with the
completion and approval of an EIA in late 2019.
The Company continues to seek to progress a farm out process for this permit,
offering an opportunity to a technically competent partner to acquire a
material position in this large tract of prospective acreage. In parallel,
the Company has engaged in dialogue with a number of seismic acquisition and
processing contractors for potential services to undertake the survey.
Condensed Interim Consolidated Income Statement
Notes Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 Dec 2022
Unaudited £'000s Unaudited Audited
£'000s
£'000s
Other income 4 41 43
(Impairment loss)/reversal of impairment on development assets and exploration 4 (4,213) 5,407 5,678
costs
Gross (loss)/profit (4,209) 5,448 5,721
Administrative expenses (1,247) (2,018) (3,175)
Group operating (loss)/profit from continuing operations (5,456) 3,430 2,546
Finance revenue 29 2 13
Foreign exchange (loss)/gain (2,380) 5,896 5,462
Finance expense (822) (720) (1,446)
(Loss)/profit for period before taxation (8,629) 8,608 6,575
Tax expense (1) (7) (1,602)
(Loss)/profit for period after taxation (8,630) 8,601 4,973
Other comprehensive (loss)/income
Items that may subsequently be reclassified
to profit and loss account:
Foreign currency translation (loss)/income (5,735) 13,136 13,373
Total comprehensive (loss)/income for (14,365) 21,737 18,346
the period attributable to equity holders
of the parent
Pence Pence Pence
Basic and diluted (loss)/profit per share for the period attributable to 3 (0.47) 0.52 0.28
equity holders of the parent
Condensed Interim Consolidated Balance Sheet
Notes 30 June 30 June 31 Dec
2023
2022 2022
Unaudited
Unaudited Audited
£'000s
£'000s £'000s
Non-current assets
Property, plant and equipment 4 152,964 161,631 163,362
Intangible assets 5 34,834 35,434 36,007
Interest in Badile land - 619 637
Prepayments 6 4,082 3,087 4,272
191,880 200,771 204,278
Current assets
Inventories 920 969 963
Other receivables 3,042 2,345 2,815
Prepayments 165 233 139
Cash and short term deposits 3,733 10,513 3,861
7,860 14,060 7,778
Total assets 199,740 214,831 212,056
Current liabilities
Trade and other payables 1,899 6,184 1,868
Tax liabilities 7 - - 126
Lease liabilities 174 - 162
Loans and borrowings 8 2,122 - 1,121
4,195 6,184 3,277
Non-current liabilities
Lease liabilities 31 - 121
Tax liabilities 7 1,534 - 1,505
Loans and borrowings 8 29,088 27,271 29,068
30,653 27,271 30,694
Total liabilities 34,848 33,455 33,971
Net assets 164,892 181,376 178,085
Capital and reserves
Share capital and share premium 38,822 38,621 38,621
Shares to be issued 404 404 404
Warrant reserve 2,071 1,607 1,607
Convertible bond reserve 388 - -
Foreign currency reserve 2,714 8,212 8,449
Accumulated surplus 120,493 132,532 129,004
Total equity 164,892 181,376 178,085
Condensed Interim Consolidated Statement of Changes in Equity
Share Share Accumulated Warrant Convertible bond Foreign currency Total
capital premium Shares to be issued surplus reserve reserve reserves equity
£'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
At 1 January 2023 18,487 20,134 404 129,004 1,607 - 8,449 178,085
Total loss for the period - - - (8,630) - - - (8,630)
Other comprehensive loss - - - - - - (5,735) (5,735)
Total comprehensive loss for the period - - - (8,630) - - (5,735) (14,365)
Issue of share capital 114 87 - - - - - 201
Fair value of warrants issued during the period - - - - 464 - - 464
Equity component of convertible bond - - - - - 388 - 388
Share based payments - - - 119 - - - 119
At 30 June 2023 (unaudited) 18,601 20,221 404 120,493 2,071 388 2,714 164,892
Share Share Accumulated Warrant Convertible Foreign currency Total
capital premium Shares to be issued surplus reserve bond reserves equity
£'000s £'000s £'000s £'000s £'000s reserve £'000s £'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 for the year - - - 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 period - - - - 73 - - 73
Vested nil options bonus awards - - 404 - - - - 404
Share based payments - - - 159 - - - 159
At 31 December 2022 (audited) 18,487 20,134 404 129,004 1,607 - 8,449 178,085
Share Share Accumulated Warrant Convertible Foreign Total
capital premium Shares to be issued surplus reserve bond currency equity
£'000s £'000s £'000s £'000s £'000s reserve reserves £'000s
£'000s £'000s
At 1 January 2022 16,292 18,281 - 123,872 1,534 - (4,924) 155,055
Total profit for the period - - - 8,601 - - - 8,601
Other comprehensive income - - - - - - 13,136 13,136
Total comprehensive loss for the period - - - 8,601 - - 13,136 21,737
Issue of share capital 2,195 2,246 - - - - - 4,441
Share issue costs - (393) - - - - - (393)
Fair value of warrants issued during the period - - - - 73 - - 73
Vested nil options bonus awards - - 404 - - - - 404
Share based payments - - - 59 - - - 59
At 30 June 2022 (unaudited) 18,487 20,134 404 132,532 1,607 - 8,212 181,376
Condensed Interim Consolidated Statement of Cash Flows
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2023 Unaudited £'000s 2022 Unaudited £'000s 2022
Audited
£'000s
Cash flow from operating activities
Cash flow from operations (1,207) (1,080) (3,928)
Interest received 29 2 13
Tax paid (125) (7) (7)
Net cash flow from operating activities (1,303) (1,085) (3,922)
Cash flow from investing activities
Capital expenditure (751) (770) (1,519)
Exploration expenditure (359) (311) (399)
Prepayment for Phase 1, mLNG Project - - (4,272)
Receipt from interest in Badile land 134 - -
Net cash flow from investing activities (976) (1,081) (6,190)
Cash flow from financing activities
Net proceeds from equity issue - 3,680 3,680
Net proceeds from borrowings 2,425 5,532 7,233
Interest payments (222) (214) (431)
Lease payments (89) - (58)
Net cash flow from financing activities 2,114 8,998 10,424
Net (decrease)/increase in cash and cash equivalents (165) 6,832 312
Net foreign exchange difference 37 768 636
Cash and cash equivalents at the beginning of the period 3,861 2,913 2,913
Cash and cash equivalents at the end of the period 3,733 10,513 3,861
Notes to Statement of Cash Flows
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2023 Unaudited £'000s 2022 Unaudited £'000s 2022
Audited
£'000s
Cash flow from operations reconciliation
(Loss)/profit for the period before tax (8,629) 8,608 6,575
Finance revenue (29) (2) (13)
Decrease/(increase) in drilling inventories 43 (98) (92)
Increase in short term receivables and prepayments (253) (666) (2,071)
(Decrease)/Increase in accruals and short term payables (108) 702 190
Impairment loss/(reversal of Impairment) on development assets and exploration 4,213 (5,407) (5,678)
costs
Impairment of interest in Badile land 125 60 107
Depreciation and amortisation 110 30 101
Share based payments charge and remuneration paid in shares 119 869 969
Finance costs and exchange adjustments 3,202 (5,176) (4,016)
Cash flow from operations (1,207) (1,080) (3,928)
Non-cash transactions during the period included the issue of 11,404,211
ordinary shares to third parties in settlement of fees for services provided
amounting to approximately £0.2 million (note 9).
The Group has provided collateral of $1.75 million (December 2022: $1.75
million) to the Moroccan Ministry of Petroleum to guarantee the Group's
minimum work programme obligations on the Anoual and Sidi Moktar licences. 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 Condensed interim Consolidated Financial Statements for the six
months ended 30 June 2023
1. Basis of preparation
The condensed interim consolidated financial statements do not represent
statutory accounts within the meaning of section 435 of the Companies Act
2006. The financial information for the year ended 31 December 2022 is based
on the statutory accounts for the year ended 31 December 2022. Those accounts,
upon which the auditors issued an unqualified opinion, have been delivered to
the Registrar of Companies and did not contain statements under section 498(2)
or (3) of the Companies Act 2006.
The condensed interim financial information is unaudited and has been prepared
on the basis of the accounting policies set out in the Group's 2022 statutory
accounts and in accordance with IAS 34 Interim Financial Reporting as adopted
by the United Kingdom.
The seasonality or cyclicality of operations does not impact on the interim
financial statements.
Going concern
As at 31 August 2023, the Group's unaudited cash balance was approximately
£4.0 million (including approximately £1.4 million held as collateral for a
bank guarantee against licence commitments). The Directors have reviewed the
Company's cash flow forecasts for the next 12-month period to September 2024.
The Company's forecasts and projections indicate that, to fulfil its other
obligations, primarily the Company's exploration licences commitments, the
Company will require additional funding. The Company commenced its Phase 1 of
the Concession upon taking FID on the mLNG project, and has continued to
actively monitor the project schedule, costs, and financing. The Company is
progressing towards a final investment decision for the Phase 2, pipeline led
development of the Concession and has received a conditional offer for partial
financing of the Phase 2 development and is working 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 Company's ability to
continue as a going concern. These Interim condensed consolidated 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 signing of a term sheet with Calvalley for a potential farm-down on
some of the Company's Eastern Morocco licences 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 Interim condensed
consolidated financial statements.
2. Segment information
The Group categorises its operations into three business segments based on
Corporate, Exploration and Appraisal and Development and Production. The
Group's Exploration and Appraisal activities are carried out in Morocco. The
Group's reportable segments are based on internal reports about the components
of the Group which are regularly reviewed by the Board of Directors, being the
Chief Operating Decision Maker (''CODM''), for strategic decision making and
resources allocation to the segment and to assess its performance. The segment
results for the period ended 30 June 2023 are as follows:
Segment results for the period ended 30 June 2023
Corporate £'000s Development & Production £'000s Exploration & Appraisal £'000s Total
£'000s
Other income - - 4 4
Impairment loss on development assets and exploration costs - (4,213) - (4,213)
Administration expenses (1,247) - - (1,247)
Operating profit segment result (1,247) (4,213) 4 (5,456)
Interest revenue 29 - - 29
Finance costs and exchange adjustments (3,202) - - (3,202)
Profit for the period before taxation (4,420) (4,213) 4 (8,629)
The segments assets and liabilities at 30 June 2023 are as follows:
Corporate £'000s Development & Production £'000s Exploration & Appraisal £'000s Total
£'000s
Non-current assets 201 156,854 34,825 191,880
Current assets 2,758 2,385 2,717 7,860
Liabilities attributable to continuing operations (23,628) (8,276) (2,944) (34,848)
The geographical split of non-current assets at 30 June 2023 is as follows:
UK Morocco
£'000s £'000s
Development and production assets - 152,772
Right of use assets 188 -
Fixtures, fittings and office equipment 4 -
Software - 9
Prepayment - 4,082
Exploration and evaluation assets - 34,825
Total 192 191,688
Segment results for the period ended 30 June 2022
Corporate £'000s Development & Production £'000s Exploration & Appraisal £'000s Total
£'000s
Other income - - 41 41
Reversal of impairment of development assets and exploration costs - 5,407 - 5,407
Administration expenses (2,018) - - (2,018)
Operating profit segment result (2,018) 5,407 41 3,430
Interest revenue 2 - - 2
Finance costs and exchange adjustments 5,176 - - 5,176
Profit for the period before taxation 3,160 5,407 41 8,608
The segments assets and liabilities at 30 June 2022 were as follows:
Corporate £'000s Development & Production £'000s Exploration & Appraisal £'000s Total
£'000s
Non-current assets 632 164,705 35,434 200,771
Current assets 4,383 6,625 3,052 14,060
Liabilities attributable to continuing operations (17,629) (10,446) (5,380) (33,455)
The geographical split of non-current assets at 30 June 2022 was as follows:
Europe Morocco
£'000s £'000s
Development and production assets - 161,618
Interest in Badile land 619 -
Fixtures, fittings and office equipment 5 8
Prepayment - 3,087
Exploration and evaluation assets - 35,434
Total 624 200,147
Segment results for the year ended 31 December 2022
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 revenue 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 944 163,346 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 at 31 December 2022 was 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
3. Profit/(loss) 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 period. The calculation of diluted profit/(loss) per share
is based on the profit/(loss) after tax on the weighted average number of
ordinary shares in issue plus weighted average number of shares that would be
issued if dilutive options, restricted stock units and warrants were converted
into shares. Basic and diluted profit/(loss) per share is calculated as
follows:
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Profit/(loss) after tax from continuing operations (8,630) 8,601 4,973
million million million
Weighted average shares in issue 1,849 1,650 1,752
Dilutive potential ordinary shares - 9 7
Diluted weighted average number of shares 1,849 1,659 1,759
Pence Pence Pence
Basic profit/(loss) per share from continuing operations (0.47) 0.52 0.28
Diluted profit/(loss) per share from continuing operations (0.47) 0.52 0.28
4. Property, plant and equipment
30 June 30 June 31 December
2023 2022 2022
£'000s £'000s £'000s
Cost
At start of period 164,061 145,361 145,361
Additions 969 795 1,932
Disposal - (3) (3)
Exchange adjustments (7,179) 16,119 16,771
At end of period 157,851 162,272 164,061
Impairment and depreciation
At start of period 699 5,695 5,695
Charge/(reversal) for period 4,309 (5,377) (5,591)
Disposal - (2) (2)
Exchange adjustments (121) 325 597
At end of period 4,887 641 699
Net book amount 152,964 161,631 163,362
Change in estimation
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 TE-5 Horst 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 11.6% as at 30 June 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 30 June 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 15.03 US$/MMBtu. The average TTF and NBP gas
price projections for the period to 2032 was 14.45 US$/MMBtu.
After taking account of the changes to the discount rate and referenced
forecast gas price, an impairment charge of approximately £4.2 million (net
of foreign exchange movements) has been recognised.
5. Intangibles
30 June 30 June 31 December
2023 2022 2022
Unaudited £'000s Unaudited Audited
£'000s £'000s
Cost
At start of period 46,969 42,556 42,556
Additions 400 401 836
Exchange adjustments (1,573) 3,466 3,577
At end of period 45,796 46,423 46,969
Impairment and Depreciation
At start of period 10,962 10,958 10,958
Charge for period 14 - 14
Exchange adjustments (14) 31 (10)
At end of period 10,962 10,989 10,962
Net book amount 34,834 35,434 36,007
6. Prepayments
Non-current prepayment of £4.1 million relates to activities of the Company's
Phase 1 mLNG Project in the Concession.
7. Tax liabilities
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Current liability
Taxes payable - - 126
- - 126
Non-current liability
Taxes payable 1,534 - 1,505
1,534 - 1,505
The Group had tax cases where Morocco Tax Authority had claimed taxes relating
to the Group historical licences 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 £124k (after
taking account of exchange rate movements). The discounted non-current
liability amounted to approximately £1.5 million as at 30 June 2023.
8. Loans and borrowings
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Current liability
Secured bonds 2,122 - 1,121
2,122 - 1,121
Non-current liability
Secured bonds 19,652 20,941 20,855
Loan note- Afriquia 8,083 6,330 8,213
Convertible bonds 1,353 - -
29,088 27,271 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 will
be partially settled, at a rate of 5% every six months, commencing on 21
December 2023. The Bonds bear until maturity 2% cash interest paid per annum
and 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
6.2%.
The Company has drawn down $9.5 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 instalments commencing
December 2028. The loan is secured on the issued share capital of Sound Energy
Meridja Limited. The effective interest on the drawdown amount 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.
.
9. Shares in issue and share based payments
As at 30 June 2023, the Company had 1,860,106,895 ordinary shares in issue.
Share issues during the
period
In June 2023, the Company issued 11,404,211 shares to third party advisers
being settlement for services provided relating to the Company's convertible
bonds issue.
Warrants
In June 2023 as part of the Convertible bonds issue, the Company issued
warrants to Convertible bonds holders and advisors over a total of 40,476,190
ordinary shares exercisable at 2.25 pence per share for a period of 3
years.
10. Post Balance Sheet events
In July 2023, the Company announced that it has received conversion notices to
issue 22,222,222 Ordinary Shares ("Shares") at a conversion price of 2.25
pence per Share under its Convertible bonds agreement ("Partial Conversion").
The Partial Conversion reduced the amount owing on the Convertible bonds by
£500,000, with £2,000,000 remaining.
In September 2023, the Company announced that it has received conversion
notices to issue 22,222,221 Shares at a conversion price of 2.25 pence per
Share as a Partial Conversion. The Partial Conversion reduced the amount owing
on the Convertible bonds by £500,000, with £1,500,000 remaining.
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