TIDMSOU
RNS Number : 5127Y
Sound Energy PLC
07 September 2022
7 September 2022
SOUND ENERGY PLC
("Sound Energy" the "Company" and together with its subsidiaries
the "Group")
HALF YEARLY REPORT FOR THE SIX MONTHSED 30 JUNE 2022
Sound Energy, the transition energy company, announces its
unaudited half-year report for the six months ended 30 June
2022.
HIGHLIGHTS
Development of the Tendrara Production Concession (the
"Concession")
-- Phase 1 Micro LNG project ("Phase 1")
o Signing of the Notice to Proceed in February 2022
o Initial drawdown of the Loan Note subscription with Afriquia
Gaz in February 2022
o Site preparation activities at the Tendrara TE-5 Horst
commenced in March 2022
o Phase 1 first LNG delivery expected year end 2023
-- Phase 2 (pipeline) development ("Phase 2")
o Announced Gazudoc-Mahgreb Europe ("GME") pipeline
interconnection agreement with ONHYM in March 2022
o Appointed Attijariwafa Bank, Morocco's largest bank, as
exclusive lead arranger for the senior debt financing in June
2022
Post period end
-- In August 2022, the Company launched a farm-out process in
both the Concession and in the underexplored but prospective
surrounding exploration permits in the Tendrara basin
-- The purpose of the farm-out process is to secure an ambitious
strategic partner for the Concession, and further exploration and
appraisal of the Company's exploration permits in the Tendrara
basin
-- Identification and high grading three potential near term
subsalt drilling opportunities where, importantly, any future
discoveries have the potential to be commercialised through the
planned infrastructure of Phase 2
Corporate
-- Successful equity raise of GBP4 million (before expenses) in June 2022
-- Company considering its options following rejection by
Moroccan tribunal of Sound Energy Morocco East Ltd's request for
approximately $2.55m tax claim to be dropped
Graham Lyon, Executive Chairman said:
"I am extremely proud of what we have achieved in the first half
of 2022, with limited resources: making significant progress on
Phase 1 which is targeting first LNG delivery year end 2023 and
advancing debt financing for Phase 2, which is planned to fund the
majority of the Phase 2 development costs. The Company continues to
be ever prudent with our G&A as we also evaluate a range of new
business development opportunities in order to grow and diversify
the Company both in Morocco and further afield. Post period end, we
commenced a farm-out process to secure participation of a strategic
partner in both the development of the Concession and exploration
and appraisal of the Company's exploration permits in Eastern
Morocco. The committed Sound Energy team is diligently pursuing its
ongoing development activities targeting production and revenue in
2023 and will continue to be focused on creating shareholder value
whilst taking bold decisions to enable us to respond to the
challenges (and opportunities) which continue to impact the wider
global economy as world events unfold."
Enquiries:
Vigo Consulting - PR Adviser Tel: 44 (0)20 7390
Patrick d'Ancona 0230
Finlay Thomson
Sound Energy Chairman@soundenergyplc.com
Graham Lyon, Executive Chairman
Cenkos Securities - Nominated Adviser Tel: 44 (0)20 7397
Ben Jeynes 8900
Peter Lynch
SP Angel Corporate Finance LLP Tel:44 7789 865 095
Richard Hail
STATEMENT FROM THE EXECUTIVE CHAIRMAN
Delivering on Strategy
Despite a challenging and rapidly changing global political and
economic backdrop, the Company was able to successfully deliver a
number of milestones in moving towards becoming a revenue
generating company.
Phase 1 Micro LNG Project
In February, the Group achieved an important milestone in the
development of Phase 1 with the signing of the Notice to Proceed
together with Italfluid Geology S.r.l. This triggered an initial
drawdown of the Loan Note subscription with Afriquia Gaz S.A
(entered into during 2021) and meant that the project contract for
the provision of a gas processing and liquification facility was
now fully in effect and the associated works could commence.
In March, the Group commenced site preparation activities at the
Tendrara TE-5 field location, with excavation works promptly
completed. The evaporation unit pit was completed, and the
geomembrane installed in preparation for further construction
works.
There has been significant progress with the required access
road upgrades allowing the project to progress. Technical work also
progressed with the computer-based reservoir model optimisation and
the well flowline flow assurance studies completed.
Going forward, project activities to be advanced include
wellhead inspection and servicing tool fabrication, flowlines
concept selection, engineering and owners engineering support.
Phase 2 Tendrara TE-5 Development
Strong progress on the Group's Tendrara Phase 2 Central
Processing Facility (CPF) and pipeline development was made in the
first half of 2022. In March, the Company announced the pipeline
interconnection agreement with ONHYM (Office National des
Hydrocarbures et des Mines) to enable the tie-in of the future gas
export pipeline to the GME gas pipeline. This fulfilled one of the
key remaining conditions of the binding but conditional gas sale
and purchase agreement with ONEE (Office National de l'Electricite
et de l'Eau potable). Additionally, in June the Company announced
the appointment of Attijariwafa Bank, Morocco's largest bank, as
exclusive lead arranger of a senior debt financing of up to
approximately $250 million for the pipeline development. The bank
is now undertaking detailed due diligence and the parties expect to
enter into a binding term sheet in H2 2022.
Corporate
In June, the Company raised GBP4 million (before expenses) to
progress a number of key value creating projects including
pre-development activities on the proposed Tendrara Phase 2
development necessary to enable a final investment decision,
corporate new ventures activities and corporate G&A.
Post period end, in July, the Company announced that a Moroccan
tribunal had rejected its claim to overturn the previous decision
of a Moroccan local tax committee to seek a tax payment of
approximately $2.55 million from Sound Energy Morocco East relating
to a purported historical sale of an exploration permit. Based upon
previous specialist tax and legal advice, the Company continues to
vehemently refute the tax claim and is, among other measures,
awaiting the written court judgment and working alongside its
specialist advisors in order to determine the next steps that it
will take to defend its position.
Graham Lyon
Chairman (Executive)
OPERATIONS REVIEW
Tendrara Development: Micro LNG
Sound Energy is pursuing the Field Development Plan underpinning
the Concession centred around the TE-5 Horst gas discovery. The
development is progressing in two phases. Phase 1 is intended to
prioritise early first cash flows from the Concession via a micro
LNG ("mLNG") production scheme. This is planned to commence
production a year ahead of the Phase 2 full field development that
is centred around the installation of a 120km gas export pipeline
to help fully unlock the gas potential of this region and lower the
bar of commerciality 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,
and Tendrara gas playing an important role in supporting Morocco's
strategy to lower carbon emissions.
Progress of the Phase 1 Development Project
This first phase focuses on the existing TE-6 and TE-7 wells of
the TE-5 Horst. First gas will be achieved by tying the currently
suspended TE-6 and TE-7 gas wells with flowlines connected to the
inlet of a skid mounted, combined gas processing and mLNG plant.
The environmental impact assessment for the mLNG facility has been
approved under the existing full field development plan.
The Company signed a letter of exclusivity with Italfluid
Geoenergy S.r.l. ("Italfluid") in December 2020 to negotiate and
enter a binding project contract, and in February 2022 the Company
issued Italfluid the notice to proceed under the agreed project
contract. The project contract includes the necessary design,
construction, commissioning, operation, and maintenance of the mLNG
facilities under a lease to purchase arrangement. The mLNG
facilities, which will also treat, and process raw gas produced
from the wells prior to liquefaction, is the principal part of the
surface facilities required to be built and operated as part of
this first phase of development. LNG will be delivered to on-site
storage from the outlet of the mLNG facilities whereupon Afriquia
Gaz will lift LNG for transportation, distribution and sale to the
Moroccan industrial market.
Groundworks for the construction of the mLNG facility commenced
in March 2022 following completion of surveying and remediation
works to the access road for the facility. Excavation works for the
LNG storage tank, evaporation and flare pits have been completed
with geomembrane installed where necessary. Preparation for the
compressor package foundations has also been completed. Facilities
engineering will continue to progress throughout the year with
major vendors and Italfuild has placed purchase orders for the gas
processing and liquefaction packages together with the LNG storage
tank.
The Company has also completed selection of the owner
engineering contract, awarded to Kellogg Brown and Root Ltd
alongside contractor selection for flow assurance and flowline
preliminary engineering. The Company awarded scheduled inspection
and routine maintenance of the wellhead Christmas tree assemblies
on TE-6 and TE-7, to Petroleum Equipment Supply Engineering Company
Ltd with planning now underway for inspection and maintenance to
take place later in the year.
The next key steps to progress the project include execution of
TE-6 and TE-7 wellhead inspection and servicing and flowline and
associated equipment procurement. Additionally, Italfluid will
complete the preliminary engineering and progress detailed design,
place its remaining purchase orders for equipment packages and
bulks, and complete site preparation and commence civils foundation
works.
Completion of the Phase 1 Development Project remains on
schedule for Q4 2023, with first LNG delivery expected by year end
2023.
Progress of the Phase 2 Development Project
In November 2021, the Company announced that the Tendrara JV
partners' had entered into a binding gas sale and purchase
agreement (the "GSA") in respect of the Phase 2 development of the
Concession with Morocco's state-owned power Company ONEE for the
sale of natural gas from the Concession in Eastern Morocco over a
10-year period. ONEE will utilise the gas to fuel its gas-fired
power stations that are connected to the regional GME pipeline.
Under the GSA, the Tendrara JV Partners have conditionally
committed to delivering gas from the Concession to the GME pipeline
(point of sale) for an annual contractual volume up to 350 million
cubic meters of natural gas per year for a period of 10 years, with
an annual take or pay volume of 300 million cubic meters.
The GSA includes a fixed unitary price for the annual volume of
0.3 bcm per annum (approximately 29.0 MMscf/d or a minimum amount
of energy of approximatively 10.5 million MMBtu per annum to be
delivered at the point of sale).
The GSA is conditional upon: all necessary authorisations and
permits having been granted for the construction of the Phase 2 gas
installations; the final investment decision, when taken, by the
Tendrara JV Partners, being approved by the relevant Moroccan
government ministries; and finally, the entry by the Tendrara JV
Partners into an interconnection agreement with the operator of the
GME pipeline, together with the commencement of works, for the
connection of the Concession to the GME pipeline.
The conditions to the GSA are required to be satisfied within 90
days of signature, however an extension is allowable with the
consent of all parties. On the 9 March 2022 the Company announced
an extension of a further 90 days. Whilst the conditions precedent
have not yet been concluded ONEE and the Company are in close
discussion regarding an extension.
On 14 March 2022, the Company announced the entry of a pipeline
tie-in agreement to the GME pipeline with ONHYM (GME owner and
operator) in respect of the Phase 2 development of the Concession,
and satisfying one of the above referenced GSA conditions. Pursuant
to the pipeline tie-in agreement, ONHYM has now approved the
connection of the Concession via a gas export spur pipeline to the
GME pipeline.
On 23 June 2022, the Company announced that it had entered into
an arrangement and mandate letter with Attijariwafa Bank of Morocco
in relation to senior debt financing for the development of Sound
Energy's Concession. The senior debt facility is intended to have a
term of up to 12 years with a facility size of up to 2.250 billion
Moroccan dirhams (approximately US$250 million) for the partial
financing of the currently estimated 3.000 billion Moroccan dirhams
(approximately US$330 million) Phase 2 development cost.
Eastern Morocco
Exploration
Our Eastern Morocco Licences comprising the Concession together
with the Anoual and Greater Tendrara exploration permits are
positioned in a region containing a potential extension of the
established petroleum plays of Algerian Triassic Province and
Saharan Hercynian Platform. The presence of the key geological
elements of the Algerian Trias Argilo-Gréseux Inférieur or 'TAGI'
gas play are already proven within the licence areas with the
underlying Palaeozoic, representing a significant upside
opportunity to be explored.
These licences cover a surface area of over 23,000 square
kilometres, but so far only thirteen wells have been drilled, of
which six are either located within or local to the Concession.
Exploration drilling beyond the region of the Concession has been
limited and the Group maintains a portfolio of features identified
from previous operators' studies, plus new targets identified by
Sound Energy from the recent geophysical data acquisition,
subsequent processing and ongoing interpretation studies. These
features are internally classified as either prospects, leads or
concepts based upon their level of technical maturity and represent
potential future exploration drilling targets.
Whilst the Company has strategically prioritised its gas
monetisation strategy through the phased development of the TE-5
Horst (Tendrara Production Concession), the Company has also
re-evaluated its extensive exploration portfolio within the Greater
Tendrara and Anoual exploration permits surrounding the Concession.
By integrating the acquired data and learnings from previous
drilling campaigns with acquired and reprocessed seismic datasets,
the Company has high graded several potential near term subsalt
drilling opportunities within the TAGI gas reservoir, the proven
reservoir of the TE-5 Horst gas accumulation.
In August 2022, the Company launched a farm-out process in the
underexplored but highly prospective Tendrara Basin in Eastern
Morocco. This opportunity provides access to high impact, short
term exploration opportunities, in a stable country with very
attractive fiscal terms. The Company has high graded three
potential near term sub-salt drilling opportunities where,
importantly, future discoveries have the potential to be
commercialised through the planned infrastructure of Phase 2. The
Company's intention is to seek to secure an ambitious strategic
partner for both the ongoing and planned development of the
Concession together with exploration and appraisal of the Eastern
Morocco exploration permits.
Near term drillable targets include the exploration prospect
'M5' located on the Anoual permits, together with the potential of
the structures previously drilled on the Greater Tendrara permits,
SBK-1 and TE-4. Both SBK-1 and TE-4, drilled in 2000 and 2006
respectively, encountered gas shows in the TAGI reservoir. SBK-1
flowed gas to surface during testing in 2000 at a peak rate of 4.41
mmscf/d post acidification, but was not tested with mechanical
stimulation. TE-4 was tested in 2006 but did not flow gas to the
surface. Mechanical stimulation has proven to be a key technology
to commercially unlock the potential of the TAGI gas reservoir in
the TE-5 Horst gas accumulation and accordingly the Company
believes this offers potential to unlock commerciality elsewhere in
the basin.
The Company looks forward to providing further updates on these
near-term drilling opportunities as further evaluation and planning
progresses.
TRARA CONCESSION
- 25 years from September 2018
75% interest Operated Production permit 133.5 km(2) acreage, 4 wells drilled
----------------- ------------------------------------
Eastern Morocco licences
GREATER TRARA
- 8 years from September 2018
75% interest Operated Exploration permit 14,411 km(2) acreage,
8 wells drilled
------------------ ----------------------------
ANOUAL
- 9 years and 4 months from September 2017
75% interest Operated Exploration permit 8,873 km(2) , 1 well drilled
------------------ ----------------------------
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 licence as an exciting
opportunity to explore high impact prospectivity within the
sub-salt Triassic and Palaeozoic plays in the underexplored
Essaouira Basin in the West of Morocco. In June 2018, Ministerial
approval was received for a new 8-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 initial period, also remain
unchanged.
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 is linked via a pipeline to
a state-owned phosphate plant, which produces fertiliser both for
domestic and export markets. This pipeline passes across the Sidi
Moktar licence. The discovery of the Meskala field proved the
existence of a deeper petroleum system in the basin. Specifically,
Meskala provides evidence that Triassic clastic reservoirs are
effective, proves the existence of the overlying salt seal and
provides support for evidence of charge from deep Palaeozoic source
rocks. Based on work undertaken by Sound Energy, the main focus of
future exploration activity in the licence is expected to be within
this deeper play fairway. The Company believes that the deeper,
sub-salt Triassic and Palaeozoic plays may contain significant
prospective resources, in excess of any discovered volumes in the
shallower stratigraphy.
The Company's evaluation of the exploration potential of Sidi
Moktar, following an independent technical review, includes a
mapped portfolio of sub-salt, Triassic and Palaeozoic leads in a
variety of hydrocarbon trap types. Sound Energy is developing a
work programme to mature the licence with specific focus on the
deeper, sub-salt plays.
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 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
2022 2021 2021
Unaudited Unaudited Audited
Notes GBP'000s GBP'000s GBP'000s
----------------------------------------------- ----- ---------- ---------- ----------
Other income 3 41 221 223
Reversal of impairment/(impairment loss)
on development assets and exploration costs 5,407 (3,684) 4,024
----------------------------------------------- ----- ---------- ---------- ----------
Gross profit/(loss) 5,448 (3,463) 4,247
----------------------------------------------- ----- ---------- ---------- ----------
Administrative expenses (2,018) (1,028) (1,695)
----------------------------------------------- ----- ---------- ---------- ----------
Group operating profit/(loss) from continuing
operations 3,430 (4,491) 2,552
----------------------------------------------- ----- ---------- ---------- ----------
Finance revenue 2 1 4
Foreign exchange gain 5,896 416 2,210
Finance expense (720) (1,712) (2,306)
----------------------------------------------- ----- ---------- ---------- ----------
Profit/(loss) for period before taxation 8,608 (5,786) 2,460
----------------------------------------------- ----- ---------- ---------- ----------
Tax expense 4 (7) (42) (42)
----------------------------------------------- ----- ---------- ---------- ----------
Profit/(loss) for period after taxation 8,601 (5,828) 2,418
Other comprehensive income/(loss)
Items that may subsequently be reclassified
to profit and loss account:
Foreign currency translation gain/(loss) 13,136 (1,472) 1,179
----------------------------------------------- ----- ========== ========== ==========
Total comprehensive income/(loss) for
the period attributable to equity holders
of the parent 21,737 (7,300) 3,597
----------------------------------------------- ----- ========== ========== ==========
Pence Pence Pence
----------------------------------------------- ----- ---------- ========== ==========
Basic and diluted profit/(loss) per share
for the period attributable to equity holders
of the parent 5 0.52 (0.42) 0.16
----------------------------------------------- ----- ---------- ---------- ----------
Condensed Interim Consolidated Balance Sheet
30 June 30 June 31 Dec
2022 2021 2021
Unaudited Unaudited Audited
Notes GBP'000s GBP'000s GBP'000s
-------------------------------- ----- ---------- ----------- ----------
Non-current assets
Property, plant and equipment 6 161,631 128,175 139,666
Intangible assets 7 35,434 30,589 31,598
Interest in Badile land 619 730 663
Prepayments 8 3,087 - -
-------------------------------- ----- ---------- ----------- ----------
200,771 159,494 171,927
-------------------------------- ----- ---------- ----------- ----------
Current assets
Inventories 969 851 871
Other receivables 2,345 1,586 852
Prepayments 233 105 31
Cash and short term deposits 10,513 2,261 2,913
-------------------------------- ----- ---------- ----------- ----------
14,060 4,803 4,667
-------------------------------- ----- ---------- ----------- ----------
Total assets 214,831 164,297 176,594
-------------------------------- ----- ---------- ----------- ----------
Current liabilities
Trade and other payables 6,184 2,068 1,500
6,184 2,068 1,500
-------------------------------- ----- ---------- ----------- ----------
Non-current liabilities
Loans and borrowings 9 27,271 20,098 20,039
-------------------------------- ----- ---------- ----------- ----------
27,271 20,098 20,039
-------------------------------- ----- ---------- ----------- ----------
Total liabilities 33,455 22,166 21,539
-------------------------------- ----- ---------- ----------- ----------
Net assets 181,376 142,131 155,055
-------------------------------- ----- ---------- ----------- ----------
Capital and reserves
Share capital and share premium 38,621 32,558 34,573
Shares to be issued 404 - -
Warrant reserve 1,607 1,534 1,534
Foreign currency reserve 8,212 (7,575) (4,924)
Accumulated surplus 132,532 115,614 123,872
-------------------------------- ----- ---------- ----------- ----------
Total equity 181,376 142,131 155,055
-------------------------------- ----- ---------- ----------- ----------
Condensed Interim Consolidated Statement of Changes in
Equity
Share Share Accumulated Warrant Foreign currency Total
capital premium Shares to be issued surplus reserve reserves equity
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
At 1 January 2022 16,292 18,281 - 123,872 1,534 (4,924) 155,055
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
Total profit for the
period - - - 8,601 - - 8,601
Other comprehensive
income - - - - 13,136 13,136
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
Total comprehensive
income for the
period - - - 8,601 - 13,136 21,737
Issue of share
capital 2,195 2,246 - - - - 4,441
Share issue costs - (393) - - - - (393)
Fair value of
warrants issued
during the period - - - - 73 - 73
Vested nil options
bonus awards - - 404 - - - 404
Share based payments - - - 59 - - 59
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
At 30 June 2022
(unaudited) 18,487 20,134 404 132,532 1,607 8,212 181,376
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
Share Share Accumulated Warrant Foreign currency Total
capital premium Shares to be issued surplus reserve reserves equity
GBP'000s 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 profit for the
year - - - 2,418 - - 2,418
Other comprehensive
income - - - - - 1,179 1,179
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
Total comprehensive
income for the
period - - - 2,418 - 1,179 3,597
Issue of share
capital 3,030 2,004 - - - - 5,034
Share issue costs - (1) - - - - (1)
Fair value of
warrants issued
during the period - - - - 1,534 - 1,534
Reclassification on
expiry of warrants - - - 4,090 (4,090) - -
Share based payments - - - 30 - - 30
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
At 31 December 2021
(audited) 16,292 18,281 - 123,872 1,534 (4,924) 155,055
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
Share Share Accumulated Warrant Foreign currency Total
capital premium Shares to be issued surplus reserve reserves equity
GBP'000s 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/(loss) - - - - - (1,472) (1,472)
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
Total comprehensive
loss 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
--------------------- --------- --------- -------------------- ----------- --------- ---------------- ---------
Condensed Interim Consolidated Statement of Cash Flows
Year
Six months Six months ended
ended ended 31 Dec
30 June 30 June 2021
2022 Unaudited 2021 Unaudited Audited
GBP'000s GBP'000s GBP'000s
------------------------------------------- --------------- --------------- ---------
Cash flow from operating activities
Cash flow from operations (1,080) (1,079) (1,513)
Interest received 2 1 4
Tax paid (7) (42) (42)
-------------------------------------------- --------------- --------------- ---------
Net cash flow from operating activities (1,085) (1,120) (1,551)
-------------------------------------------- --------------- --------------- ---------
Cash flow from investing activities
Capital expenditure (770) (290) (959)
Exploration expenditure (311) (246) (454)
Receipt from interest in Badile land - - 218
-------------------------------------------- --------------- --------------- ---------
Net cash flow from investing activities (1,081) (536) (1,195)
-------------------------------------------- --------------- --------------- ---------
Cash flow from financing activities
Net proceeds from equity issue 3,680 - 2,000
Loan drawdown 5,532 - -
Interest payments (214) (587) (878)
Lease payments - (15) (31)
-------------------------------------------- --------------- --------------- ---------
Net cash flow from financing activities 8,998 (602) 1,091
-------------------------------------------- --------------- --------------- ---------
Net increase/(decrease) in cash and cash
equivalents 6,832 (2,258) (1,655)
Net foreign exchange difference 768 51 100
Cash and cash equivalents at the beginning
of the period 2,913 4,468 4,468
-------------------------------------------- --------------- --------------- ---------
Cash and cash equivalents at the end of
the period 10,513 2,261 2,913
-------------------------------------------- --------------- --------------- ---------
Notes to Statement of Cash Flows
Year
Six months Six months ended
ended ended 31 Dec
30 June 30 June 2021
2022 Unaudited 2021 Unaudited Audited
GBP'000s GBP'000s GBP'000s
------------------------------------------------ --------------- --------------- ---------
Cash flow from operations reconciliation
Profit/(loss) for the period before tax 8,608 (5,786) 2,460
Finance revenue (2) (1) (4)
(Increase)/decrease in drilling inventories (98) 61 41
(Increase)/decrease in short term receivables
and prepayments (666) (297) 511
Increase/(decrease) in accruals and short
term payables 702 (155) (841)
(Reversal of Impairment)/impairment loss
on development assets and exploration costs (5,407) 3,684 (4,024)
Impairment of interest in Badile land 60 - 50
Depreciation 30 101 168
Share based payments charge and bonuses payable
in shares 869 18 30
Finance costs and exchange adjustments (5,176) 1,296 96
Cash flow from operations (1,080) (1,079) (1,513)
------------------------------------------------- --------------- --------------- ---------
Non-cash transactions during the period included the issue of
17,901,146 ordinary shares, to members of staff and former
employees of the Company in settlement of vested Restricted Stock
Units (RSU) awards, a one-time bonus to one member of staff, and
vested nil cost options. 1,617,621 ordinary shares were issued to
third parties in settlement of GBP25,000 due for services provided
(note 10).
The Group has provided collateral of $1.75 million (December
2021: $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
for the six months ended 30 June 2022
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 2021 is based on the statutory accounts for the
year ended 31 December 2021. 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 2021 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 2022, the Group's unaudited cash balance was
GBP5.5 million (including approximately GBP1.5 million held as
collateral for a bank guarantee against licence commitments). The
Directors have reviewed the Company's cash flow forecasts for the
next 12-month period to September 2023. The Company commenced its
Phase 1 of the Concession upon taking FID on the mLNG project. The
Company is progressing Phase 2, pipeline led development of the
Concession and is in the process of arranging financing after which
FID is expected to be taken. The Company's forecasts and
projections indicate that to fulfil its other obligations the
Company will be required to seek additional funding.
The COVID-19 pandemic has not had a material impact on the
Company's operations. Following the sanctioning of the mLNG project
the Company will continue to monitor the situation as deterioration
could impact the supply chain and affect the project schedule and
therefore could 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 Interim condensed
consolidated financial statements do not include adjustments that
would be required if the Company was unable to continue as a going
concern. The Company continues to exercise rigorous cost control to
conserve cash resources and the Directors believe that there are
several corporate funding options available to the Company,
including a farm-down on some of the Company's licences.
Furthermore, based upon the Company's proven track record in
raising capital in the London equity market and based on feedback
from ongoing financing discussions, the Directors have a reasonable
expectation that the Company and the Group will be able to secure
the funding required to continue in operational existence for the
foreseeable future and have made a judgement that the Group will
continue to realise its assets and discharge its liabilities in the
normal course of business. Accordingly, the Directors have adopted
the going concern basis in preparing the Interim condensed
consolidated financial statements.
2. Segment information
The Group categorises its operations into three business
segments based on Corporate, Exploration and Appraisal and
Development and Production. The Group's Exploration and Appraisal
activities are carried out in Morocco. The Group's reportable
segments are based on internal reports about the components of the
Group which are regularly reviewed by the Board of Directors, being
the Chief Operating Decision Maker ("CODM"), for strategic decision
making and resources allocation to the segment and to assess its
performance. The segment results for the period ended 30 June 2022
are as follows:
Segment results for the period ended 30 June 2022
Development Exploration
Corporate & Production & Appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------------- --------- ------------- ------------ ---------
Other income - - 41 41
Reversal of impairment of development assets
and exploration costs - 5,407 - 5,407
Administration expenses (2,018) - - (2,018)
--------------------------------------------- --------- ------------- ------------ ---------
Operating profit segment result (2,018) 5,407 41 3,430
--------------------------------------------- --------- ------------- ------------ ---------
Interest receivable 2 - - 2
Finance costs and exchange adjustments 5,176 - - 5,176
--------------------------------------------- --------- ------------- ------------ ---------
Profit for the period before taxation 3,160 5,407 41 8,608
--------------------------------------------- --------- ------------- ------------ ---------
The segments assets and liabilities at 30 June 2022 are as
follows:
Development Exploration
Corporate & Production & Appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- ------------- ------------ ---------
Non-current assets 632 164,705 35,434 200,771
Current assets 4,383 6,625 3,052 14,060
Liabilities attributable to continuing
operations (17,629) (10,446) (5,380) (33,455)
--------------------------------------- --------- ------------- ------------ ---------
The geographical split of non-current assets at 30 June 2022 is
as follows:
Europe Morocco
GBP'000s GBP'000s
---------------------------------------- --------- ---------
Development and production assets - 161,618
Interest in Badile land 619 -
Fixtures, fittings and office equipment 5 8
Prepayment - 3,087
Exploration and evaluation assets - 35,434
Total 624 200,147
---------------------------------------- --------- ---------
Segment results for the 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 were 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 at 30 June 2021was
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 year ended 31 December 2021
Development Exploration
Corporate and production and appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------------- --------- --------------- -------------- ---------
Other income - - 223 223
--------------------------------------------- --------- --------------- -------------- ---------
Reversal of impairment of development
assets and exploration costs - 4,024 - 4,024
--------------------------------------------- --------- --------------- -------------- ---------
Administration expenses (1,695) - - (1,695)
--------------------------------------------- --------- --------------- -------------- ---------
Operating profit/(loss) segment result (1,695) 4,024 223 2,552
--------------------------------------------- --------- --------------- -------------- ---------
Interest receivable 4 - - 4
Finance costs and exchange adjustments (96) - - (96)
--------------------------------------------- --------- --------------- -------------- ---------
Profit/(loss) for the period before taxation
from continuing operations (1,787) 4,024 223 2,460
--------------------------------------------- --------- --------------- -------------- ---------
The segments assets and liabilities at 31 December 2021 were as
follows:
Development Exploration
Corporate and production and appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- --------------- -------------- ---------
Non-current assets 701 139,628 31,598 171,927
Current assets 3,097 244 1,326 4,667
Liabilities attributable to continuing
operations (20,669) (94) (776) (21,539)
--------------------------------------- --------- --------------- -------------- ---------
The geographical split of non-current assets at 31 December 2021
was as follows:
Europe Morocco
GBP'000s GBP'000s
---------------------------------------- --------- ---------
Development and production assets - 139,628
Interest in Badile land 663 -
Fixtures, fittings and office equipment 5 33
Exploration and evaluation assets - 31,598
---------------------------------------- --------- ---------
Total 668 171,259
---------------------------------------- --------- ---------
3. Other income
30 June 30 June 31 Dec
2022 2021 2021
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
-------------------------------------------- ----------- ----------- ----------
Research and development expenditure credit 41 221 223
-------------------------------------------- ----------- ----------- ----------
During the period the Company's subsidiaries received credit
under the HMRC 's Research and Development Expenditure Credit
(RDEC) scheme for qualifying activities undertaken in prior
years.
4. Taxation
30 June 30 June 31 Dec
2022 2021 2021
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
------------ ----------- ----------- ----------
Tax expense (7) (42) (42)
------------ ----------- ----------- ----------
The tax expense, at a rate of 19%, was paid on receipt of the
research and development expenditure credit (note 3).
In May 2021, the Group received from the tax authority an
information request and a notification of its intention to assess
Sound Energy Morocco SARL AU ("SARL AU"), a wholly owned subsidiary
of Sound Energy Morocco East Limited ("SEME"). 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 $19.7
million. The Group believes that the assessment arises from a
misunderstanding of the historical licence relinquishment and
intercompany funding arrangements and appealed to the LTC which has
up to 12 months to make a decision.
In September 2021, SEME filed to the Moroccan Court its
challenge to the Local tax committee ("LTC") finding that upheld
the tax authority's claim of tax liabilities of approx. $2.5
million (excluding penalties and interests that may be levied)
alleging 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.
In July 2022, the Company was informed that a public
pronouncement had been made by the Court indicating that SEME's
demand for the annulment of the LTC finding was rejected. Once the
reasons for the decision are received, the Company, together with
its advisors, will decide what further steps it will take including
but not limited to lodging an appeal. The Company has 30 days from
the date of receiving the reasons for the decision to make an
appeal.
No liability has been recognised in the interim condensed
consolidated 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
2022 2021 2021
GBP'000 GBP'000 GBP'000
--------------------------------------------------- -------- -------- -----------
Profit/(loss) after tax from continuing operations 8,601 (5,828) 2,418
--------------------------------------------------- -------- -------- -----------
million million million
------------------------------------------ ------- ------- -------
Weighted average shares in issue 1,650 1,382 1,494
Dilutive potential ordinary shares 9 - 1
------------------------------------------ ------- ------- -------
Diluted weighted average number of shares 1,659 1,382 1,495
------------------------------------------ ------- ------- -------
Pence Pence Pence
----------------------------------------------------------- ----- ------ -----
Basic profit/(loss) per share from continuing operations 0.52 (0.42) 0.16
----------------------------------------------------------- ----- ------ -----
Diluted profit/(loss) per share from continuing operations 0.52 (0.42) 0.16
----------------------------------------------------------- ----- ------ -----
6. Property, plant and equipment
30 June 30 June 31 December
2022 2021 2021
GBP'000s GBP'000s GBP'000s
----------------------------- ---------- ---------- ------------
Cost
At start of period 145,361 143,375 143,375
Additions 795 313 997
Disposal (3) - (305)
Exchange adjustments 16,119 (1,762) 1,294
At end of period 162,272 141,926 145,361
----------------------------- ---------- ---------- ------------
Depreciation
At start of period 5,695 9,988 9,988
Charge/(reversal) for period (5,377) 3,753 (3,916)
Disposal (2) - (305)
Exchange adjustments 325 10 (72)
----------------------------- ---------- ---------- ------------
At end of period 641 13,751 5,695
----------------------------- ---------- ---------- ------------
Net book amount 161,631 128,175 139,666
----------------------------- ---------- ---------- ------------
Change in estimate
The discount rate and forecast gas price are significant
estimates used by the Company to determine the recoverable amount
when undertaking impairment testing of the Company's TE-5 Horst
concession. The Company has taken account of changes in the market
conditions during the period and accordingly revised the discount
rate from 10% to 14.3% as at 30 June 2022. The Company previously
used forecast gas price indexed to the Brent price for pricing the
forecast uncontracted gas sales volumes. Following significant
changes in market conditions during the period, the Company
concluded that a forecast gas price referenced to the Title
Transfer Facility ("TTF") in the Netherlands is more representative
of the current conditions in the gas market instead of indexation
to the Brent price. After taking account of the changes to the
discount rate and referenced forecast gas price to TTF, an
impairment reversal of approximately GBP5.4 million has been
recognised.
7. Intangibles
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
---------------------------- ----------- ----------- ------------
Cost
At start of period 42,556 41,552 41,552
Additions 401 363 698
Exchange adjustments 3,466 (402) 306
---------------------------- ----------- ----------- ------------
At end of period 46,423 41,513 42,556
---------------------------- ----------- ----------- ------------
Impairment and Depreciation
At start of period 10,958 10,895 10,895
Charge for period - 32 60
Exchange adjustments 31 (3) 3
---------------------------- ----------- ----------- ------------
At end of period 10,989 10,924 10,958
---------------------------- ----------- ----------- ------------
Net book amount 35,434 30,589 31,598
---------------------------- ----------- ----------- ------------
8. Prepayments
Non-current prepayment of GBP3.1 million relates to activities
of the Company's Phase 1 mLNG Project in the Concession.
9. Loans and borrowings
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
---------------------- ----------- ----------- -------------
Non-current liability
Secured bonds 20,941 20,098 20,039
Loan note- Afriquia 6,330 - -
---------------------- ----------- ----------- -------------
27,271 20,098 20,039
---------------------- ----------- ----------- -------------
The Company has EUR25.32 million secured bonds (the "Bonds").
The Bonds mature on 21 December 2027. The outstanding principal
amount of the Bonds will be partially settled, at a rate of 5%
every six months, commencing on 21 December 2023. The Bonds bear
until maturity 2% cash interest paid per annum and 3% deferred
interest per annum to be paid at redemption. The Company has the
right, at any time until 21 December 2024, to redeem the Bonds in
full for 70% of the principal value then outstanding together with
any unpaid interest at the date of redemption. The Company issued
to the Bondholders 99,999,936 warrants to subscribe for new
ordinary shares in the Company at an exercise price of 2.75 pence
per share. The warrants expire on 21 December 2027. The Bonds are
secured on the issued share capital of Sound Energy Morocco South
Limited. After taking account of the terms of the Bonds, the
effective interest is approximately 6.2%.
During the period, the Company made a drawdown of $7.5 million
from the Company's $18.0 million 6% secured loan note facility with
Afriquia Gaz maturing in December 2033 (the "Loan"). The drawn down
principal bears 6% interest per annum payable quarterly but
deferred and capitalised semi-annually until the second anniversary
of entry of the Loan agreement. Thereafter, principal and deferred
interest will be repayable annually in equal instalments commencing
December 2028. The loan is secured on the issued share capital of
Sound Energy Meridja Limited. The effective interest on the
drawdown amount is approximately 6.2%.
10. Shares in issue and share based payments
As at 30 June 2022, the Company had 1,848,702,674 ordinary
shares in issue.
Share issues during the period
In May 2022, the Company issued 13,419,891 shares as one-time
bonus to the Company's Chief Operating Officer following the
delivery of all elements required to take FID for Phase 1 of the
Tendrara Development and for establishing the commercial framework
for monetisation of Phase 2 of the Tendrara development.
In May 2022, the Company issued 1,057,211 shares following
vesting of historically awarded Restricted Stock Units (RSU) awards
to members of staff and former employees.
In May 2022, the Company issued 1,617,621 to third parties as
part settlement for services provided.
In June 2022, the Company issued 200,000,000 shares at 2 pence
per share following an equity raise.
In June 2022, the Company issued 3,424,044 shares following the
exercise of nil cost options by members of staff .
LTIP
During the period, the Company adopted a new long term incentive
plan (the "LTIP"), designed to reward, incentivise and retain the
Company's executives and senior management to deliver sustainable
growth for shareholders.
The maximum number of awards which may be issued under the LTIP
from time to time will be limited to 3% of the Company's issued
share capital on the date of grant of awards, and together with all
other options issued by the Company under any employee share scheme
from time to time will not exceed an aggregate of 15% of the
Company's issued ordinary share capital in a rolling 10 year
period. Awards granted under the LTIP will generally be subject to
a 3 year vesting period from the date of grant, the number of
awards ultimately vesting dependent on the grantee's continued
service and on additional performance conditions set by the
Remuneration Committee.
The Company issued 48,875,515 options to subscribe for new
Ordinary shares under the LTIP exercisable at 2.4 pence per share.
The LTIP options expire 10 years after the grant.
Nil-cost options
In May 2022, the Company granted 20,236,628 nil-cost options to
employees in settlement of bonus awards. The nil-cost options
vested immediately and expire 5 years from the date of grant.
Warrants
In June 2022 as part of the equity raise, the Company issued
broker warrants over a total of 7,056,875 ordinary shares
exercisable at 2.75 pence per share for a period of 3 years.
Expired options and RSU
During the period to 30 June 2022, 5.0 million share options and
0.1 million RSU awards expired.
11. Post Balance Sheet events
In July 2022, the Company was informed that a public
pronouncement had been made by the Court indicating that SEME's
demand for the annulment of the LTC finding was rejected (see Note
4).
In August 2022, the Company provided an update on progress being
made in securing financing for the Company's Phase 2 development of
the Concession. Progress was being made by the Company's mandated
bank to secure debt financing and to finance the balance of the
Phase 2 development costs not covered by debt, the Company
announced that it had initiated a formal farm-out process of the
Concession and the surrounding Greater Tendrara and Anoual
exploration permits and had appointed an advisor to manage the
process.
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