REG - Sound Energy PLC - Half-year Report
19/09/2024 07:00
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RNS Number : 7708E Sound Energy PLC 19 September 2024
19 September 2024
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 2024
Sound Energy, the transition energy company, announces its unaudited half-year
report for the six months ended 30 June 2024.
HIGHLIGHTS
Development of the Moroccan Tendrara Production Concession (the "Concession")
· Phase 1 Micro LNG (''mLNG'') project (''Phase 1'')
o Safely completed workover of both wells necessary for first gas,
o Erected the base and the first layer of mLNG tank shell and initiated the
inner tank construction
o Extensive activity continued offsite with our contractor and its
sub-contractors designing and constructing plant equipment for delivery on
site end 2024
o Processed gas expected to be produced at plant in 2025
· Phase 2 Gas (pipeline) development (''Phase 2'')
o Continued progress made for project financing from exclusive lead
arranger, Attijariwafa Bank, Morocco's largest bank
Corporate
· In June 2024 entered into a binding sale and purchase agreement
with Managem SA, in respect of a partial divestment of the Group's Tendrara
Production Concession and Grand Tendrara and Anoual exploration permits,
through the sale of the Company's subsidiary, Sound Energy Morocco East
Limited (SEME) which holds a net 55% working interest in the Tendrara
Production Concession and 47.5% interests in the Grand Tendrara and Anoual
exploration permits.
· Post period, entered into a bridge financing debt facility for up
to £1.5 million to provide the Group with additional flexibility
Graham Lyon, Executive Chairman said:
''I am grateful for continued support of all our shareholders and partners,
and I can say that the first half of 2024 saw the significant milestone of
partnering at Tendrara move closer to fruition. Managem are a substantial
company with a strong base in Morocco. They bring financing and in-depth local
experience. Sound and Managem are working closely to effect a smooth
transition of Operatorship control at Tendrara. Whilst the Phase 1
development has been frustrated by delays, equipment, construction and well
work has taken place at Tendrara, and a plan for delivery of LNG sales in 2025
established.
"Whilst the first half of the year has been busy with negotiation and
agreement of the transaction with Managem, ensuring a smooth transition of
operations and progressing Phase 2 towards a final investment decision will
ensure the remainder of 2024 will be eventful. The Company will thereafter
optimise its portfolio and structure to deliver optimum shareholder value,
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 focused on 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 cooperation and increased support. Finally, a thank you to
our staff who have and continue to drive the Company forward.''
For further information, visit www.soundenergyplc.com
(http://www.soundenergyplc.com) or follow us on X @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 (0)20 3829 5000
Simon Johnson
Gneiss Energy Limited- Financial Adviser Tel:44 (0)20 3983 9263
Jon Fitzpatrick
Paul Weidman
Doug Rycroft
Tel:44 (0)20 3829 5000
Gneiss Energy Limited- Financial Adviser
Jon Fitzpatrick
Paul Weidman
Doug Rycroft
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 geopolitical environment continued to
present challenges, the Company continues to make progress towards revenue
generation.
Phase 1 Tendrara Micro LNG Project (mLNG)
Work has advanced at site. Tank construction remains on the critical path to
project delivery, however the base and first layer of the outer tank shell
were erected, insulation was laid and further concrete laid to initiate the
inner tank construction. Well completion at TE-6 was completed with corrosion
resistant tubing and well head installed. Similar work at TE-7 was completed
in early September 2024, thereby providing the wells required to meet the
required gas delivery capacity.
Italfluid Geoenergy S.r.l and its sub-contractors continue with the design,
construction and installation of plant equipment. The current forecast is for
all plant equipment to be on site end 2024. In addition to Italfluid's
project scope of work Sound Energy, through its operating subsidiary Sound
Energy Morocco East Limited (SEME), continues to prepare for the installation
of the flow lines and ancillary heaters. Afriquia Gaz S.A is to procure and
put in place the LNG transportation trucking, local storage and regasification
facilities - these are due spring 2025. Once on site, the processing and
liquefaction equipment will be commissioned and integrated with the wells,
storage, loading and trucking systems. Delays have occurred due to supply
chain issues and hence commissioning is scheduled for the second quarter of
2025.
Phase 2 Tendrara Processing and Pipeline Project
Progress continued to be made with the Phase 2 development project in H1 2024,
primarily in terms of securing development funding.
Significant progress has been made regarding project funding with Attijariwafa
Bank, Morocco's largest bank, as exclusive lead arranger of a senior debt
facility, a binding conditioned agreement was entered into in 2023. To address
one of the remaining Condition Precedents, discussions with ONEE to adapt the
Gas Sales Agreement (GSA) regarding bankability have progressed. The
announcement of a binding sale and purchase agreement to sell the UK
subsidiary SEME to Managem SA provides the matching equity finance to the
Attijariwafa bank debt. Once the sale of SEME is closed, an update to the FEED
study is required to satisfy bank financing alongside the GSA and selection of
an EPC contractor.
Exploration
During and post period, the Company and ONHYM have proposed extensions to the
Anoual Exploration Licence to the relevant Ministries and await approval.
Corporate
Following the commencement in 2022 of a process to secure participation of a
strategic partner at Tendrara, and the previously announced non-binding term
sheet in June 2023, the Company entered a binding Sale and Purchase Agreement
(SPA) with Managem SA for the sale of SEME. Managem is a well-established
pan-African mining group with a market capitalisation in excess of $US2.5
billion (April 2024), seeking to diversify its portfolio into upstream gas.
Subject to the disclosed conditions precedents being satisfied, the Company
will sell the entire share capital of SEME with an effective date of 1 January
2022, pursuant to which Managem will acquire the following interests in the
SEME's Moroccan assets:
· 55.0% of the Concession (Sound Energy to retain 20% interest, through
Sound Energy Meridja Limited), including the liability for payments arising
from the Schlumberger net profit interest (NPI) agreement (pursuant to the
acquisition of Schlumberger Silk Route Services Limited in 2021)
· 47.5% of the Grand Tendrara Permit (Sound Energy to retain 27.5%
interest, through Arran Energy Holdings Limited)
· 47.5% of the Anoual Exploration Permit (Sound Energy to retain 27.5%
interest, through Arran Energy Holdings Limited)
The SPA consideration payable to or on behalf of the Group includes:
· Estimated US$12.0 million in Concession Phase 1 development back
costs through to July 2024 net to a 55% interest in the Concession and payable
to the Group in cash on completion.
· Estimated US$1.0 million in back costs in respect of Concession
Phase 2 development and Exploration Permits back costs payable to the Company
in cash on completion.
· Up to US$24.5 million net carry through Managem funding of the
Group's remaining 20% interest in future Concession Phase 2 development.
· Contingent consideration of US$1.5 million payable to the Group no
later than one year after first gas from Concession Phase 2 development.
· US$3.6 million net carry through funding the Group's remaining 27.5%
Grand Tendrara Permit interest in drilling exploration well SBK-1.
· US$2.6 million net carry through funding the Group's remaining
27.5% Anoual Permit interest in drilling exploration well M5.
The combination of closing the transactions with Managem and Attijariwafa Bank
will provide the funding required to allow the Company to take the Final
Investment Decision on the Phase 2 development and to construct and develop
the much-needed pipeline infrastructure at Tendrara.
In light of the agreed sale of SEME to Managem, the Company is required to
compare the carrying value of its intangible and development assets with the
fair market value (less cost of disposal). The Company determined that an
impairment charge totalling £146.2 million was required for both the assets
held for sale and the retained assets (refer to notes 4 and 5 of the interim
financial statements).
During the half year, 30 million shares were issued as partial conversion of
outstanding interest on the convertible loan facility entered into in 2023,
followed post period by a further 50 million shares, all at 1 pence per share
and accrued interest remaining sits at £ 887,500.
Broker
In March 2024, Zeus Capital Limited was appointed as sole broker and issued a
research note in July 2024 initiating its coverage of the Company.
Board Changes
Following the signing the SPA with Managem, and with the transaction providing
financial and operational security for the next phase of the Company's
development, Mr Simon Ashby-Rudd a non-executive director of the Company,
informed the Board that he did not intend to put himself forward for
re-election as a director of the Company at the Company's AGM held on 28 June
2024. I thank Simon for his contribution over the year and for his specific
M&A advice and support.
Graham Lyon
Chairman (Executive)
OPERATIONS REVIEW
Tendrara Development: Micro LNG (mLNG)
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 for gas
sales, is intended to prioritise 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. As Morocco continues to grow both industrially and domestically,
and as other fuel sources become scarcer in-country, there is opportunity to
supply more of the energy mix. Morocco's imports of natural gas from Spain
through the GME pipeline rose by a 403% during 2023.
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 lease 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.
Also in 2021, the Company entered into a Sale and Purchase Agreement with
Afriquia Gaz to offtake the LNG produced. The 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, were
completed in 2023 along with the necessary piping and cabling for the
firefighting system which have been installed along with fencing and lighting
towers. During 2024, installation of the necessary insulation and
construction of the outer and inner tank shells of the tank commenced and will
progress throughout the remainder of the year. Facilities engineering and
manufacturing continued to progress with major vendors under the Italfluid
contract. In 2023 the Company selected Gas to Liquid Equipment (GLE) to
provide engineering and procurement services for 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.
During the first half of 2024, Bedrock Drilling Ltd - contracted 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
- successfully completed replacement of the carbon steel production tubing
with corrosion resistant Cr13 steel in TE-6. The remaining works on TE-7
were completed in early September 2024 when additional wellhead equipment to
complete the running of the new completion tubing into TE-7 arrived at site.
Throughout 2024 the equipment packages for the gas plant are to be completed
and tested in the workshops and will be brought from workshops located around
the world, delivered to site via the main ports in Morocco and then assembled
on site. To date, Italfluid has received components of the amine unit which
will be used to remove the carbon dioxide from the raw gas stream and packages
for air compression, nitrogen generation and corrosion inhibitor injection at
their Moroccan storage base.
Progress of the Phase 2 Development Project
Based upon the current development capital estimates the funding arising from
the Managem SPA combined with the agreed project debt financing from
Attijariwafa Bank, will provide Sound Energy with the required funds to
achieve first gas under its Phase 2 Tendrara Production Concession development
plan whilst retaining a significant 20% interest in the Concession.
Eastern Morocco
GRAND 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 Grand 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 Grand 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 June 2024 the Company concluded a competitive 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. By
entering into a binding SPA with Managem, the Company has secured the funding
required for the drilling two high graded exploration wells, one on Grand
Tendrara and one at Anoual which each have the potential to be commercialised
through the planned infrastructure of Phase 2.
At Grand Tendrara, an exploration well is planned on the structure previously
drilled by the SBK-1 well in 2000, with an estimated unrisked exploration
potential of 140 Bcf gross Pmean Gas Initially in Place ('GIIP'). 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. 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.
At Anoual a well is planned to be drilled on the M5 prospect located on the
Anoual permits, with an estimated unrisked exploration potential of 943 Bcf
gross Pmean GIIP. The timing of drilling of both well will be agreed with
Managem following completion of the SPA.
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
under-explored Essaouira Basin in the West of Morocco.
The Sidi Moktar permit hosts a variety of proven plays. The licence hosts 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 are 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 continues to engage 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 2024 30 June 2023 31 Dec 2023
Unaudited £'000s Unaudited Audited
£'000s £'000s
Other income - 4 4
Impairment loss on development assets and exploration costs 4 (122,951) (4,213) -
Gross (loss)/profit (122,951) (4,209) 4
Administrative expenses (1,398) (1,170) (3,887)
Group operating loss from continuing operations (124,349) (5,379) (3,883)
Finance revenue 9 11 25
Foreign exchange gain/(loss) 155 (2,245) (2,719)
Finance expense (903) (808) (1,893)
Loss for period before taxation from continuing operations (125,088) (8,421) (8,470)
Tax expense - (1) (1)
(Loss)/profit for period after taxation from continuing operations (125,088) (8,422) (8,471)
10 (23,141) (208) 1,311
Discontinued operations
(Loss)/profit for the period after tax from discontinued operations
Total loss for the period (148,229) (8,630) (7,160)
Other comprehensive (loss)/income
Items that may subsequently be reclassified
to profit and loss account:
Foreign currency translation income/(loss) 810 (5,735) (6,555)
Total comprehensive loss for (147,419) (14,365) (13,715)
the period attributable to equity holders
of the parent
Pence Pence Pence
Basic and diluted (loss)/profit per share for the period from continuing and 3 (7.50) (0.47) (0.38)
discontinued operations attributable to equity holders of the parent
Basic and diluted (loss)/profit per share for the period from continuing 3 (6.33) (0.46) (0.45)
operations attributable to equity holders of the parent
Condensed Interim Consolidated Balance Sheet
Notes 30 June 30 June 31 Dec
2024
2023 2023
Unaudited
Unaudited Audited
£'000s
£'000s £'000s
Non-current assets
Property, plant and equipment 4 10,135 152,964 157,927
Intangible assets 5 13,846 34,834 35,002
Prepayments 6 1,367 4,082 5,092
25,348 191,880 198,021
Current assets
Inventories 191 920 915
Other receivables 53 3,042 924
Prepayments 43 165 1,342
Cash and short term deposits 7 235 3,733 3,016
522 7,860 6,197
Assets of disposal group held for sale 10 35,531 - -
Total assets 61,401 199,740 204,218
Current liabilities
Trade and other payables 833 1,899 2,495
Tax liabilities - - 199
Lease liabilities 31 174 121
Loans and borrowings 8 - 2,122 -
864 4,195 2,815
Liabilities of disposal group held for sale 10 5,443 - -
Non-current liabilities
Lease liabilities - 31 -
Tax liabilities - 1,534 1,410
Loans and borrowings 8 35,534 29,088 33,285
35,534 30,653 34,695
Total liabilities 41,841 34,848 37,510
Net assets 19,560 164,892 166,708
Capital and reserves
Share capital and share premium 40,050 38,822 39,898
Shares to be issued 374 404 374
Warrant reserve 2,071 2,071 2,071
Convertible bond reserve 28 388 28
Foreign currency reserve 2,704 2,714 1,894
Accumulated (deficit)/surplus (25,667) 120,493 122,443
Total equity 19,560 164,892 166,708
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 2024 19,631 20,267 374 122,443 2,071 28 1,894 166,708
Total loss for the period - - - (148,229) - - - (148,229)
Other comprehensive loss - - - - - - 810 810
Total comprehensive loss for the period - - - (148,229) - - 810 (147,419)
Issue of share capital on conversion of bond 300 (148) - - - - - 152
Share based payments - - - 119 - - - 119
At 30 June 2024 (unaudited) 19,931 20,119 374 (25,667) 2,071 28 2,704 19,560
Share Share Accumulated Warrant Convertible Foreign Total
capital premium Shares to be surplus reserve bond currency equity
£'000s £'000s issued £'000s £'000s reserve reserves £'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 Shares to be Accumulated surplus Warrant Convertible Foreign Total
capital premium £'000s issued £'000s reserve Bond currency equity
£'000s £'000s £'000s reserve reserves £'000s
£'000s £'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 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 - - - 239 - - - 239
At 31 December 2023 19,631 20,267 374 122,443 2,071 28 1,894 166,708
Condensed Interim Consolidated Statement of Cash Flows
Notes Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2024 Unaudited £'000s 2023 Unaudited £'000s 2023
Audited
£'000s
Cash flow from operating activities
Cash flow from operations (191) (1,207) (1,403)
Interest received 20 29 42
Tax paid - (125) (134)
Net cash flow from operating activities (171) (1,303) (1,495)
Cash flow from investing activities
Capital expenditure (1,616) (751) (1,600)
Exploration expenditure (371) (359) (660)
Prepayment for Phase 1, mLNG Project - - (820)
Receipt from interest in Badile land - 134 134
Net cash flow from investing activities (1,987) (976) (2,946)
Cash flow from financing activities
Net proceeds from borrowings 2,046 2,425 4,442
Interest payments (354) (222) (441)
Lease payments (93) (89) (180)
Net cash flow from financing activities 1,599 2,114 3,821
Net decrease in cash and cash equivalents (559) (165) (620)
Net foreign exchange difference (345) 37 (225)
Cash and cash equivalents at the beginning of the period 3,016 3,861 3,861
Cash and cash equivalents at the end of the period 7 2,112 3,733 3,016
Notes to Statement of Cash Flows
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2024 Unaudited £'000s 2023 Unaudited £'000s 2023
Audited
£'000s
Cash flow from operations reconciliation
Loss before tax from continuing operations (125,088) (8,421) (8,470)
(Loss)/profit before tax from discontinued operations (23,141) (208) 1,318
Total (loss)/profit for the period before tax (148,229) (8,629) (7,152)
Finance revenue (20) (29) (42)
(Increase)/decrease in inventories (717) 43 48
Decrease/(increase) in short term receivables and prepayments 794 (253) 688
Increase/(decrease) in accruals and short term payables 585 (108) (343)
Impairment loss on development assets, intangible assets and exploration costs 146,425 4,213 -
Impairment of interest in Badile land - 125 125
Depreciation and amortisation 104 110 194
Share based payments charge 119 119 239
Finance costs and exchange adjustments 748 3,202 4,840
Cash flow from operations (191) (1,207) (1,403)
Non-cash transactions during the period included the issue of 30,000,000
ordinary shares to convertible bond holders following a partial conversion of
£0.3 million accrued interest into shares.
The Group has provided collateral of $nil (December 2023: $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
collateral was released during the period.
Notes to the Condensed interim Consolidated Financial Statements for the six
months ended 30 June 2024
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 2023 is based
on the statutory accounts for the year ended 31 December 2023. 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 except as noted
below, has been prepared on the basis of the accounting policies set out in
the Group's 2023 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.
Discontinued operations
The Group classifies non-current assets and disposal groups as held for sale
if their carrying amounts will be recovered principally through a sale
transaction rather than through continuing use. Non-current assets and
disposal groups classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. Costs to sell are the
incremental costs directly attributable to the disposal of an asset (disposal
group), excluding finance costs and income tax expense.
The criteria for held for sale classification is regarded as being met only
when the sale is highly probable, and the asset or disposal group is available
for immediate sale in its present condition. Actions required to complete the
sale should indicate that it is unlikely that significant changes to the sale
will be made or that the decision to sell will be withdrawn. Management must
be committed to the plan to sell the asset and the sale expected to be
completed within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or
amortised once classified as held for sale. Assets and liabilities classified
as held for sale are presented separately in the balance sheet.
A disposal group qualifies as a discontinued operation if it is a component of
an entity that either has been disposed of, or is classified as held for sale,
and:
• Represents a separate major line of business
or geographical area of operations
• Is part of a single co-ordinated plan to
dispose of a separate major line of business or geographical area of
operations. Discontinued operations are excluded from the results of
continuing operations and are presented as a single amount as profit or loss
after tax from discontinued operations in the statement of comprehensive
income. All other notes to the financial statements include amounts for
continuing operations, unless otherwise mentioned.
The Group considered the disposal of Sound Energy Morocco East Limited (SEME)
met the criteria to be classified as held for sale as at 30 June 2024 because
on 14 June 2024, the Company announced that it had entered into a binding sale
and purchase agreement (SPA) with Managem SA for sale of SEME. SEME's
operations are a significant part of the group and have therefore been
classified as discontinued operations on entry into the SPA.
Going concern
As at 31 August 2024, the Group's unaudited cash balance was approximately
£3.0 million. The Directors have reviewed the Company's cash flow forecasts
for the next 12-month period to September 2025. The Company's key priority is
to complete the announced sale of its subsidiary, Sound Energy Morocco East
Limited, which will bring a significant inflow of capital to the Company, and
which will ensure that the Company remains fully funded for the next 12 month
period.
The need to complete the Managem SPA 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 the Company will be able to complete the sale of Sound Energy Morocco
East Limited prior to the end of 2024 and have put in place an interim
corporate bridge funding facility ahead of the completion of the sale, which
can be utilised if required. The Directors, therefore, 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 2024 are as follows:
Segment results for the period ended 30 June 2024
Corporate £'000s Development & Production £'000s Exploration & Appraisal £'000s Total
£'000s
Other income - - - -
Impairment loss on development assets and exploration costs - (122,951) - (122,951)
Administration expenses (1,398) - - (1,398)
Operating profit segment result (1,398) (122,951) - (124,349)
Interest revenue 9 - - 9
Finance costs and exchange adjustments (748) - - (748)
Profit for the period before taxation from continuing operations (2,137) (122,951) - (125,088)
The segments assets and liabilities at 30 June 2024 are as follows:
Corporate £'000s Development & Production £'000s Exploration & Appraisal £'000s Total
£'000s
Non-current assets 88 11,483 13,777 25,348
Current assets 288 191 43 522
Liabilities attributable to continuing operations (23,583) (12,613) (202) (36,398)
The geographical split of non-current assets at 30 June 2024 is as follows:
UK Morocco
£'000s £'000s
Development and production assets - 10,116
Right of use assets 15 -
Fixtures, fittings and office equipment 3 1
Software 60 9
Prepayment - 1,367
Exploration and evaluation assets - 13,777
Total 78 25,270
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 (1,170) - - (1,170)
Operating profit segment result (1,170) (4,213) 4 (5,379)
Interest revenue 11 - - 11
Finance costs and exchange adjustments (3,053) - - (3,053)
Profit for the period before taxation from continuing operations (4,212) (4,213) 4 (8,421)
The segments assets and liabilities at 30 June 2023 were 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 (23,628) (8,276) (2,944) (34,848)
The geographical split of non-current assets at 30 June 2023 was 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 year ended 31 December 2023
Corporate £'000s Development and production £'000s Exploration and appraisal £'000s Total
£'000s
Other income - - 4 4
Impairment of development assets and exploration costs - - - -
Administration expenses (3,887) - - (3,887)
Operating (loss)/profit segment result (3,887) - 4 (3,883)
Interest receivable 25 - - 25
Finance expense and exchange adjustments (4,612) - - (4,612)
(Loss)/profit for the period before taxation from continuing operations (8,474) - 4 (8,470)
The segments assets and liabilities at 31 December 2023 were 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 (23,551) (11,368) (2,591) (37,510)
The geographical split of non-current assets at 31 December 2023 was 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
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
2024 2023 2023
£'000 £'000 £'000
Loss after tax from continuing operations (125,088) (8,422) (8,471)
(Loss)/profit after tax from discontinued operations (23,141) (208) 1,311
Total loss after tax from continuing operations (148,229) (8,630) (7,160)
million million million
Weighted average shares in issue 1,977 1,849 1,882
Dilutive potential ordinary shares - - -
Diluted weighted average number of shares 1,977 1,849 1,882
Pence Pence Pence
Basic and diluted loss per share from continuing operations (6.33) (0.46) (0.45)
Basic and diluted loss/(profit) per share from discontinued operations (1.17) (0.01) 0.07
Basic and diluted loss per share from continuing operations and discontinued (7.50) (0.47) (0.38)
operations
4. Property, plant and equipment
30 June 30 June 31 December
2023 2023 2023
£'000s £'000s £'000s
Cost
At start of period 158,791 164,061 164,061
Additions 2,628 969 2,739
Disposal (192) - -
Exchange adjustments 1,050 (7,179) (8,009)
Transfer to assets of disposal group held for sale (28,482) - -
At end of period 133,795 157,851 158,791
Impairment and depreciation
At start of period 864 699 699
Charge for period 128,260 4,309 177
Disposal (182) - -
Exchange adjustments 32 (121) (12)
Transfer to assets of disposal group held for sale (5,314)
At end of period 123,660 4,887 864
Net book amount 10,135 152,964 157,927
In June 2024, the Company entered into a binding sale and purchase agreement
(SPA) with Managem SA for the disposal of SEME (Note 10). Property, plant and
equipment of the disposal group were measured at the lower of their carrying
amount and fair value less costs to sell and classified as assets of disposal
group held for sale and as a result, impairment loss of approximately £5.2
million was recognised. Similarly, for continuing operations, the Company
estimated the recoverable amount by reference to the fair value of the
Tendrara Production Concession attributable to the discontinued operation and
as a result, an impairment loss of approximately £123.0m was recognised. The
Company used a discount rate of 10.76% at 30 June 2024, a decrease from 11.25%
at 31 December 2023 due to changes in financial market conditions and certain
corporate parameters during the period. The Company is required to record an
impairment when the carrying value of an asset exceeds its recoverable amount,
which is the higher of its fair value less costs of disposal and its value in
use. As the Company's operations are pre-production, it is impracticable to
determine value in use and therefore, the Company has determined the carrying
value by reference to terms set-out in the SPA and as a result, recognised an
impairment loss.
5. Intangibles
30 June 30 June 31 December
2024 2023 2023
Unaudited £'000s Unaudited Audited
£'000s £'000s
Cost
At start of period 45,964 46,969 46,969
Additions 427 400 751
Exchange adjustments 498 (1,573) (1,756)
Transfer to assets of disposal group held for sale (32,721) - -
At end of period 14,168 45,796 45,964
Impairment and Depreciation
At start of period 10,962 10,962 10,962
Charge for period 17,902 14 17
Exchange adjustments 269 (14) (17)
Transfer to assets of disposal group held for sale (28,811) - -
At end of period 322 10,962 10,962
Net book amount 13,846 34,834 35,002
Included in the charge for the period is approximately £17.9 million
impairment that arose following the measurement of the intangible assets at
the lower of their carrying and fair value less costs to sell on signing of
the SPA with Managem SA (Note 10).
6. Prepayments
Non-current prepayment of £1.4 million relates to activities of the Company's
Phase 1 mLNG Project in the Concession.
7. Cash and cash equivalents
For the purposes of the condensed interim consolidated statement of cash
flows, cash and cash equivalents comprise the following as at 30 June 2024.
30 June 30 June 31 December
2024 2023 2023
Unaudited Unaudited Audited
£'000s £'000s £'000s
Cash and short term deposits 235 3,733 3,016
Cash and short term deposits attributable to discontinued operations 1,877 - -
2,112 3,733 3,016
8. Loans and borrowings
30 June 30 June 31 December
2023 2023 2023
Unaudited Unaudited Audited
£'000s £'000s £'000s
Current liability
Secured bonds - 2,122 1,121
Reclassification to non-current liability - - (1,121)
- 2,122 -
Non-current liability
Secured bonds 21,964 19,652 21,980
Loan note- Afriquia 12,613 8,083 10,276
Convertible bonds 957 1,353 1,029
35,534 29,088 33,285
The Company has €25.32 million secured bonds (the "Secured Bonds"). The
Secured Bonds mature on 21 December 2027. The Secured 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 Secured 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 Secured Bonds
are secured on the issued share capital of Sound Energy Morocco South
Limited. After taking account of the terms of the Secured Bonds, the
effective interest is approximately 6.2%.
As at 30 June 2024, the Company had drawn down $14.6 million from the
Company's $18.0 million 6% secured loan note facility with Afriquia Gaz
maturing in December 2033 (the ''Afriquia 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.
Payment of interest that is not deferred commenced in Q2 2024. The principal
and deferred interest will be repayable annually in equal instalments
commencing December 2028. The Afriquia 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 (the
''Bonds'') from a senior unsecured convertible bond facility of up to £4.0
million. The £2.5 million Bonds have a fixed conversion price of 2.25 pence
per ordinary share. The term of the 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. The Company issued 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. Following partial
conversions of the Bonds into shares, the remaining undiscounted principal and
interest amount was £0.3 million and £1.6 million, respectively, as at 30
June 2024.
Post-period, the Company entered into a short-term bridge financing facility
with a high net worth investor (the "Lender") for up to £1.5 million,
available for three months from 1 September 2024 (the "Availability Period").
Any amounts drawn down under the bridge financing facility will attract an
interest rate of 15 per cent. per quarter and will fall for repayment on the
earlier of three-months from the date of draw down or within 3 days of
completion of the sale of SEME. The Company will pay the Lender a fee of
£50,000 in the event that no draw down is made prior to expiry of the
Availability Period and the bridge financing facility will, from first draw
down, be secured by way of a charge over the shares of Arran Energy Holdings
Limited, the Company's wholly owned subsidiary. The bridge financing facility,
if drawn down upon, will provide the Company with access to additional working
capital resources prior to receipt of funds associated with the sale of SEME
to Managem SA.
.
9. Shares in issue and share based payments
As at 30 June 2024, the Company had 1,993,122,679 ordinary shares in issue.
Share issues during the
period
In April 2024, the Company issued 30,000,000 shares at 1 pence per share
following a partial conversion by convertible bond holders of accrued interest
into shares.
10. Discontinued operations
On 14 June 2024, the Company announced that it had entered into a binding sale
and purchase agreement with Managem SA for the disposal of SEME that owns:
· 55% interest in the Tendrara Production Concession), including
the liability for payments arising from the Schlumberger net profit interest
(NPI) agreement (pursuant to the acquisition of Schlumberger Silk Route
Services Limited in 2021);
· 47.5% interest in the Grand Tendrara licence; and
· 47.5% interest in the Anoual licence.
The consideration for the sale is expected to include:
· Back costs (expenditure on the licences) from 1 January 2022 to
completion date;
· Tendrara Production Concession Phase 2 carry of up $24.5 million;
· Anoual licence carry on one well, $2.6 million;
· Grand Tendrara licence carry on one well, $3.6 million;
· On achieving Phase 2 first gas, $1.5 million
The Company and Managem SA are working to satisfy the conditions precedents
and expect to complete the transaction in the second half of 2024.At 30 June
2024, SEME's operations were classified as held for sale and as discontinued
operations. Having been classified as discontinued operations, SEME's results
have been excluded from the loss for the period disclosed in the segment note.
The results of discontinued operations for the period are presented below.
Six months
Six months ended
ended 30 June Year ended
30 June 2024 2023 31 December
Unaudited Unaudited 2023
£'000s £'000s Audited
£'000s
Other income - - 38
Impairment of tangible and intangible assets (23,107) - -
Gross loss (23,107) - 38
Administrative (expenses)/costs recovery (140) (78) 1,491
Operating (loss)/profit from discontinued operations (23,247) (78) 1,529
Finance revenue 11 17 17
Foreign exchange loss (71) (133) (127)
Finance costs recovery/(expense) 166 (14) (101)
(Loss)/profit for the period before taxation from discontinued operations (23,141) (208) 1,318
Tax expense - - (7)
(Loss)/profit for the period after taxation from discontinued operations (23,141) (208) 1,311
The major classes of assets and liabilities of the discontinued operations
classified as held for sale as at 30 June 2024 are as follows:
30 June 2024
Unaudited
£'000s
Assets
Property, plant and equipment 23,168
Intangible assets 3,910
Prepayments 4,278
Inventories 1,441
Other receivables 857
Cash and short term deposits 1,877
Assets of disposal group held for sale 35,531
Liabilities
Trade and other payables 4,002
Tax liabilities 1,441
Liabilities of disposal group held for sale 5,443
Net assets 30,088
The net cash flows of the discontinued operations were as follows:
Six months
Six months ended
ended 30 June Year ended
30 June 2024 2023 31 December
Unaudited Unaudited 2023
£'000s £'000s Audited
£'000s
Net cash flow from operating activities 1,581 27 1,765
Net cash flow from investing activities (1,361) (732) (2,210)
Net cash flow from financing activities - - -
Net cash inflow/(outflow) 220 (705) (445)
11. Post balance sheet events
In July 2024, the Company announced that it has received conversion notices to
issue 50,000,000 Ordinary Shares ("Shares") at a conversion price of 1 pence
per Share under its Convertible bonds agreement ("Partial Conversion"). The
Partial Conversion reduced the interest owing on the Convertible bonds by
£300,000.
In August 2024, the Company entered into a bridge financing facility for up to
£1.5 million available for three months from 1 September 2024 (the
''Facility''). Any amounts drawn down under the Facility will attract an
interest rate of 15 per cent per quarter and will fall due for repayment on
the earlier of three months from the date of draw down or within 3 days of
completion of the sale of SEME. The Company will pay the lender a fee of
£50,000 in the event that no draw down is made by 1 December 2024 (Note 8).
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