TIDMSOU
RNS Number : 5289C
Sound Energy PLC
13 June 2023
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulation ("MAR") (EU) No. 596/2014, as incorporated into UK law
by the European Union (Withdrawal) Act 2018. Upon the publication
of this announcement, this inside information is now considered to
be in the public domain.
13 June 2023
Sound Energy plc
("Sound Energy" or the "Company")
Corporate Update
and
Issue of Convertible Bonds and Issue of Warrants
Sound Energy (AIM: SOU), the transition energy company, is
pleased to provide a corporate update in relation to the entry into
exclusivity for the partial divestment of the Tendrara Exploitation
Concession and the Grand Tendrara Exploration Permit, and a
financing of up to GBP4.0 million by way of a fixed price, senior
unsecured convertible bond instrument.
Key Highlights
-- Binding 45 day period of exclusivity and non-binding term
sheet entered into with Calvalley Petroleum (Cyprus) Limited
("Calvalley") for a partial divestment of a 40% working interest in
the Tendrara Exploitation Concession and the Grand Tendrara
Exploration Permit which will see, subject to agreement of
definitive transaction documentation:
o 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
o Funding of 100% of the TE-4 Horst well costs by Calvalley up
to a cap of US$7 million
o Funding of 40% share of Phase 1 costs, including back costs
net to Calvalley of approximately US$8 million (through to July
2023)
o 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
-- Up to GBP4.0 million funding through the issue of senior
unsecured convertible loan notes to provide the Company with
liquidity ahead of receipt of outstanding receivables and/or
receipt of Phase 1 back costs from Calvalley, if a partial
divestment is ultimately completed.
Partner and Potential Partial Divestment Update
The Company announced on 9 August 2022 that it had initiated a
formal farm-out process to identify a partner for the Tendrara
Production Concession and the surrounding Grand Tendrara and Anoual
exploration permits. The Company is pleased to announce that it has
now entered into exclusivity for a period of 45 days
("Exclusivity") on the basis of an otherwise non-binding term sheet
("Term Sheet") with Calvalley, an associated company of Octavia
Energy Corporation Limited ("Octavia").
Whilst the terms of the Term Sheet, outside of Exclusivity, are
non-binding and subject to, inter alia, agreement of definitive
transaction documentation between the parties, if a transaction is
concluded, 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 well, with an estimated
exploration potential of 273 Bcf gross Pmean GIIP.
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 at the TE-4 Horst,
which sits adjacent to the TE-5 Horst and could be tied-in in the
future for further development of the area.
Target name Unrisked Volume Potential Chance of
Gas Initially-in-Place (Bcf) Success
Gross (100%) basis
------------------------------------
Low Best High Mean
------- -------- -------- -------
TE-4 Horst Well 153 260 408 273 36%
------- -------- -------- ------- ----------
Calvalley was previously listed on the Toronto Stock Exchange
and was taken private in 2016. Today, Octavia and its associated
companies operate Block S-1 and Block 9 in Yemen with gross
production of approximately 6,200 bopd (3,100 bopd net). Calvalley
is backed by a consortium of private investors who draw on a strong
financial capability from many successful businesses across many
sectors in the Middle East, Africa, and Asia.
Under the Term Sheet, Calvalley would acquire a 40% working
interest in the Tendrara Exploitation Concession and the Grand
Tendrara Exploration Permit, with Sound Energy retaining a 35%
working interest and operatorship. Contingent upon the Phase 2
Final Investment Decision, Calvalley would fund the first US$48
million of Sound Energy and Calvalley's Phase 2 equity funded
development costs (a US$22.4 million net carry to the Company),
being the Company's estimate of equity funded costs to first gas
under Phase 2 after the expected amounts available under the
project debt financing. The Term Sheet also envisages Calvalley
funding the first US$7 million of exploration costs on the Grand
Tendrara Exploration Permit (a US$3.3 million net carry to the
Company), being the estimated costs of drilling the TE-4 Horst
well. In addition, Calvalley will fund its 40% working interest
share of all Phase 1 costs to a cap of US$16.4 million (net to the
40% working interest), which will include payment of its 53.33%
share of back costs payable on completion, comprising approximately
US$8 million through to July 2023.
In the event Phase 1 costs exceed US$41 million gross (being
US$16.4 million net to the 40% working interest), Calvalley would
advance the Company up to US$11.65 million and Calvalley will be
entitled to receive revenues equivalent to 0.9% above its 40%
working interest share of revenue for every US$1 million of
advancement drawn down by the Company (at its sole election) for a
period of five years from first production from Phase 1. Likewise,
in the event the Phase 2 pre-production costs exceed the current
estimate, Calvalley would advance Sound Energy up to US$10 million
and Calvalley will be entitled to receive revenues equivalent to
0.9% above its 40% working interest share of revenue for every US$1
million of advancement drawn down by Sound Energy (at its sole
election) for a period of two years from first production from
Phase 2.
During the due diligence period Calvalley will complete its
confirmatory due diligence and the parties will seek to agree
binding transaction documentation.
The Company cautions that there can be no assurance that binding
transaction documentation will be entered into in respect of a
partial divestment with Calvalley, or any other party, and further
announcements will be made, as appropriate, in due course.
Issue of Convertible Notes and Warrants
The Company is also pleased to announce that it has raised up to
GBP4.0 million by way of a senior unsecured convertible bond
instrument (the "Convertible Notes") with an institutional investor
(the "Investor"). The proceeds of the Convertible Notes 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 first tranche of the Convertible Notes comprises GBP2.5
million with a fixed conversion price of 2.25 pence per ordinary
share, a premium of approximately 28% to the closing price of 1.76
pence per ordinary share on 12(th) June 2023.
The second tranche of the Convertible Notes comprises a further
GBP1.5 million, which can be drawn at Sound Energy's election on 13
December 2023 (being six months from the first tranche draw down)
and can be drawn sooner if mutually agreed by the Company and the
Investor. The second tranche can be drawn subject to the Company's
closing mid-price of its ordinary shares on the business day
immediately preceding the proposed issue date being at least 1.32
pence per ordinary share. The second tranche conversion price will
be fixed at the time of draw down at a 25% premium to the five-day
volume weighted average price ("VWAP") from the business day
immediately preceding the second tranche drawdown date.
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.
Subject to the draw down in full of both tranches of the
Convertible Notes, the Company is now funded for its near-term
working capital requirements until year end 2023.
Other key terms of the Convertible Notes:
-- Issue price and redemption price on maturity: 100% of par value
-- Early redemption/change of control: callable in cash by the
Company at any time after draw down or in the event of a change of
control of the Company at 110% of par value together with all
unpaid interest. If the Convertible Notes 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 of the relevant issue date will be 15% of
the Convertible Notes, and in respect of any early redemption
occurring after the second anniversary of the relevant issue date
will be 10% of the Convertible Notes. The Investor shall have two
trading days to elect to convert some or all of outstanding amounts
or accept the early redemption. In the event of default,
Convertible Notes will be redeemable immediately at 120% of par
value of outstanding Convertible Notes plus accrued interest.
-- Conversion: convertible into Sound Energy ordinary shares at
each tranche's fixed conversion price in whole or in part. Upon
conversion, interest shall be rolled up and paid as if the
Convertible Notes were held to the redemption date (being five
years from draw down), with such interest convertible at the lower
of the applicable fixed conversion price and the average of the
five daily VWAP calculations selected by the Investor out of the 15
trading days prior to the conversion date.
-- Other conversion terms: any conversion notice must be for
minimum of GBP250,000. No more than 20% of the initial principal of
the Convertible Notes may be converted in any given calendar month.
If the Company's five-day VWAP exceeds 3.00 pence per ordinary
share in any given month, the conversion limit will be increased
for the relevant month to 50% of each draw down amount. If the
Company's five-day VWAP exceeds 3.50 pence per ordinary share in
any given month, the conversion limit will be removed for the
relevant month.
-- Second tranche draw down condition: the Company must maintain
available share issuance authority headroom and disapplication of
pre-emption rights to cover 150% of any draw down amount divided by
the VWAP on the day immediately preceding a draw down.
-- Warrants: 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 three years. If the second tranche is
drawn down, additional warrants over such number of new ordinary
shares as represents 30% of the par value of tranche 2 Convertible
Notes drawn down, with an exercise price at the conversion price of
the tranche 2 Convertible Notes and a term of three years.
Commenting, Graham Lyon (Executive Chairman) said:
"We are very pleased to have entered into exclusivity and a term
sheet with Calvalley, who have operations in the Middle East and
are supported by a very large conglomerate. The envisaged
arrangement would fund the further development of Tendrara
Concession and the drilling of a well on the nearby TE-4 Horst. The
companies will now work towards signing definitive transaction
documentation which upon completion will enable the parties
together to jointly progress to the Final Investment Decision.
I am also pleased that we have raised financing for the Company
using a fixed price convertible debt facility, convertible at a
premium to the prevailing share price, which provides the Company
with additional resources with which to continue to execute its
Phase 1 development and to progress the Phase 2 development."
Fee Shares and Warrant Issuance
In connection with the issue of the Convertible Notes, the
Company has agreed to issue 11,404,221 new ordinary shares in lieu
of cash fees ("Fee Shares") to the Investor and Gneiss Energy
Limited ("Gneiss"), the Company's financial adviser, at an
effective issue price of 1.76 pence per new ordinary share (the
"Fee Shares") and warrants over a total of 40,476,190 new ordinary
shares in total to the Investor and Gneiss, exercisable at 2.25
pence per ordinary share for a period of three years.
Admission and Total Voting Rights
Application has been made for admission of the Fee Shares to
trading on AIM, and it is expected that admission will occur on or
around 19(th) June 2023 ("Admission"). The Fee Shares will rank
pari passu with the Company's existing ordinary shares.
On Admission, the total issued share capital of the Company will
consist of 1,860,106,895 ordinary shares. The Company does not hold
any ordinary shares in treasury. Therefore, the total number of
voting rights in the Company is 1,860,106,895 and this figure may
be used by shareholders in the Company as the denominator for the
calculations by which they will determine if they are required to
notify their interest in, or a change in their interest in, the
share capital of the Company under the FCA's Disclosure Guidance
and Transparency Rules.
For further information visit www.soundenergyplc.com follow on
twitter @soundenergyplc
or contact:
Flagstaff Strategic and Investor sound@flagstaffcomms.com
Communications Tel: +44 (0)20 129 1474
Tim Thompson
Mark Edwards
Alison Allfrey
Sound Energy chairman@soundenergyplc.com
Graham Lyon, Executive Chairman
Cenkos Securities - Nominated Adviser Tel: +44 (0)20 7397 8900
Ben Jeynes
Peter Lynch
SP Angel Corporate Finance LLP - Tel: +44 (0)7789 865 095
Broker
Richard Hail
Gneiss Energy Limited - Financial Tel: +44 (0)20 3983 9263
Adviser
Jon Fitzpatrick
Paul Weidman
Doug Rycroft
The information contained in this announcement has been reviewed
by Sound Energy's Vice President, Geoscience, Dr John Argent, who
is a Chartered Geologist, a Fellow of the Geological Society of
London and a Member of the Petroleum Exploration Society of Great
Britain, with 25 years of experience in petroleum geology and
management and who is the qualified person as defined in the
guidance note for mining, oil and gas companies issued by the
London Stock Exchange in respect of AIM companies.
Gas Initially-in-Place (GIIP) is the total quantity of gaseous
petroleum that is estimated to exist originally in naturally
occurring reservoirs, as of a given date.
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END
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