TIDMSOU
RNS Number : 9222L
Sound Energy PLC
16 September 2021
16 September 2021
SOUND ENERGY PLC
("Sound Energy" the "Company" and together with its subsidiaries
the "Group")
HALF YEARLY REPORT FOR THE SIX MONTHSED 30 JUNE 2021
Sound Energy, the Moroccan focused upstream gas company,
announces its unaudited half-year report for the six months ended
30 June 2021.
HIGHLIGHTS
Development of the Tendrara Production Concession
-- Advancement of Phase 1 Micro LNG engineering and commercial gas sales contracts
o Post period execution of conditional LNG sales agreement with
Afriquia Gaz
o The agreement covers a 10 year Take or Pay liquefied natural
gas sale and purchase at Tendrara
o Advanced negotiation on $18 million loan from Afriquia Gaz, a
condition precedent, to be satisfied by 29(th) October 2021
o Progressed discussions with Italfluid, Micro LNG facilities
provider on Lease to Own facilities and Operations and Maintenance
contract
-- Advancement of Phase 2 pipeline development discussions on
long term take or pay gas sales agreement
Exploration and growth
-- Post period Anoual exploration permit extended for a further year
-- Post period completion of acquisition of Schlumberger Silk Route Services Limited
Corporate
-- Successful restructuring of EUR28.8 million corporate loan notes in April 2021
-- Reduction in administrative expenses by approximately 40% compared with 2020
-- Receipt of circa EUR183,000 first payment for disposal of Badile land in Italy
-- Post period equity subscription by Afriquia Gaz of GBP2.0 million
Graham Lyon, Executive Chairman said:
"A huge amount of work has been completed so far this year and
much remains to be concluded during the remainder of 2021. Having
secured a long-term LNG sales agreement with Afriquia Gaz, we have
established a route to market for our gas and following completion
of the proposed $18M loan from Afriquia Gaz, the Company will have
financing for the Sound Energy share of the Phase 1 development.
With important catalysts to come in the near term, I look forward
to updating shareholders further as we progress towards the
development phase of the project and to becoming a revenue
generating business. I would like to thank all our staff,
contractors, partners, noteholders, shareholders and other
stakeholders for their commitment and support. I feel confident
that Sound Energy is moving in the right direction and is building
a business that will deliver real value for our investors by
playing our part in fuelling the energy transition."
Enquiries:
Vigo Consulting - PR Adviser Tel: 44 (0)20 7390
Patrick d'Ancona 0230
Chris McMahon
Sound Energy Chairman@soundenergyplc.com
Graham Lyon, Executive Chairman
Cenkos Securities - Nominated Adviser Tel: 44 (0)20 7397
Ben Jeynes 8900
Russell Cook
SP Angel Corporate Finance LLP Tel:44 7789 865 095
Richard Hail
Statement from the Executive Chairman
Fuelling the Energy Transition
Whilst the effects of COVID-19 meant a continuation of a
challenging business environment during the first half of 2021, the
Company was able to maintain delivery on its strategy of
progressing towards becoming a revenue generating Company. The
Tendrara Horst development will help fuel the energy transition by
providing lower carbon footprint fuel in Morocco. Our substantial
exploration base may indeed provide a future energy supply, however
monetising our discovered resource now will provide domestic LNG to
the industrial users in Morocco displacing presently imported fuels
with a deeper carbon footprint. Key milestones achieved were the
announcement of the acquisition of an additional Eastern Morocco
interest from Schlumberger (completed post period end) and, also
post period, the execution of the conditional LNG Sales Agreement
with Afriquia Gaz. The latter was a transformational milestone for
the Company as it seeks to move into a cash generative position and
become the leading gas developer in Morocco. Additionally post
period the Anoual Licence agreement was extended a further year due
to force majeure.
Protecting Shareholder Equity and Company Cash
The Company was able to successfully restructure its Luxembourg
listed EUR 28.8m 5% senior secured notes by engaging proactively
with noteholders to agree a suitable restructuring without
substantial equity dilution.
Post period GBP2.0 million of equity was placed with Afriquia
Gaz at 1.25p per share in connection with the LNG Sales Agreement,
providing the Company with important liquidity.
The Company has received notices of potential taxation claims
from the Moroccan Tax Authorities which are being robustly
challenged. In the Company's view, these stem from a fundamental
misunderstanding by the tax authority of the Hydrocarbon Code in
Morocco and of historical licence awards. Post the half year, one
of the claims put forward has been judged as redundant by the Local
Tax Committee.
Eastern Morocco Portfolio
In June the Company announced that it had entered into a sale
and purchase agreement with Schlumberger Holdings II Limited to
acquire the entire issued share capital of Schlumberger Silk Route
Services Limited. With this acquisition now completed, the Group
has increased participating interests in Anoual and Greater
Tendrara of 75%. A Profit Sharing Deed has been entered into
whereby Schlumberger gains a minority share in the profits from the
concession development. The acquisition positions the Company to
generate enhanced returns, cashflow and value as it moves forwards
towards the phased development of the TE-5 Horst via the Phase 1
Micro LNG (mLNG) development and the Phase 2 pipeline
development.
Phase 1 Micro LNG Development
Post review period, the Group announced an important milestone -
the signature of an LNG Gas sales Agreement with Afriquia Gaz,
which is the first such agreement to be reached in Morocco. The
agreement, which remains subject to the satisfaction of conditions
precedent, is a ten year take or pay LNG GSA where Afriquia Gaz
commits to purchase not less than 100,000 cubic metres a year of
gas produced and liquified from the Phase 1 Development Concession
joint venture. The agreement was accompanied by a GBP2 million
equity investment by Afriquia Gaz into Sound Energy. The Company is
now in the advanced stages of negotiating an $18 million loan from
Afriquia Gaz, with a 6% annual coupon and a 12-year term, that on
completion will see Sound Energy fully funded for the Phase 1
development at Tendrara, even with its increasing participating
interest following completion of the Schlumberger Silk Route
Services acquisition.
Phase 2 Tendrara TE-5 Development
The Group continued to make progress in advancing the
development of the Tendrara TE-5 discovery. Despite the
difficulties imposed by the Covid-19 pandemic, positive discussions
with ONEE have continued in order to finalise the long term take or
pay gas sales agreement for gas offtake. This will form a key
building block to support project sanction of the proposed TE-5
Phase 2 development.
Corporate
In March 2021 we announced the proposals in relation to the
restructuring of the Company's Luxembourg listed EUR 28.8m 5%
senior secured notes and in April these proposals were approved.
The restructured debt now has a coupon of 2% (with a deferred 3%
coupon paid at redemption), a six-year maturity to 21 December 2027
and the outstanding amount will be partially amortised at a rate of
5% every six months commencing 21 December 2023. Additionally, EUR
3,479,999 of the secured notes was converted into ordinary shares
in the Company at a conversion price of 2.125 pence per ordinary
share. The restructuring of the debt position is a key milestone
for the Company, and I am delighted that we managed to execute this
without major dilution to existing shareholders. It allows Sound
Energy now to focus on the progression and completion of our Phase
1 and Phase 2 projects from a stable financial platform.
Additionally, in March we received the first payment for the
disposal of Badile land in northern Italy, receiving sales proceeds
of circa EUR 183,000 net of fees. We expect to receive the
consideration for the sale of the second tranche of land later in
2021.
A huge amount of work has been completed so far this year and
much remains to be concluded during the remainder of 2021. Having
secured a long-term LNG sales agreement with Afriquia Gaz, we have
established a route to market for our gas and following completion
of the proposed $18M loan from Afriquia Gaz, the Company will have
financing for the Sound Energy share of the Phase 1 development.
With important catalysts to come in the near term, I look forward
to updating shareholders further as we progress towards the
development phase of the project and to becoming a revenue
generating business. I would like to thank all our staff,
contractors, partners, noteholders, shareholders and other
stakeholders for their commitment and support. I feel confident
that Sound Energy is moving in the right direction and is building
a business that will deliver real value for our investors by
playing our part in fuelling the energy transition.
Graham Lyon
Executive Chairman
Operations Review
Tendrara Development: Micro LNG
Sound Energy is pursuing the Field Development Plan underpinning
the Tendrara Production Concession centred around, the TE-5 Horst
gas discovery. The development is progressing in two phases. Phase
1 is intended to prioritise early first cash flows from the
Concession via a micro liquified natural gas ("mLNG") production
scheme ahead of Phase 2, development of the full field that will
include the installation of a 120km gas export pipeline to fully
unlock the gas potential of this region.
Progress of the Phase 1 Development Project
This first phase focuses on area of the existing TE-6 and TE-7
wells of the TE-5 Horst. First gas is planned to be achieved by
tying the currently suspended TE-6 and TE-7 gas wells with
flowlines connected to the inlet of a skid mounted, micro LNG
plant. The environmental impact assessment for the micro LNG
facility has been approved under the existing field development
plan.
Following the Company announcing on the 23 December 2020 that it
had signed a letter of exclusivity with Italfluid Geoenergy S.r.l.
with the intention to negotiate and enter a binding project
contract, the parties have continued to make significant progress
on these discussions throughout 2021. The project contract will
include the necessary design, construction, commissioning,
operation, and maintenance of the micro LNG facilities under a
lease arrangement. The micro LNG facilities, which will also treat,
and process raw gas produced from the wells prior to liquefaction,
is the substantial part of the surface facilities required to be
built and operated as part of this first phase of development. LNG
will be delivered on-site to the outlet of the micro LNG facilities
for sale and distribution to the industrial market.
During 2021 a binding gas offtake and sales agreement was
negotiated with Afriquia Gas SA, part of the Moroccan Akwa Group,
and a national leader in the distribution of liquefied petroleum
gas, butane and propane. Post-period, a binding gas sales agreement
was signed with Afriquia Gaz with a 10-year take or pay commitment
from first gas to sell a minimum of 100 million standard cubic
metres per annum priced at $6-8.346 per MMBtu (from the plant).
Afriquia Gaz will be responsible for the transportation,
distribution and marketing of the LNG including the associated
capital costs of these downstream operations beyond the outlet of
the LNG plant.
The agreement with Afriquia Gaz SA included a UK GBP2 million
equity investment for a 9.8% stake of Sound Energy plc and access
to loan financing consisting of an US$18 million loan note, the
final details of which are under discussion.
Additionally, the Company has held discussions with a number of
technical consultancies and contractors for the provision of well
and flow line services required to tie the TE-6 and TE-7 wells into
the micro LNG facilities.
Next key steps to progress the project include execution of the
funding documentation for the US$18 million loan note with Afriquia
Gaz and execution of the micro LNG plant contract with Italfluid
Geoenergy to allow to Company and joint venture partners to take
the final investment decision ('FID') for Phase 1 of the TE-5 Horst
gas development by year end.
Eastern Morocco
Development and Exploration
Our Eastern Morocco Licences comprising the Tendrara Production
Concession, Anoual and Greater Tendrara are positioned in a region
containing a continuity 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 Tendrara
Production Concession. Exploration drilling beyond the region of
the Production 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, processing and ongoing
interpretation studies. These features are internally classified as
either prospects, leads or concepts based on their level of
technical maturity and represent potential future exploration
drilling targets.
On the 14 June 2021 the Group announced entering into a sale and
purchase agreement with Schlumberger Holdings II Limited to acquire
the entire issued share capital of Schlumberger Silk Route Services
Limited.
Acquisition Highlights:
-- The Group will have increased participating interests in in
the Anoual and Greater Tendrara exploration permits in Eastern
Morocco (the "Exploration Permits") by 27.5% to 75%, together with
full control over its 75% participating interest in the Tendrara
Concession
-- Positions Sound Energy to generate enhanced returns, cashflow
and value as it moves forward the phased development of the TE-5
Horst
-- Significantly enhances discovered and undiscovered resource position
-- Underlines Sound Energy's position as a leading gas developer in country
-- Sound Energy will remain fully funded for its increased 75%
working interest of planned phase 1 Tendrara Concession capital
investments required until first gas, subject to finalising funding
arrangements previously announced with Afriquia Gaz, our strategic
partner and a major participant in the Moroccan gas industry
Schlumberger Silk Route Services Limited holds a 27.5%
participating interest in the Anoual and Greater Tendrara
exploration permits in Eastern Morocco together with a 27.5%
indirect interest in the Tendrara Concession through its
contractual relationship with the Group. Following completion of
the Acquisition, Sound Energy will control operated working
interests of 75% in the Exploration Permits and in the
Concession.
In consideration for the Acquisition, the Group shall make an
initial payment of one US dollar to the Schlumberger Holdings II
Limited in cash on completion and may make future payments to the
Seller pursuant to a Profit Sharing Deed.
Under the principal terms of the Profit Sharing Deed, the Group
will pay to Schlumberger Holdings II Limited an amount equivalent
to between 8% and 11% of total net profits (after costs, taxes and
other applicable deductions) arising from the Tendrara Concession
over a period of 12 years from first commercial production from the
Concession. In the event of a cash disposal by the Group of part or
the whole of the Schlumberger Silk Route Services Limited's
interest in the Exploration Permits on or before 28 February 2023,
Schlumberger Holdings II Limited would be entitled to receive from
Sound Energy 27.5% of the net cash proceeds related to the disposal
of the Schlumberger Silk Route Services Limited Permit Interest,
rising to 55% of proceeds related to the SSRS Permit Interest in
the event of such a disposal occurring prior to 31 December
2021.
The Acquisition is conditional upon the Seller taking the
necessary steps (including settling all intercompany balances) on
or before 5 September 2021 to sell the entire issued share capital
of Schlumberger Silk Route Services Limited to Sound Energy on a
cash-free, debt-free basis at completion. Upon completion of the
Acquisition, Sound Energy will grant to Schlumberger Holdings II
Limited a share charge over 100% of the share capital of Sound
Energy Morocco East Limited, the Group's wholly owned subsidiary,
in connection with the Profit Sharing Deed and the Exploration
Permit Disposal Right. Under the terms of the Profit Sharing Deed,
there is a mechanism for reducing this share charge upon certain
milestones having been met and also for replacing the share charge
with an alternative security mechanism following the first payment
arising from the Profit Sharing Deed.
As at 31 December 2020, Schlumberger Silk Route Services Limited
had unaudited net assets of US$ 87.1 million and recorded a loss
for the year before tax of US$ 0.2 million.
TRARA CONCESSION
- 25 years from September 2018
47.5% interest Operated Production permit 133.5 km(2) acreage, 4 wells drilled
(75% post completion of
acquisition)
----------------- ------------------------------------
Eastern Morocco licences
GREATER TRARA
- 8 years from September 2018
47.5% interest Operated Exploration permit 14,411 km(2) acreage,
(75% post completion 8 wells drilled
of acquisition)
------------------ ----------------------------
ANOUAL
- 9 years and 4 months from September 2017
47.5% interest Operated Exploration permit 8,873 km(2) , 1 well drilled
(75% post completion
of acquisition)
------------------ ----------------------------
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 km(2)
. The Group views the Sidi Moktar licences as an exciting
opportunity to explore high impact prospectivity within the
pre-salt Triassic and Palaeozoic plays in the underexplored
Essaouira Basin in the West of Morocco. In June 2018, Ministerial
approval was received for a new eight year Sidi Moktar Onshore
Petroleum Agreement, consisting of a two years and six months
initial period, a first extension period of three years, and a
second extension period of two years and six months. Due to
disruption caused by the impact of the Covid-19 pandemic, during
which the Group undertook regular dialogue with the regulatory
authorities, ONHYM approved a 24-month extension to the initial
period of the Sidi Moktar Petroleum Agreement in order for the
Group to complete the committed work programme. The work programme
commitments for the initial period remain unchanged. The lengths of
the first and second complimentary periods, which would commence
upon the successful completion of the recently extended initial
period, also remain unchanged.
The Sidi Moktar permit hosts a variety of proven plays. The
licences 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 licences. 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 the 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. We believe that the
deeper, pre-salt Triassic and Palaeozoic plays may contain
significant prospective resources, in excess of any discovered
volumes in the shallower stratigraphy.
Our evaluation of the exploration potential of Sidi Moktar,
following an independent technical review, includes a mapped
portfolio of 27 Jurassic, 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, pre-salt plays.
Subject to financing, we aim to commence acquisition of the
committed, high quality 2D seismic data in 2021, focused on
improving trap imaging. Preparations for this seismic acquisition
campaign have commenced with the completion and approval of an EIA
in late 2019. This approval, which concerns 25 territorial communes
of the province of Essaouira and 11 territorial communes of the
province of Chichaoua, is an important step in the local permitting
process and enables the Group to continue its preparations for the
seismic acquisition campaign.
The Group has also undertaken an invitation to tender for
acquisition and processing of the 2D seismic survey and received
responses from multiple seismic service providers and continues
discussions with a shortlist of providers. This work is planned to
culminate in an exploration well, targeting a deep prospect in
2023. The Group 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.
Condensed Interim Consolidated Income Statement
Six months Six months
ended ended Year ended
30 June 30 June 31 Dec
2021 2020 2020
Unaudited Unaudited Audited
Notes GBP'000s GBP'000s GBP'000s
------------------------------------------------- ----- ---------- ---------- ----------
Other income 3 221 - -
Impairment of development assets and exploration
costs (3,684) - (9,777)
------------------------------------------------- ----- ---------- ---------- ----------
Gross profit/(loss) (3,463) - (9,777)
------------------------------------------------- ----- ---------- ---------- ----------
Administrative expenses (1,028) (1,700) (2,904)
------------------------------------------------- ----- ---------- ---------- ----------
Group operating loss from continuing operations (4,491) (1,700) (12,681)
------------------------------------------------- ----- ---------- ---------- ----------
Finance revenue 1 26 46
Foreign exchange gain/(loss) 416 2,890 (2,877)
Finance expense (1,712) (1,596) (3,304)
------------------------------------------------- ----- ---------- ---------- ----------
Loss for period before taxation (5,786) (380) (18,816)
------------------------------------------------- ----- ---------- ---------- ----------
Tax expense 4 (42) - -
------------------------------------------------- ----- ---------- ---------- ----------
Loss for period after taxation (5,828) (380) (18,816)
Other comprehensive (loss)/income
Items that may subsequently be reclassified
to profit and loss account:
Foreign currency translation (loss)/income (1,472) 8,044 (4,010)
------------------------------------------------- ----- ========== ========== ==========
Total comprehensive (loss)/income for
the period attributable to equity holders
of the parent (7,300) 7,664 (22,826)
------------------------------------------------- ----- ========== ========== ==========
Pence Pence Pence
------------------------------------------------- ----- ---------- ========== ==========
Basic and diluted loss per share for the
period attributable to equity holders of
the parent 5 (0.42) (0.03) (1.54)
------------------------------------------------- ----- ---------- ---------- ----------
Condensed Interim Consolidated Balance Sheet
30 June 30 June 31 Dec
2021 2020 2020
Unaudited Unaudited Audited
Notes GBP'000s GBP'000s GBP'000s
-------------------------------- ----- ---------- ----------- ----------
Non-current assets
Property, plant and equipment 6 128,175 157,490 133,387
Intangible assets 7 30,589 33,434 30,657
Interest in Badile land 730 1,002 988
-------------------------------- ----- ---------- ----------- ----------
159,494 191,926 165,032
-------------------------------- ----- ---------- ----------- ----------
Current assets
Inventories 851 1,084 912
Other receivables 1,586 1,669 1,371
Prepayments 105 51 23
Cash and short term deposits 2,261 4,206 4,468
-------------------------------- ----- ---------- ----------- ----------
4,803 7,010 6,774
-------------------------------- ----- ---------- ----------- ----------
Total assets 164,297 198,936 171,806
-------------------------------- ----- ---------- ----------- ----------
Current liabilities
Trade and other payables 2,068 3,028 2,206
Lease liabilities - 156 30
Loans and borrowings 8 - 23,845 24,709
-------------------------------- ----- ---------- ----------- ----------
2,068 27,029 26,945
-------------------------------- ----- ---------- ----------- ----------
Non-current liabilities
Loans and borrowings 8 20,098 - -
-------------------------------- ----- ---------- ----------- ----------
20,098 - -
-------------------------------- ----- ---------- ----------- ----------
Total liabilities 22,166 27,029 26,945
-------------------------------- ----- ---------- ----------- ----------
Net assets 142,131 171,907 144,861
-------------------------------- ----- ---------- ----------- ----------
Capital and reserves
Share capital and share premium 32,558 26,294 29,540
Warrant reserve 1,534 4,090 4,090
Foreign currency reserve (7,575) 5,951 (6,103)
Accumulated surplus 115,614 135,572 117,334
-------------------------------- ----- ---------- ----------- ----------
Total equity 142,131 171,907 144,861
-------------------------------- ----- ---------- ----------- ----------
Condensed Interim Consolidated Statement of Changes in
Equity
Foreign
Share Share Accumulated Warrant currency Total
capital premium surplus reserve reserves equity
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------ --------- --------- ----------- --------- --------- ---------
At 1 January 2021 13,262 16,278 117,334 4,090 (6,103) 144,861
------------------------------ --------- --------- ----------- --------- --------- ---------
Total loss for the period - - (5,828) - - (5,828)
Other comprehensive income - - - - (1,472) (1,472)
------------------------------ --------- --------- ----------- --------- --------- ---------
Total comprehensive income
for the period - - (5,828) - (1,472) (7,300)
Issue of share capital 1,423 1,595 - - - 3,018
Fair value of warrants issued
during the period - - - 1,534 - 1,534
Reclassification on expiry
of warrants - - 4,090 (4,090) - -
Share based payments - - 18 - - 18
------------------------------ --------- --------- ----------- --------- --------- ---------
At 30 June 2021 (unaudited) 14,685 17,873 115,614 1,534 (7,575) 142,131
------------------------------ --------- --------- ----------- --------- --------- ---------
At 1 January 2020 10,796 14,039 135,481 4,090 (2,093) 162,313
------------------------- ------ ------ -------- ----- ------- --------
Total loss for the year - - (18,816) - - (18,816)
Other comprehensive loss - - - - (4,010) (4,010)
------------------------- ------ ------ -------- ----- ------- --------
Total comprehensive loss - - (18,816) - (4,010) (22,826)
Issue of share capital 2,466 2,656 - - - 5,122
Share issue costs - (417) - - - (417)
Share based payments - - 669 - - 669
------------------------- ------ ------ -------- ----- ------- --------
At 31 December 2020 13,262 16,278 117,334 4,090 (6,103) 144,861
------------------------- ------ ------ -------- ----- ------- --------
Foreign
Share Share Accumulated Warrant currency Total
capital premium surplus reserve reserves equity
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------- --------- --------- ----------- --------- --------- ---------
At 1 January 2020 10,796 14,039 135,481 4,090 (2,093) 162,313
----------------------------- --------- --------- ----------- --------- --------- ---------
Total loss for the period - - (380) - - (380)
Other comprehensive income - - - - 8,044 8,044
----------------------------- --------- --------- ----------- --------- --------- ---------
Total comprehensive loss for
the period - - (380) - 8,044 7,664
Issue of share capital 822 816 - - - 1,638
Share issue costs - (179) - - - (179)
Share based payments - - 471 - - 471
----------------------------- --------- --------- ----------- --------- --------- ---------
At 30 June 2020 (unaudited) 11,618 14,676 135,572 4,090 5,951 171,907
----------------------------- --------- --------- ----------- --------- --------- ---------
Condensed Interim Consolidated Statement of Cash Flows
Year
Six months Six months ended
ended ended 31 Dec
30 June 30 June 2020
2021 Unaudited 2020 Unaudited Audited
GBP'000s GBP'000s GBP'000s
-------------------------------------------- --------------- --------------- ---------
Cash flow from operating activities
Cash flow from operations (1,079) (630) (1,873)
Interest received 1 26 46
Tax paid (42) - -
--------------------------------------------- --------------- --------------- ---------
Net cash flow from operating activities (1,120) (604) (1,827)
--------------------------------------------- --------------- --------------- ---------
Cash flow from investing activities
Capital expenditure (290) (201) (461)
Exploration expenditure (246) (528) (821)
Net cash flow from investing activities (536) (729) (1,282)
--------------------------------------------- --------------- --------------- ---------
Cash flow from financing activities
Net proceeds from equity issue - 1,352 4,589
Interest payments (587) (622) (1,269)
Lease payments (15) (30) (128)
--------------------------------------------- --------------- --------------- ---------
Net cash flow from financing activities (602) 700 3,192
--------------------------------------------- --------------- --------------- ---------
Net (decrease)/increase in cash and cash
equivalents (2,258) (633) 83
Net foreign exchange difference 51 231 (223)
Cash and cash equivalents at the beginning
of the period 4,468 4,608 4,608
--------------------------------------------- --------------- --------------- ---------
Cash and cash equivalents at the end of the
period 2,261 4,206 4,468
--------------------------------------------- --------------- --------------- ---------
Notes to Statement of Cash Flows
Year
Six months Six months ended
ended ended 31 Dec
30 June 30 June 2020
2021 Unaudited 2020 Unaudited Audited
GBP'000s GBP'000s GBP'000s
------------------------------------------------- --------------- --------------- ---------
Cash flow from operations reconciliation
Loss for the period before tax (5,786) (380) (18,816)
Finance revenue (1) (26) (46)
Decrease/(Increase) in drilling inventories 61 (70) 102
(Increase)/decrease in short term receivables
and prepayments (297) (187) 139
(Decrease)/increase in accruals and short
term payables (155) 550 (315)
Impairment of development assets and exploration
costs 3,684 - 9,777
Depreciation 101 198 328
Share based payments charge and remuneration
paid in shares 18 579 777
Finance costs and exchange adjustments 1,296 (1,294) 6,181
Cash flow from operations (1,079) (630) (1,873)
-------------------------------------------------- --------------- --------------- ---------
Non-cash transactions during the period included the issue of
141,176,448 ordinary shares, at a price of 2.125 pence per share,
to the Company's bondholders as part of the restructuring of the
corporate bond. 322,365 ordinary shares were issued following the
exercise by the Company's former employees of Restricted Stock
Units (RSU) awards that had vested, and 808,095 ordinary shares
were issued to a third party in settlement of GBP15,000 due for
services provided.
The Group has provided collateral of $1.75 million (December
2020: $1.75 million) to the Moroccan Ministry of Petroleum to
guarantee the Group's minimum work programme obligations. 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
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 2020 is based on the statutory accounts for the
year ended 31 December 2020. 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 2020 statutory accounts and in accordance with IAS 34
Interim Financial Reporting.
The seasonality or cyclicality of operations does not impact on
the interim financial statements.
Going concern
As at 31 August 2021, the Group's cash balance was GBP3.6
million (including approximately GBP1.3 million held as collateral
for a bank guarantee against licence commitments). The Directors
have reviewed the Company's cash flow forecasts for a range of
micro-LNG FID timing scenarios and reflecting expected costs. While
the micro-LNG project itself is expected to be fully financed
through associated commercial arrangements, the forecasts and
projections indicate that a delay in the project sanctioning will
require the Company to seek additional funding to cover its
obligations.
The COVID-19 pandemic has not had a material impact on the
Company's operations, but a deterioration could lead to a delay in
the micro-LNG project and therefore impact the Company's
liquidity.
These conditions indicate the existence of a material
uncertainty which may cast significant doubt about the Company's
ability to continue as a going concern. These condensed interim
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 cost control to conserve
cash resources and the Directors believe that there are several
corporate funding options available to the Company and therefore
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 condensed interim 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 2021
are as follows:
Segment results for the period ended 30 June 2021
Development Exploration
Corporate & Production & Appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------------------------- --------- ------------- ------------ ---------
Other income - - 221 221
Impairment of development assets and exploration
costs - (3,684) - (3,684)
Administration expenses (1,028) - - (1,028)
------------------------------------------------- --------- ------------- ------------ ---------
Operating loss segment result (1,028) (3,684) 221 (4,491)
------------------------------------------------- --------- ------------- ------------ ---------
Interest receivable 1 - - 1
Finance costs and exchange adjustments (1,296) - - (1,296)
------------------------------------------------- --------- ------------- ------------ ---------
Loss for the period before taxation (2,323) (3,684) 221 (5,786)
------------------------------------------------- --------- ------------- ------------ ---------
The segments assets and liabilities at 30 June 2021 are as
follows:
Development Exploration
Corporate & Production & Appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- ------------- ------------ ---------
Non-current assets 804 128,101 30,589 159,494
Current assets 2,573 941 1,289 4,803
Liabilities attributable to continuing
operations (21,147) (65) (954) (22,166)
--------------------------------------- --------- ------------- ------------ ---------
The geographical split of non-current assets is as follows:
Europe Morocco
GBP'000s GBP'000s
---------------------------------------- --------- ---------
Development and production assets - 128,101
Interest in Badile land 730 -
Fixtures, fittings and office equipment 5 67
Right-of-use assets 2 -
Exploration and evaluation assets - 30,562
Software - 27
---------------------------------------- --------- ---------
Total 737 158,757
---------------------------------------- --------- ---------
Segment results for the period ended 30 June 2020
Development Exploration
Corporate & Production & Appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- ------------- ------------ ---------
Administration expenses (1,700) - - (1,700)
--------------------------------------- --------- ------------- ------------ ---------
Operating loss segment result (1,700) - - (1,700)
--------------------------------------- --------- ------------- ------------ ---------
Interest receivable 26 - - 26
Finance costs and exchange adjustments 1,294 - - 1,294
--------------------------------------- --------- ------------- ------------ ---------
Loss for the period before taxation (380) - - (380)
--------------------------------------- --------- ------------- ------------ ---------
The segments assets and liabilities at 30 June 2020 were as
follows:
Development Exploration
Corporate & Production & Appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------------------------------- --------- ------------- ------------ ---------
Non-current assets 1,327 157,165 33,434 191,926
Current assets 4,442 785 1,783 7,010
Liabilities attributable to continuing operations (25,148) - (1,881) (27,029)
-------------------------------------------------- --------- ------------- ------------ ---------
The geographical split of non-current assets was as follows:
Europe Morocco
GBP'000s GBP'000s
---------------------------------------- --------- ---------
Development and production assets - 157,165
Interest in Badile land 1,002 -
Fixtures, fittings and office equipment 19 166
Right-of-use assets 61 79
Exploration and evaluation assets - 33,333
Software - 101
---------------------------------------- --------- ---------
Total 1,082 190,844
---------------------------------------- --------- ---------
Segment results for the year ended 31 December 2020
Exploration
Development &
Corporate & Production Appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------------------------- --------- ------------- ----------- ---------
Impairment of development assets and exploration
costs - (9,787) 10 (9,777)
Administration expenses (2,904) - - (2,904)
------------------------------------------------- --------- ------------- ----------- ---------
Operating loss segment result (2,904) (9,787) 10 (12,681)
------------------------------------------------- --------- ------------- ----------- ---------
Interest receivable 46 - - 46
Finance costs and exchange adjustments (6,181) - - (6,181)
------------------------------------------------- --------- ------------- ----------- ---------
Loss for the period before taxation from
continuing operations (9,039) (9,787) 10 (18,816)
------------------------------------------------- --------- ------------- ----------- ---------
The segments assets and liabilities at 31 December 2020 were as
follows:
Exploration
Development &
Corporate & Production Appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------------- --------- ------------- ----------- ---------
Non-current assets 1,192 133,243 30,597 165,032
Current assets 4,598 800 1,376 6,774
Liabilities of continuing operations (25,878) (58) (1,009) (26,945)
------------------------------------- --------- ------------- ----------- ---------
The geographical split of non-current assets is as follows:
Europe Morocco
GBP'000s GBP'000
---------------------------------------- --------- --------
Development and production assets - 133,243
Interest in Badile land 988 -
Fixtures, fittings and office equipment 5 108
Right-of-use assets 31 -
Exploration and evaluation assets - 30,597
Software - 60
---------------------------------------- --------- --------
Total 1,024 164,008
---------------------------------------- --------- --------
3. Other income
30 June 30 June 31 Dec
2021 2020 2020
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
-------------------------------------------- ----------- ----------- ----------
Research and development expenditure credit 221 - -
-------------------------------------------- ----------- ----------- ----------
During the period the Company's subsidiaries received credit
under the HMRC 's Research and Development Expenditure Credit
(RDEC) scheme for qualifying activities undertaken during 2018 and
2019. A contingent asset was not recognised when the expenditure
was incurred due to uncertainty as to whether it would qualify for
a credit under the RDEC scheme.
4. Taxation
30 June 30 June 31 Dec
2021 2020 2020
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
------------ ----------- ----------- ----------
Tax expense (42) - -
------------ ----------- ----------- ----------
The tax expense, at a rate of 19%, was paid on receipt of the
research and development expenditure credit (note 3).
In August 2020, the Group received a notification from the tax
authority in Morocco of its intention to assess Sound Energy
Morocco East Limited ("SEME") for additional withholding taxes and
VAT liabilities totalling approximately $14 million, and intention
to consider a revision of the tax bases for previously submitted
corporation tax returns, which could lead to additional corporate
taxes being assessed. The Group believes that the assessment arises
from a misunderstanding of the underlying transactions and appealed
the Local tax committee ("LTC"). According to the tax authority
original assessment, the main assessment related to the historical
licensing changes detailed in the notification related to the
Tendrara Lakbir Exploration Permits and the transfer of
Operatorship from Sound Energy Morocco SARL AU ("SARL AU") to SEME
raised taxation claims against SEME. The Moroccan Tax
Administration sought to justify this tax claim asserting a
so-called acquisition of intangible assets from SARL AU by SEME. In
August 2021 the Group received written notification that the LTC
found the assessment on the transfer of intangible assets be
dropped. The LTC did not drop the assessment relating to the tax
authority's claim that there was a disposal of assets by SEME to
its partner, Schlumberger on entry to a brand-new petroleum
agreement for exploration at Greater Tendrara.
The Group has 60 days from the receipt of the LTC decision to
accept or challenge the decision in court. The Group continue to
believe that the remaining assessment arises from misinterpretation
of the underlying transactions and together with its advisors,
continue to seek to engage constructively with the authorities.
In May 2021, the Group received from the tax authority an
information request and a notification (1(st) notification) of its
intention to assess SARL AU. The information request levied
penalties (approximately $0.3 million) claiming late remittance of
withholding taxes and the notification intended to assess
additional VAT and withholding taxes of approximately $22.5
million, and in addition, sought to consider a revision of the tax
bases for previously submitted corporation tax returns, which could
lead to additional corporate taxes being assessed. The Group
believes that the assessment arises from a misunderstanding of the
historical licence relinquishment and intercompany funding
arrangements and in June 2021, appealed against the assessment.
Following SARL AU appeal, in August 2021, the tax authority issued
a notification ("2(nd) notification) retaining the assessment
included in the 1(st) notification but did not re-issue the
information request that had levied penalties for claimed late
remittance of withholding taxes. The Group has appealed against the
2(nd) notification. Following the Group's appeal, the tax authority
has up to 90 days to refer the matter to the LTC.
No liability has been recognised in the financial statements,
but the assessments are considered to be a contingent
liability.
5. 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
2021 2020 2020
GBP'000 GBP'000 GBP'000
------------------------------------------- -------- -------- -----------
Loss after tax from continuing operations (5,828) (380) (18,816)
------------------------------------------- -------- -------- -----------
million million million
--------------------------------- ------- ------- -------
Weighted average shares in issue 1,382 1,155 1,225
--------------------------------- ------- ------- -------
Pence Pence Pence
---------------------------------------------------------- ------ ------ ------
Basic and diluted profit/(loss) per share from continuing
operations (0.42) (0.03) (1.54)
---------------------------------------------------------- ------ ------ ------
Due to the loss for the period, the effect of the potential
dilutive shares on the earnings per share from continuing
operations would be anti-dilutive and therefore are not included in
the calculation of diluted earnings per share from continuing
operations.
6. Property, plant and equipment
30 June 30 June 31 Dec
2021 2020 2020
GBP'000s GBP'000s GBP'000s
-------------------------------------- ---------- ---------- ----------
Cost
At start of period 143,375 148,071 148,071
Additions 313 216 494
Derecognition on termination of lease - - (262)
Exchange adjustments (1,762) 10,118 (4,928)
At end of period 141,926 158,405 143,375
-------------------------------------- ---------- ---------- ----------
Depreciation
At start of period 9,988 729 729
Charge for period 3,753 163 10,048
Derecognition on termination of lease - - (193)
Exchange adjustments 10 23 (596)
-------------------------------------- ---------- ---------- ----------
At end of period 13,751 915 9,988
-------------------------------------- ---------- ---------- ----------
Net book amount 128,175 157,490 133,387
-------------------------------------- ---------- ---------- ----------
The impairment during the period has arisen following a change
in the underlying development cost assumptions for the Tendrara
production concession in line with latest market conditions.
7. Intangibles
30 June 30 June 31 Dec
2021 2020 2020
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
---------------------------- ----------- ----------- ----------
Cost
At start of period 41,552 41,631 41,631
Additions 363 603 939
Exchange adjustments (402) 2,094 (1,018)
---------------------------- ----------- ----------- ----------
At end of period 41,513 44,328 41,552
---------------------------- ----------- ----------- ----------
Impairment and Depreciation
At start of period 10,895 10,847 10,847
Charge for period 32 35 57
Exchange adjustments (3) 12 (9)
---------------------------- ----------- ----------- ----------
At end of period 10,924 10,894 10,895
---------------------------- ----------- ----------- ----------
Net book amount 30,589 33,434 30,657
---------------------------- ----------- ----------- ----------
8. Loans and borrowings
30 June 30 June 31 Dec
2021 2020 2020
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
---------------------- ----------- ----------- ----------
Current liability
Secured bonds - 23,845 24,709
Non-current liability
Secured bonds 20,098 - -
---------------------- ----------- ----------- ----------
In April 2021, the Company successfully restructured its then
outstanding EUR28.8 million secured bonds (the "Bonds"). Following
the restructuring the revised terms of the Bonds are as below:
1) The Maturity date of the Bonds was extended by six years from
21 June 2021 to 21 December 2027;
2) The outstanding principal amount of the Bonds will be
amortised, at a rate of 5% every six months, commencing on 21
December 2023;
3) Approximately EUR3.5 million of the Bonds were converted to a
total of 141,176,448 new ordinary shares in the Company at a
conversion price of 2.125 pence per share;
4) The Bonds bear until maturity 2% cash interest paid per annum
and 3% deferred interest per annum to be paid at redemption for the
period commencing on 21 June 2021;
5) 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
2021; and
6) The Company will have 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.
After taking account of the revised terms above, the effective
interest rate on the Bonds is approximately 6.2%.
9. Shares in issue and share based payments
As at 30 June 2021, the Company had 1,468,551,297 ordinary
shares in issue. In April 2021, the Company issued 141,176,448
million shares at 2.125 per share as part of the restructuring of
the Company's EUR28.8 million loan Notes. In May 2021, the Company
issued 322,365 shares following the exercise by the Company's
former employee of Restricted Stock Units (RSU) awards that had
vested. In June 2021, the Company issued 808,095 shares to a third
party as part settlement for services provided.
During the period to 30 June 2021, 0.6 million RSU awards vested
and in addition, 3.0 million share options and 52.4 million
warrants expired.
10. Post Balance Sheet events
In July 2021, the Company announced the signing, by its
subsidiary, SEME and Afriquia Gas S.A ("Afriquia"), of a binding
ten year LNG sales and purchase agreement (the "LNG SPA") for the
Company's micro-LNG phase 1 development for the TE-5 Horst
development at the Tendrara Production Concession in Morocco. In
addition, the Company announced the execution of equity
subscription agreement with Afriquia pursuant to which Afriquia
made a GBP2.0m subscription to the Company in consideration for
which the Company issued 159,731,631 new ordinary shares at a price
of 1.2521 pence per share to Afriquia. The LNG SPA is conditional
upon fulfilment of certain conditions precedent including:
-- The approval of the LNG SPA by the Concession joint venture;
-- The execution of a loan note agreement between the Company
(as borrower) and Afriquia (as lender) setting out the terms of an
US$ 18 million secured loan with a 6% annual coupon and a 12 year
term;
-- The execution of a project contract with Italfluid Geoenergy
S.r.l (Italfluid) for the provision of a gas processing and
liquefaction facility relating to the Phase 1 Development;
-- Receipt by Afriquia of regulatory approvals for the
transportation of LNG by tankers and the sale of LNG; and
-- Afriquia having secured in principle agreement from
downstream buyers to purchase not less than 60% of the Annual Take
or Pay Quantity under the LNG SPA
In August 2021, the Company announced the completion of the
acquisition of the entire issued share capital of Schlumberger Silk
Route Services Limited ("SSRS"). SSRS holds a 27.5% participating
interest in the Anoual and Greater Tendrara exploration permits in
Eastern Morocco (the "Exploration Permits"), together with a 27.5%
indirect interest in the Tendrara Concession (the "Concession")
through its contractual relationship with the Group. Following the
completion of the acquisition, Sound Energy plc controls operated
working interest of 75% in the Exploration Permits and in the
Concession. The consideration for the acquisition was an initial
payment of US$1 (one US dollar) and the Group will make future
payments for an amount equivalent to between 8% and 11% of total
net profits (after costs, taxes and other applicable deductions)
arising from the Concession over a period of 12 years from first
commercial production from the Concession.
As detailed in note 4, following the Group's appeal during 2020
against Morocco tax administration notification of additional tax
assessment in respect of historical licences changes, in August
2021, the Company received notification that the LTC after several
hearings had found that the charges of Sound Energy Morocco East
Limited ("SEME") relating to the free acquisition of intangible
assets be dropped. The LTC did not drop the charges relating to
Morocco tax administration's assessment of a purported disposal of
assets by SEME to Schlumberger in relation to the entry of a new
petroleum agreement for exploration at Greater Tendrara. The Group
has 60 days from the receipt of the LTC decision to accept or
challenge the decision in court. The Group continue to believe that
the remaining assessment arises from misinterpretation of the
underlying transactions and together with its advisors, continue to
seek to engage constructively with the authorities.
In September 2021, the Company announced that due to ongoing
disruption caused by the impact of the COVID-19 pandemic, ONHYM had
approved a 12-month extension to the initial period of the Anoual
Exploration Permits, onshore Morocco, in order for the Company to
complete the committed work programme.
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END
IR DKPBPABKDQCD
(END) Dow Jones Newswires
September 16, 2021 02:00 ET (06:00 GMT)
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