TIDMSOU
RNS Number : 3488Y
Sound Energy PLC
04 May 2023
4 May 2023
SOUND ENERGY PLC
("Sound Energy", "Sound" or the "Company")
FINAL RESULTS
Sound Energy, the transition energy company, announces its
audited final results for the year ended 31 December 2022.
HIGHLIGHTS
Development of the Moroccan Tendrara Production Concession
-- Phase 1 Micro LNG project
o Signing of the Notice to Proceed in February 2022
o Drawdown of the Loan Note subscription with Afriquia Gaz
commenced in February 2022
o Site preparation activities at the Tendrara TE-5 Horst
commenced in March 2022
o Main civil work (LNG tank foundations) done and checked in
early 2023
o Despite the disruptive events occurred in 2022 which delayed
the activities, engineering and manufacturing are both
progressing
o Phase 1 LNG delivery scheduled to commence in 2024
-- Phase 2 Gas (pipeline) development
o Announced Gazudoc-Mahgreb Europe ("GME") pipeline
interconnection agreement with ONHYM in March 2022
Project financing
-- Appointed Attijariwafa Bank, Morocco's largest bank, as
exclusive lead arranger for the senior debt financing, in June
2022
-- The Company launched a process to seek a funding partner in
both the Tendrara Production Concession and in the underexplored
but prospective surrounding exploration permits in the Tendrara
basin.
-- Indications of interest from several parties were received by
year end and the Company is continuing negotiations.
Exploration
-- Extension of Sidi Moktar and Anoual exploration permits by a
further year (subject to ministerial approval)
-- Entry into the first complementary period on the Grand
Tendrara exploration permits (subject to ministerial approval)
-- Identification and high grading of 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
-- Post period end, the Company has entered into a full and
final settlement of its tax disputes with the Moroccan tax
authorities, subject to the Court agreeing that all cases be
withdrawn
Graham Lyon, Executive Chairman said:
" 2022 was a year of real tangible progress for Sound Energy,
with the micro-LNG development at Tendrara contracted to deliver
maiden revenues in early 2024. I am pleased that, as we move
further into construction activities, the Company continues to
uphold all our ESG values and deliver our work in a manner
commensurate with our principles. We are pleased to have settled
our outstanding tax matters such that we can optimise our resources
on field development. We have enjoyed a supportive working
relationship with ONHYM, the Ministry and our various contractors
in Morocco, and, most importantly, we continue to benefit from the
hard work and dedication of our own staff. We will continue to work
diligently to deliver value and progress for all our stakeholders
during 2023 and beyond as we target to deliver material
developments."
For further information, visit www.soundenergyplc.com or follow
us on twitter @soundenergyplc
This announcement contains inside information.
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- Broker Tel:44 (0) 7789 865 095
Richard Hail
Gneiss Energy Limited- Financial Adviser Tel:44 (0)20 3983 9263
Jon Fitzpatrick / Paul Weidman
STATEMENT OF THE EXECUTIVE CHAIRMAN
Introduction
2022 was a ground breaking year for the Company both literally
and figuratively as Sound Energy continued the transition from
being a pure exploration company to a development and production
company. In March, groundworks began on Phase 1, our micro-LNG
project at the Tendrara production concession in Morocco. We also
made material progress on Phase 2, the further development of the
concession via a pipeline, primarily on the financing side. 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.
All exploration licences were either extended or advanced into the
first Complementary Period. The ongoing dispute with the Moroccan
authorities over tax continued to be an unhelpful drain on the
Company's time and resources; and, post period end, the Company
entered into a settlement agreement with Morocco tax authority on a
phased payment schedule of approximately US$2.5 million as a full
and final settlement against a claim of approximately US$23.95
million.
2023 will be an important year, which I hope will see further
progress. Irrespective of the challenges we may face, the team
remains fully dedicated to delivering its project activities and
growing the Company as we seek to create material value for the
Company's shareholders.
In February 2022, the Notice to Proceed for our Phase 1 project
was issued, and work commenced. Material progress at site has been
made and there is a more detailed commentary in the operational
review. We are pleased that the Company is moving forward to
becoming a revenue generating company.
Progress on the Group's Phase 2 Tendrara Concession development
planning comprising of a Central Processing Facility (CPF), a
pipeline and several development wells, has been made throughout
the year. 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, a key remaining condition
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 the exclusive lead
arranger of a senior debt financing of up to approximately $250
million for Phase 2. The bank is now undertaking detailed due
diligence and we expect the parties will enter into a Conditioned
Financing Offer term sheet in the near future. Both ONEE and
Attijariwafa work hand in hand with Sound to ensure the prime
target of delivering local gas to local power stations becomes a
reality. As such, all have agreed to work to conclude documentation
by mid-2023.
In December, we were pleased to report that ONHYM had extended a
number of our Moroccan licences, all subject to Ministry approval
First, the Grand Tendrara Exploration Permits are continued by two
years to 1 October 2024 and will involve the drilling of one
exploration well with a Triassic objective, this being entry into
the First Complementary Period. The Anoual exploration permits has
been extended by 12 months and will also involve the drilling of
one exploration well with a Triassic objective. Finally, the Sidi
Moktar exploration permit has been granted a 12-month extension to
9 October 2023. We are delighted that the Moroccan authorities
remain so supportive of our work programmes and await Ministerial
formal approval.
As part of our wider efforts to bring funding into our plans for
Phase 2, we announced, in August, that we had initiated a formal
process to identify a partner for the Tendrara Production
Concession and the surrounding Grand Tendrara and Anoual
exploration permits.
The objective of the area-wide approach is to seek a
co-investing partner in each licence, to both fund the expected
balance of Phase 2 development costs to first gas of c.US$60
million net to the Company's working interest in the Tendrara
Production Concession and to progress an exploration and appraisal
drilling programme in the Grand Tendrara and Anoual exploration
permit areas.
Following strong levels of interest in this process, from a wide
range of credible and well-funded parties, the Company received
quantified non-binding indications of interest from several parties
and, following review, the Company is progressing negotiations.
Whilst there is no guarantee that a partner will be selected, it is
hoped that such a transaction can be concluded alongside the debt
funding for Phase 2 development.
Corporate
Early in 2022 the Company reviewed the opportunity to create an
enlarged group with Angus Energy to focus on high margin, onshore
gas in stable fiscal environments. On detailed evaluation the
opportunity did not meet the criteria required for Sound Energy and
the opportunity was not further pursued.
In June, we successfully raised GBP4 million through an equity
issue, which was priced at 2 pence per share, with the funds
earmarked for pre-development work on the Tendrara Phase 2 pipeline
to FID, new ventures activities and corporate G&A.
The Company performed its first stakeholder review, setting a
benchmark in early 2022 with a follow up undertaken at year end
2022. The Company strategy is well recognised amongst Stakeholders,
and stakeholder feedback that the team are considered to be
performing well whilst facing technical, commercial, and resourcing
challenges.
Stakeholder meetings and Investor sessions were held; it was a
pleasure to meet so many knowledgeable and passionate shareholders
face to face and engage in meaningful dialogue.
ESG sits at the heart of our business and, as Operations
commenced, we have monitored and taken immediate action at any
slight safety issue. Our environmental releases are recorded and
monitored. Corporate Governance is maintained at all levels.
Finally, we engage with our local communities and have taken steps
to not only employ but keep all stakeholders in Morocco well
informed regarding our activities.
The Company continues to manage its financial resources
prudently whilst undertaking several substantial activities. The
bridge to fund the company until first revenues is always under
review and the mix of various cash sources explored, such as
debt/equity funding for projects and potential partnering.
Moroccan tax dispute
In July, a Moroccan tribunal rejected Sound Energy Morocco
East's (SEME) claim to overturn the previous decision of a Moroccan
local tax committee to seek a tax payment of approximately US$ 2.55
million relating to a purported historical sale of an exploration
permit. The Company received the written judgement late in the year
and submitted an appeal within the allotted timeframe. The Company
continues to believe the tax authority has mis-interpreted
licensing law in Morocco.
In a separate case, Sound Energy Morocco SARL AU (SARL AU)
received notice that the Local Taxation Committee supported the Tax
Authorities' assumption of a sale of assets, although the Committee
did not present a full calculation of the amounts it purports to be
due on the taxable base amounts it has now upheld. However, Sound
Energy estimated that taxes on those taxable bases would amount to,
approximately, US$ 21.4 million (previously reported as US$19.7
million for half-year reporting but was unaudited. Following the
year-end audit, the estimate was revised to US$21.4 million). As
previously announced, the Company remains of the strong opinion
that the assessments levied against SARL AU, that certain purported
historical intra Group transactions between SARL AU and SEME have
taxable bases, have been wrongly interpreted by the Moroccan Tax
Administration.
Post period end, the Company entered into a settlement agreement
with Morocco tax authority on a phased payment schedule back ended
over 6 years of approximately US$2.5 million as a full and final
settlement against a claim of approximately US$23.95 million.
Board
During 2022, the Board continued to meet regularly and
contribute to strategy and problem solving for the company. A
review of the Board's effectiveness was conducted, the first in
several years. Learnings and improvements were identified and will
be included in the Board's 2023 activities.
Graham Lyon
Executive Chairman
Portfolio Review
A blended portfolio of gas assets
Eastern Morocco
Tendrara Production Concession
Permit Area
Located proximate to Gazoduc Maghreb Europe ("GME") pipeline,
approximately 120 kilometres to the North. The 522 kilometre-long
Moroccan section is owned by the Moroccan State and operated by
ONHYM. The pipeline connects Morocco to Spanish/Portuguese gas
grids as well as Moroccan gas-fired power stations.
Geology
The gas is trapped within the Triassic TAGI(1) reservoir within
the structural fault block, termed the TE-5 Horst, and sealed by
the overlying Triassic salt. Reservoir characteristics are
significantly enhanced by application of proven hydraulic
stimulation techniques to increase gas flow rates.
Ongoing and Planned Developments
Potential capacity to address local gas demand in a phased
manner with Phase I being the implementation of a micro-LNG
development scheme (currently underway) and Phase II being the
development of a larger scale central processing facility ("CPF")
and gas export pipeline to GME.
Phase 1
Supply of LNG displacing higher carbon energy (such as heavy
fuel, petcoke or imported LPG)
Phase 1 Micro LNG Development - Funding arranged to meet Sound
Energy's share of sanctioned pre first gas development costs
Deployment of field gas treatment, processing, liquefaction and
storage facilities to deliver mobile LNG to buyer at site. The LNG
buyer will distribute and sell on to its growing Moroccan
industrial consumers within the domestic gas market.
Supplies of LNG are to be an annual contractual quantity
equivalent to approximately 100 million standard cubic metres of
gas (approximately 3.5 billion standard cubic feet of gas per year)
over a ten-year period.
Binding gas sales agreement and associated funding are in place
with Afriquia Gaz, one of the largest LPG distributors in Morocco.
A ten-year commitment from first gas to sell annual contractual
quantity of 100 million standard cubic metres per annum with take
or pay agreement priced at $6-$8.346 per mmBTU ex plant.
Development utilises the existing wells TE-6 and TE-7, with the
drilling of one new well, as required, to maintain the ten-year
period of production at the plateau.
LNG Central Processing Facility is under construction by
Italfluid
Micro LNG Plant to be designed, constructed, commissioned,
operated and maintained by Italfluid with guarantees for plant
operability
and delivery.
Lease structure (with option to buy):
-- Minimal LNG tank construction capital payments at FID, and
following successful completion of Micro LNG Plant commissioning
(including production build-up)
-- Leasing solution substantially lowers capital investment requirements of Phase 1 development
-- Daily rental payment paid to Italfluid on guaranteed daily volume only
-- Performance guarantees on plant availability
Phase 2
Gas as a transition fuel flowing to the GME pipeline
Phase 2 Tendrara TE-5 Development
20 inch, 120km Tendrara Gas Export Pipeline ("TGEP"):
-- Tie-in to existing GME pipeline (Station M04), approved by
the new operator ONHYM, which took over the GME operatorship at the
end of Q4 2021.
-- Pipeline EIA permit approved and pipeline corridor fully
secured. Lease agreements signed with the landowners and the first
lease payments are scheduled for first half of 2023.
-- CPF EIA permit approved
-- EPC Consortium selection process launched in 2022 and ongoing discussion with bidders
-- Gas Sales Agreement ("GSA") with ONEE (Office National de
l'Electricite et de l'Eau potable) signed November 2021 for
domestic power plants for gas-to-power generation (transit via GME
line), minimum volume of 0.3 bcm/year (approximately 10.5 billion
standard cubic feet of gas per year) at a fixed sale price over a
ten-year term.
-- Up to six horizontal wells planned to achieve First Gas (Phase 2)
-- Exclusive partnership with Attijariwafabank (which is one of
the top banks in Morocco and in Africa and which is part of the
King's holding MADA) acting as Lead Debt Arranger in order to fund
a substantial part of Phase 2 project. Technical and Legal Due
Diligence ongoing.
-- Different options to close out equity raise are currently
discussed with financial investors and Vendors.
Exploration
Greater Tendrara - two Triassic TAGI(1) discoveries
Licence Details
---------------- ---------------------------------
Area 14,411 km(2)
---------------- ---------------------------------
Status Petroleum Agreement:
Exploration
---------------- ---------------------------------
Effective 1 October 2018
date
---------------- ---------------------------------
Term 8 years
---------------- ---------------------------------
Resource Exploration potential
Potential in the Triassic TAGI
reservoir of 7.52 Tcf
gross/5.64 Tcf net (arithmetical
sum of mid-case un-risked
GIIP) identified in
sub-salt concepts, leads
and prospects.
---------------- ---------------------------------
Permit Area
Surrounds the Tendrara Production Concession.
Located for access to Gazoduc Maghreb Europe ("GME") pipeline
approximately 120 kilometres to the north. The 522 kilometres long
Moroccan section is owned and operated by the Moroccan State. The
pipeline connects Morocco to the Spanish/Portuguese gas grids as
well as the Moroccan gas-fired-power stations.
Geology
Only eight wells drilled across the entire area, all encountered
evidence of a petroleum system. The primary reservoir is the
Triassic TAGI(1) charged from Palaeozoic petroleum source rocks and
sealed by the overlying Triassic salt, which is present across much
of the basin. This petroleum play is regionally extensive and
extends into Morocco from Algeria.
Two Triassic TAGI(1) gas discoveries exist within the permit
area:
-- SBK-1 tested by the previous licence holder at a peak rate of 4.41 mmscf/d in July 2000
-- TE-10 flowed gas at non-commercial rates in May 2019
Exploration potential in the Triassic TAGI(1) reservoir of 7.52
Tcf gross/5.64 Tcf net (mid-case unrisked GIIP) identified in
sub-salt concepts, leads and prospects.
Future Developments
A number of targets are available for near-term drilling with
two features, the SBK structure and the TE-4 Horst, high-graded for
drilling. Both these structures were drilled by SBK-1 and TE-4, in
2000 and 2006, respectively, and both encountered gas shows in the
TAGI(1) 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 hydraulic stimulation. TE-4 was tested in 2006 but did
not flow gas to the surface. Hydraulic 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 gross exploration potential of these high-graded structures,
expressed as GIIP, are as follows:
Unrisked Volume Potential Gas Initially
in Place (Bcf)
--------------------- -----------
Gross (100%) basis
Chance
Target name Low Best High Mean of Success
--------------------- -------- ----------- ---------- ---------- -----------
TE-4 Horst Structure 153 260 408 273 36%
--------------------- -------- ----------- ---------- ---------- -----------
SBK-1 Structure 71 130 225 140 50%
--------------------- -------- ----------- ---------- ---------- -----------
A discovery in either structure would have the potential to be
commercialised through the proposed development infrastructure
centred on the TE-5 Horst, with sufficient capacity in the planned
Tendrara Export Pipeline or as standalone mLNG projects.
Subject to approval by the Ministry of Energy and Ministry of
Finance, the Company has elected to enter the voluntary first
Complementary period, which commenced mid-October 2022 with one
well commitment to be drilled before October 2024. A well drilled
on either the SBK structure or the TE-4 Horst would satisfy this
commitment.
Anoual
Licence
Details
----------- --------------------------------
Area 8,873 km(2)
----------- --------------------------------
Status Petroleum Agreement: Exploration
----------- --------------------------------
Effective 8 September 2017
date
----------- --------------------------------
Term 10 years
----------- --------------------------------
Resource Exploration potential
Potential in the Triassic TAGI reservoir
of 11.51 Tcf gross/8.63
Tcf net (mid-case un-risked
GIIP(2) ) identified in
sub-salt concepts, leads
and prospects
----------- --------------------------------
Permit Area
Located for access to Gazoduc Maghreb Europe ("GME") pipeline
approximately 120 kilometres to the North. The 522 kilometre-long
Moroccan section is owned and operated by the Moroccan State. The
pipeline connects Morocco to the Spanish/Portuguese gas grids as
well as the Moroccan gas-fired power stations.
Geology
Only one well drilled across the entire area. The primary
reservoir is the Triassic TAGI(1) charged from Palaeozoic petroleum
source rocks and sealed by the overlying Triassic salt, which is
present across much of the basin. This petroleum play is regionally
extensive and extends into Morocco from Algeria.
Committed geophysical surveying completed with a single well
commitment remaining.
Exploration potential in the Triassic TAGI(1) reservoir of 11.51
Tcf gross/8.63 Tcf net (mid-case un-risked GIIP(2) ) identified in
sub-salt concepts, leads and prospects.
Future Developments
"M5" prospect high graded for drilling a TAGI(1) target,
operational planning is progressing. The Company's estimation of
the gross exploration potential of the M5 exploration prospect, a
possible candidate for the exploration well, expressed in GIIP, is
as follows:
Unrisked Volume Potential
Gas Initially In Place (Bcf)
--------------- -----------
Gross (100%) basis
Chance
Target name Low Best High Mean of Success
--------------- ------ -------- -------- ------- -----------
M5 Exploration 332 800 1728 943 21%
--------------- ------ -------- -------- ------- -----------
(1) Trias Argilo-Gréseux Inférieur ("TAGI") are sandstones
deposited in a fluvial-alluvial environment and are significant oil
and gas reservoirs across Algeria, extending into Morocco
(2) Internal exploration potential estimates, arithmetical sum
of mid-case unrisked Gas Initially In Place ("GIIP")
Sidi Mokhtar
Licence
Details
----------- --------------------------------
Area 4,712 km(2)
----------- --------------------------------
Status Petroleum Agreement: Exploration
----------- --------------------------------
Effective April 2018
date
----------- --------------------------------
Term 10 years
----------- --------------------------------
Resource Unrisked exploration potential
Potential of 8.9 Tcf mid-case unrisked
GIIP following interpretation
of the historical 2D seismic
----------- --------------------------------
Permit Area
The permit is in which Sound Energy has a 75% interest is
located onshore on the Atlantic seaboard of Morocco, approximately
100 kilometres to the west of Marrakech.
In July 2017, the Company reported the results of the re-entry,
completion, perforation and flow testing of the existing Koba-1
well, with a focus on previously producing relatively shallow gas
reservoir.
Strategically, the Company has shifted its focus on the Sidi
Mokhtar area towards what it believes to be the potentially more
significant opportunity of the deeper Triassic TAGI(2) and
Palaeozoic gas plays in the region already demonstrated by the gas
and condensate producing adjacent Meskala Field operated by our
partner ONHYM. In June 2018, the Company was awarded a new
eight-year Petroleum Agreement and is now actively seeking a
partner to participate in a geophysical survey programme focused on
these deeper objectives.
In December 2020, the Company announced a further one-year
extension to the initial period of the Sidi Mokhtar licence and
that the work programme for the initial period of the Sidi Mokhtar
permit remained unchanged.
Geology
Un-risked exploration potential of up to 8.9 Tcf(1) gross gas
initially in place following interpretation of the historical 2D
seismic. The Company believes the pre-salt plays have been
overlooked in the region with limited drilling to specifically
target these deeper successions.
The sub-salt plays are underexplored with more than 60
historical exploration wells focused on shallower objectives in the
Jurassic post-salt carbonate successions. The few historical
sub-salt tests were drilled on poor sub-salt seismic imaging.
Recent improvements in seismic acquisition and processing
technologies are expected to provide enhanced imaging of the
sub-salt structure and geology.
Future Developments
Our next step is to mature the identified leads to drillable
prospects with improved seismic imaging. We aim to acquire new,
high-quality 2D seismic data, focused on improving the sub-salt
imaging. This work is hoped to lead to an exploration well
targeting a high-impact gas prospect.
(1) Internal exploration potential estimates, arithmetical sum
of mid-case unrisked Gas Initially In Place (gross)
(2) Trias Argilo-Gréseux Inférieur ("TAGI") are sandstones
deposited in a fluvial-alluvial environment and are significant oil
and gas reservoirs across Algeria, extending into Morocco
LNG Project Review
Sound Energy is a pioneer in Morocco in establishing an onshore
small scale LNG solution to provide LNG to a local market in Africa
and to assist the Moroccan industry in reducing usage of more
polluting fuels and reducing CO (2) emissions.
The mLNG project is a complex project that involves three main
parties:
-- Afriquia Gaz, which is the LNG offtaker and is in charge of
LNG logistics from the Tendrara gas field to all its customers
located in Morocco (mainly in the western part of Morocco, whereas
the Tendrara field is in Eastern Morocco)
-- Italfluid GeoEnergy (Italfluid), which is Sound Energy's
partner in charge of the construction and maintenance of the gas
processing and liquefaction plant through a lease arrangement;
-- Sound Energy and its Concession partners including ONHYM,
which are in charge of financing the delivery of the raw gas
gathering system, the upgrade of the current wells ready to produce
(TE6 and TE7), and the drilling of a new well T-112 to be done post
first gas production
All the main agreements were signed in 2021 and are in place to
enable the project to be implemented. On behalf of the Concession
partners, Sound Energy released the Notice to Proceed to Italfluid
on 15th February 2022.
Progress in 2022
Italfluid mobilised its staff to start the civil work on site
and levelled up the land on which the plant will be located. In the
meantime, they started the engineering specifics, and the work on
the main equipment packages required to be manufactured by its
subcontractors.
Despite some challenges encountered since the issue of the
Notice to Proceed, including market volatility due to the war in
Ukraine, which has been disruptive in achieving a reliable schedule
and firm costs from the supply chain subcontractors, Sound Energy
and both of its partners, successfully, managed to progress project
activities on site and to start the manufacturing of several
elements. The foundations of the LNG tank, which is the most
complicated part of the civil work on site, are now complete, and
have been checked by the subcontractor in charge of the erection of
the LNG tank, which is another key part of the mLNG plant
construction project. Project schedule is reviewed constantly and
remains challenging. Delivery of a commissioned plant by Italfluid
is contracted for Q1 2024.
The first pieces of equipment were delivered on site and are
being assembled. The main elements of the firefighting system have
been put in place in the field. The detailed engineering is still
progressing to allow Italfluid to continue procuring remaining
different packages required for commissioning the plant. Some
delays have, nevertheless, been noted on the date for first gas
production but Italfluid, Sound Energy and Afriquia Gaz are working
together, cooperatively, to supply LNG to the local industry in
2024 in an efficient manner without neglecting safety issues.
Sound Energy have deployed an HSSE supervisor on site to closely
monitor the work to ensure it is done in compliance with the best
safe practice.
Sound Energy started the detailed engineering work related to
the gas gathering system and the upgrade operation on wells TE6 and
TE7. The work to upgrade the access road and to bring an alternate
source of power supply from the grid, using the construction of the
self-powered generation solution using raw gas production, are
ongoing.
2023 is a key year when all the equipment packages are to be
completed and tested in the workshops and later be brought from
workshops located around the world (USA, Asia, etc.), delivered on
site through the main ports in Morocco (Casablanca, Tanger or
Nador) and assembled on site before being all tested. Sound Energy
expects to face some challenges of different nature ( for example,
administrative approval of equipment testing by local authorities
given that this project is the 1(st) LNG project in Morocco, delays
in the supply chain due to the disruptive events which occurred in
2022, cost increase which can impact our main contractor and its
subcontractors and risk of delay on the offtake side), which are
usual for projects in which an international chain of suppliers is
involved, but remain confident that the three partners Afriquia
Gaz, SoundEnergy and Italfluid should make significant progress in
2023.
Consequently, provided that no new disruptive events slow down
progress, and the final industrial users are ready to make their
process switch from their current fuel to natural gas, LNG plant
commissioning and the full solution commissioning including the
well and gas gathering system and Afriquia Gaz logistic solution,
are both expected to be started in 2024.
Financial review
Income Statement
The profit for the year before tax from continuing operations
was GBP6.6 million (2021: GBP2.4 million). Reversal of impairment
of development assets of GBP5.7 million (2021: GBP4.0 million
impairment reversal), related to the TE-5 Horst production
concession, arose following the results of an impairment test,
which indicated that previously recognised impairment charge should
be reversed. The discount rate and forecast gas price are
significant estimated inputs 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 wider financial markets during 2022 and has,
accordingly, revised the discount rate from 10% at the end of 2021
to 12.5% as at 31 December 2022. The Company previously used
forecast gas price indexed to the Brent price for pricing the
forecasted uncontracted gas sales volumes for impairment testing.
Following significant changes in market conditions during the year,
the Company concluded that an average of forecast gas price
referenced to the Title Transfer Facility ("TTF") in the
Netherlands and the UK National Balancing Point ("NBP") price is
more representative of the conditions in the gas market than an
indexation to the Brent price.
Accordingly, the Company used an average of TTF and NBP forecast
gas price for its impairment testing as at 31 December 2022.
Administrative costs at GBP3.1 million were higher than 2021
administration costs (GBP1.7 million). During 2022, there were
awards of nil cost options of approximately GBP0.5 million in
settlement of 2020 and 2021 staff bonuses, and the issue of shares
of approximately GBP0.3 million in settlement of a one-time bonus
to a member of staff. Due to the Company being in a largely
continuous closed period during 2020 and 2021, the issue of shares
and awards of the nil cost options could not be done during that
period. During 2022, the Company adopted a new Long-term Incentive
Plan (LTIP) designed to reward, incentivise and retain the
Company's executives and senior management to deliver sustainable
growth for shareholders. Approximately GBP0.2 million of the
administrative costs related to the LTIP expense incurred during
2022. The remainder of the increase in administrative costs
reflects increased operational activities, including the taking of
FID on Phase 1 Micro-LNG in February 2022 and pre-FID activities on
the Phase 2 gas project.
Foreign exchange gains primarily related to intra-Group loans,
which were partially offset by exchange losses in US dollar and
Euro-denominated borrowings. Foreign exchange gains and losses
arising from intercompany loans that originated on acquisition of
Moroccan licences are recognised in the other comprehensive income
section of the statement of comprehensive income.
Cash Flow/Financing
During 2022, an equity issuance raised approximately GBP3.7
million (2021: GBP2.0 million) net of issue costs. Drawdowns from
the Company's loan note facility with Afriquia Gaz amounted to $9.5
million (GBP7.2 million).
Financing costs were GBP1.4 million (2021: GBP2.3 million),
primarily due to the amortised costs of the Euro denominated loan
notes and the US dollar Afriquia loan note facility drawdowns, net
of interest capitalised to the development and exploration licences
of GBP0.1 million (2021: GBP0.1 million). The decline in finance
costs arose due to full-year impact of the 2021 restructuring of
the Company's Eurobond, which inter alia extended the maturity of
the loan notes to 21 December 2027 and amended the coupon structure
from a 5% cash coupon per annum to a 2% cash coupon per annum
together with a deferred 3% per annum coupon, payable at
maturity.
The Group spent GBP6.2 million (2021: GBP1.2 million) on
investing activities during 2022. The primary spend related to
approximately GBP4.3 million paid in advance in respect of the
Group's Micro-LNG project. The balance of spend consisted of
expenditure on the Group's Morocco licences and capitalised general
and administrative expenses.
Balance Sheet
As at 31 December 2022, the carrying amount of property, plant
and equipment was GBP163.4 million (2021: GBP139.7 million),
primarily related to the development and production assets in
Morocco with a carried value of GBP163.1 million (2021: GBP139.6
million) after taking account of impairment reversal, additions and
foreign exchange movement.
Intangible assets, with a carrying amount of GBP36.0 million
(2021: GBP31.6 million), primarily relates to the Group's
investment in its exploration licences in Morocco. Additions of
GBP0.8 million intangible assets primarily consisted of capitalised
general and administrative expenses and GBP3.6 million foreign
exchange movement recognised.
As part of the 2018 Italy divestment agreement, the Company is
entitled to receive the proceeds, upon the sale, of land associated
with the former Badile onshore exploration permit ("Badile land").
The Company has a carrying amount of, approximately, GBP0.6 million
(2021: GBP0.7 million) as interest in Badile land. The Company
expects the sale of the remaining area of Badile land to be
completed during 2023 for gross proceeds of EUR350,000 and the
Company's obligation for the Badile land remediation, with a
carrying amount of GBP0.4 million (2021: GBP0.4 million) will
terminate upon the sale as it will be taken over by the buyer of
the Badile land.
Non-current prepayments of GBP4.3 million relate to the Group's
Phase 1 mLNG project.
Other receivables, amounting to GBP2.8 million (2021: GBP0.9
million), primarily related to receivables from our partners in
Morocco licences and recoverable VAT in Morocco.
Trade and other payables amounting to GBP1.9 million (2021:
GBP1.5 million), primarily related to payables and accruals for the
operations in the Group's licences in Morocco, where the Group, as
operator, recognises 100% of the liability and receives funds from
partners to pay the partners' share.
During 2022, the Company issued 219,518,767 shares of which
200,00,000 were issued for cash and 19,518,767 were non-cash share
issues. The primary non-cash share issue related to 13,419,891
shares issued as one-time bonus to the Chief Operating Officer
following the delivery of all elements required to take FID for
Phase 1 of the Concession and for establishing the commercial
framework for monetisation of Phase 2 of the Concession.
Post period end in May 2023, the Company entered into a phase
payment schedule with Morocco tax authority for full and
final settlement of the tax cases for approximately GBP1.6
million (GBP0.1m current liability and GBP1.5m non current
liability).
Going Concern
As detailed in note 1 to the financial statements, the Company's
cash flow forecasts, for the next twelve-month period to May 2024,
indicate that additional funding will be required to enable the
Company to continue to meet its obligations. This condition
indicates the existence of a material uncertainty on the Company's
ability to continue as a going concern.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
2022 2021
Notes GBP'000s GBP'000s
-------------------------------------------------- ----- --------- ---------
Continuing operations
Revenue - -
Other income 3 43 223
Reversal of impairment on development assets
and exploration costs 5,678 4,024
-------------------------------------------------- ----- --------- ---------
Gross profit 5,721 4,247
-------------------------------------------------- ----- --------- ---------
Administrative expenses (3,175) (1,695)
-------------------------------------------------- ----- --------- ---------
Group operating profit from continuing operations 2,546 2,552
-------------------------------------------------- ----- --------- ---------
Finance revenue 13 4
Foreign exchange gain 5,462 2,210
Finance expense 11 (1,446) (2,306)
-------------------------------------------------- ----- --------- ---------
Profit for the year before taxation 6,575 2,460
-------------------------------------------------- ----- --------- ---------
Tax expense 4 (1,602) (42)
-------------------------------------------------- ----- --------- ---------
Profit for the year after taxation 4,973 2,418
-------------------------------------------------- ----- --------- ---------
Other comprehensive income
Items that may subsequently be reclassified
to the profit and loss account
-------------------------------------------------- ----- --------- ---------
Foreign currency translation gain 13,373 1,179
-------------------------------------------------- ----- --------- ---------
Total comprehensive profit for the year 18,346 3,597
-------------------------------------------------- ----- --------- ---------
Profit for the year attributable to:
Owners of the Company 18,346 3,597
-------------------------------------------------- ----- --------- ---------
2022 2021
Notes Pence Pence
---------------------------------------------- ----- ------ ------
Basic and diluted profit per share for the
year attributable to the equity shareholders
of the parent (pence) 5 0.28 0.16
---------------------------------------------- ----- ------ ------
Consolidated Balance Sheet
as at 31 December 2022
2022 2021
Notes GBP'000s GBP'000s
-------------------------------- ----- --------- ---------
Non-current assets
Property, plant and equipment 6 163,362 139,666
Intangible assets 7 36,007 31,598
Prepayments 8 4,272 -
Interest in Badile land 637 663
-------------------------------- ----- --------- ---------
204,278 171,927
-------------------------------- ----- --------- ---------
Current assets
Inventories 963 871
Other receivables 2,815 852
Prepayments 139 31
Cash and short-term deposits 3,861 2,913
-------------------------------- ----- --------- ---------
7,778 4,667
-------------------------------- ----- --------- ---------
Total assets 212,056 176,594
-------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 1,868 1,500
Tax liabilities 4 126 -
Lease liabilities 162 -
Loans and borrowings 11 1,121 -
-------------------------------- ----- --------- ---------
3,277 1,500
-------------------------------- ----- --------- ---------
Non-current liabilities
Lease liabilities 121 -
Tax liabilities 4 1,505 -
Loans and borrowings 11 29,068 20,039
-------------------------------- ----- --------- ---------
30,694 20,039
-------------------------------- ----- --------- ---------
Total liabilities 33,971 21,539
-------------------------------- ----- --------- ---------
Net assets 178,085 155,055
-------------------------------- ----- --------- ---------
Capital and reserves
Share capital and share premium 38,621 34,573
Shares to be issued 404 -
Accumulated surplus 129,004 123,872
Warrant reserve 1,607 1,534
Foreign currency reserve 8,449 (4,924)
-------------------------------- ----- --------- ---------
Total equity 178,085 155,055
-------------------------------- ----- --------- ---------
Group Statements of Changes in Equity
for the year ended 31 December 2022
Foreign
Share Share Shares Accumulated Warrant currency Total
capital premium to be issued surplus reserve reserves equity
Notes 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 year - - - 4,973 - - 4,973
Other comprehensive
income - - - - - 13,373 13,373
--------------------- ----- --------- --------- ------------- ----------- --------- --------- ---------
Total comprehensive
income - - - 4,973 - 13,373 18,346
Issue of share
capital 9 2,195 2,246 - - - - 4,441
Share issue costs - (393) - - - - (393)
Fair value of
warrants issued
during the year - - - - 73 - 73
Vested nil options
bonus awards - - 404 - - - 404
Share-based payments 10 - - - 159 - - 159
--------------------- ----- --------- --------- ------------- ----------- --------- --------- ---------
At 31 December
2022 18,487 20,134 404 129,004 1,607 8,449 178,085
--------------------- ----- --------- --------- ------------- ----------- --------- --------- ---------
Foreign
Share Share Accumulated Warrant currency Total
capital premium surplus reserve reserves equity
Notes 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 - - 2,418 - 1,179 3,597
Issue of share capital 9 3,030 2,004 - - - 5,034
Share issue costs - (1) - - - (1)
Fair value of warrants
issued during the year 11 - - - 1,534 - 1,534
Reclassification on
expiry of warrants - - 4,090 (4,090) - -
Share-based payments 10 - - 30 - - 30
------------------------ ----- --------- --------- ----------- --------- --------- ---------
At 31 December 2021 16,292 18,281 123,872 1,534 (4,924) 155,055
------------------------ ----- --------- --------- ----------- --------- --------- ---------
Group Statement of Cash Flows
for the year ended 31 December 2022
2022 2021
Notes GBP'000s GBP'000s
------------------------------------------- ----- --------- ---------
Cash flow from operating activities
Cash flow from operations (3,928) (1,513)
Interest received 13 4
Tax paid (7) (42)
------------------------------------------- ----- --------- ---------
Net cash flow from operating activities (3,922) (1,551)
------------------------------------------- ----- --------- ---------
Cash flow from investing activities
Capital expenditure (1,519) (959)
Exploration expenditure (399) (454)
Prepayment for Phase 1 the mLNG project (4,272) -
Receipt from interest in Badile land - 218
------------------------------------------- ----- --------- ---------
Net cash flow from investing activities (6,190) (1,195)
------------------------------------------- ----- --------- ---------
Cash flow from financing activities
Net proceeds from equity issue 3,680 2,000
Loan drawdown 11 7,233 -
Interest payments 11 (431) (878)
Lease payments (58) (31)
------------------------------------------- ----- --------- ---------
Net cash flow from financing activities 10,424 1,091
------------------------------------------- ----- --------- ---------
Net increase/(decrease) in cash and cash
equivalents 312 (1,655)
Net foreign exchange difference 636 100
Cash and cash equivalents at the beginning
of the year 2,913 4,468
------------------------------------------- ----- --------- ---------
Cash and cash equivalents at the end of
the year 3,861 2,913
------------------------------------------- ----- --------- ---------
Note to Statement of Cash Flows
for the year ended 31 December 2022
2022 2021
GBP'000s GBP'000s
--------------------------------------------------- --------- ---------
Cash flow from operations reconciliation
Profit for the year before tax 6,575 2,460
Finance revenue (13) (4)
(increase)/decrease in drilling inventories (92) 41
(Increase)/decrease in receivables and prepayments (2,071) 511
Increase/(decrease) in accruals and short-term
payables 190 (841)
Reversal of impairment on development assets
and exploration costs (5,678) (4,024)
Impairment of interest in Badile land 107 50
Depreciation 101 168
Share-based payments charge and remuneration
paid in shares 969 30
Finance costs and exchange adjustments (4,016) 96
---------------------------------------------------- --------- ---------
Cash flow from operations (3,928) (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.
The Group has provided collateral of $2.5 million (2021: $1.75
million) to the Moroccan Ministry of Petroleum to guarantee the
Group's minimum work programme obligations for the Anoual, Greater
Tendrara and Sidi Mokhtar licences. The cash is held in a bank
account under the control of the Company and, as the Group expects
the funds to be released as soon as the commitment is fulfilled, on
this basis, the amount remains included within cash and cash
equivalents.
Notes to the Financial Statements
for the year ended 31 December 2022
1 Accounting Policies
Sound Energy plc is a public limited Company registered and
domiciled in England and Wales under the Companies Act 2006. The
Company's registered office is 20 St Dunstan's Hill, London EC3R
8HL.
The consolidated financial information contained within this
announcement does not constitute statutory accounts for the year
ended 31 December 2021 within the meaning of Section 434 of the
Companies Act 2006 but is derived from those audited accounts. The
auditors reported on those accounts and their report was
unqualified and did not contain any statement under section 498(2)
or section 498(3) of the Companies Act 2006. The statutory accounts
for the year ended 31 December 2022 will be delivered to the
Registrar of Companies in due course. The annual report and
statutory accounts will be sent to shareholders and will be made
available to the public on the Company's website:
www.soundenergyplc.com or, upon request, copies may be obtained
from the Company Secretary at the registered office of Sound Energy
plc 20 St Dunstan's Hill, London, EC3R 8HL .
(a) Basis of preparation
The financial statements of the Group and its parent Company
have been prepared in accordance with UK-adopted International
Accounting Standards.
The consolidated financial statements have been prepared under
the historical cost convention, except to the extent that the
following policies require fair value adjustments. The Group and
its parent Company's financial statements are presented in sterling
(GBP) and all values are rounded to the nearest thousand (GBP'000)
except when otherwise indicated.
The principal accounting policies set out below have been
consistently applied to all financial reporting periods presented
in these consolidated financial statements and by all Group
entities, unless otherwise stated. All amounts classified as
current are expected to be settled/recovered in less than 12 months
unless otherwise stated in the notes to these financial
statements.
The Group and its parent Company's financial statements for the
year ended 31 December 2022 were authorised for issue by the Board
of Directors on 3 May 2023.
Going concern
As at 31 March 2023, the Group's cash balance was GBP2.6 million
(including approximately GBP2.0 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 May 2024. The Company's forecasts and projections
indicate that, to fulfil its other obligations, the Company will
require additional funding. The Company commenced its Phase 1 of
the Concession upon taking FID on the micro-LNG project, and has
continued to actively monitor the project schedule, costs and
financing. The Company is progressing Phase 2, pipeline led
development of the Concession, and is in the process of arranging
financing and other elements necessary to enable the taking of
Phase 2 FID. The Company continues to engage with its partner,
ONHYM, for payment of approximately GBP2.1 million for ONHYM's
share of expenditure on the Tendrara Production Concession as at 31
December 2022.
The need for additional financing indicates the existence of a
material uncertainty, which may cast significant doubt about the
Group and Company's ability to continue as a going concern. These
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, various debt funding
options together with settlement of the outstanding Tendrara
Production Concession receivable balance from ONHYM. Furthermore,
based upon the Company's proven success 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 consolidated financial statements.
Use of estimates and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, as well as the
disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenues and expenses during
the reporting period. The Group based its assumptions and estimates
on parameters available when the consolidated financial statements
were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or
circumstances arising that are beyond the control of the Group.
Such changes are reflected in the assumptions when they occur.
Estimation and assumptions
The key sources of estimation uncertainty, that have a
significant risk of causing material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are the impairment of intangible exploration and evaluation
("E&E") assets, impairment of development and production
assets, investments, warrants, taxation and the estimation of
share-based payment costs.
E&E, development and production assets
When considering whether E&E assets are impaired, the Group
first considers the IFRS 6 indicators set out in note 11. The
making of this assessment involves judgement concerning the Group's
future plans and current technical and legal assessments. In
considering whether development and production assets are impaired,
the Group considers various impairment indicators and whether any
of these indicates existence of an impairment. If those indicators
are met, a full impairment test is performed.
lmpairment test
When value in use calculations are undertaken, management
estimates the expected future cash flows from the asset and chooses
a suitable discount rate to calculate the present value of those
cash flows. In undertaking these value in use calculations,
management is required to make use of estimates and assumptions
similar to those described in the treatment of E&E assets
above. Further details are given in note 7.
At 31 December 2022, the Company's market capitalisation was
GBP16.2 million, which is below the Group and Company's net asset
value of GBP179.8 million and GBP168.4 million, respectively.
Management considers this to be a possible indication of impairment
of the Group and Company's assets. A significant portion of the
Group's net assets is the carrying value of the development and
producing assets and disclosures relating to management's
assessment of impairment for these assets and the investment in
subsidiaries are included in note 6, on the basis that the
recoverability of the investment in subsidiaries in the Company
balance sheet is linked to the value of the development and
producing assets as, ultimately, the cash flows these generate will
determine the subsidiaries' ability to pay returns to the
Company.
Impairment exists when the carrying value of an asset or cash
generating unit exceeds its recoverable amount, which is the higher
of its fair value less costs of disposal and its value in use. The
fair value less costs of disposal calculation is based on available
data from binding sales transactions, conducted at arm's length,
for similar assets or observable market prices less incremental
costs of disposing of the asset. The value in use calculation is
based on a discounted cash flow model ("DCF model"). The cash flows
are derived from the latest budgets, expenditure and price data in
signed gas sales agreements (for contracted gas sales volumes),
market based price data (for uncontracted gas sales volumes),
project contract or agreed heads of terms, and the latest
management plans on project phasing. The recoverable amount is
sensitive to the discount rate and gas price assumption as well as
the Brent price assumption that impacts condensate sales pricing in
the DCF model. The carrying amount of the development and
production assets and parent Company investment in subsidiaries
increased by approximately GBP5.1 million following a reversal of
impairment during the year. The key assumptions used to determine
the recoverable amount of the development and production assets are
disclosed in note 6.
Share-based payments
The estimation of share-based payment costs requires the
selection of an appropriate valuation model, consideration as to
the inputs necessary for the valuation model chosen, and the
estimation of the number of awards that will ultimately vest,
inputs for which arise from judgements relating to the continuing
participation of key employees (note 10).
Fair value of warrants
Significant judgement and estimation is also required in the
determination of the fair value of warrants.
Taxation
The Group seeks professional tax and legal advice to make a
judgement on application of tax rules on underlying transactions
within the Group or with third parties. Tax treatment adopted by
the Group may be challenged by tax authorities. In 2020, the
Morocco tax authority informed the Group that it intended to claim
taxes on historical acquisition of licences in Eastern Morocco by
the Group. The Group continues to believe that the Morocco tax
authority has misunderstood or misinterpreted the underlying
transactions and appealed against the assessment. The matter is in
Court. In May 2021, the Group received notification from the
Morocco tax authority of its intention to assess additional VAT and
withholding taxes on historical transactions of the Company's
subsidiary entity, Sound Energy Morocco SARL AU. The Group appealed
the assessment. [Subsequent to period end, a settlement on the tax
cases was agreed upon as disclosed in note 4.]
Intercompany loans
The Company has funded its subsidiaries through non-interest
bearing loans payable on demand. Given that the Company has no
intention to call in the loans in the foreseeable future, the loans
are classified as non-current investments. Other source of estimate
concern IFRS 9 on intercompany loans at parent Company level but is
not considered likely subject to material change in the coming 12
months.
(b) Investments in subsidiaries
Subsidiaries are all entities over which the Group has the power
to govern the financial and operating policies, is exposed to, or
has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its
power over the entity. Such power, generally but not exclusively,
accompanies a shareholding of more than one-half of the voting
rights. The Group uses the purchase method of accounting for the
acquisition of subsidiaries. The cost of an acquisition is measured
as the fair value of the assets given, equity instruments issued
and liabilities incurred or assumed at the date of exchange. Costs
of acquisition are expensed during the period they are
incurred.
(c) Foreign currency translation
The functional currency of the Company is GBP sterling. The
Group also has subsidiaries whose functional currencies are US
dollar.
Transactions in foreign currencies are initially recorded in the
functional currency by applying the spot exchange rate ruling at
the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the
functional currency rate of exchange ruling at the balance sheet
date. All differences are taken to the income statement.
On consolidation, the assets and liabilities of foreign
operations are translated into sterling at the rate of exchange
ruling at the balance sheet date. Income and expenses are
translated at weighted average exchange rates for the year, unless
this is not a reasonable approximation of the rates on the
transaction dates. The resulting exchange differences are
recognised in other comprehensive income and held in a separate
component of equity. On disposal of a foreign entity, the deferred
cumulative amount recognised in equity relating to that foreign
operation is recognised in the income statement.
2 Segment Information
The Group categorises its operations into three business
segments based on corporate, exploration and appraisal, and
development and production.
In the year ended 31 December 2022, the Group's development,
exploration and appraisal activities were primarily carried out in
Morocco.
The Group's reportable segments are based on internal reports
about components of the Group, which are regularly reviewed and
used by the Board of Directors, being the Chief Operating Decision
Maker ("CODM"), for strategic decision making and resource
allocation, in order to allocate resources to the segment and to
assess its performance.
Details regarding each of the operations of each reportable
segments are included in the following tables.
Segment results for the year ended 31 December 2022:
Development Exploration
Corporate and production and appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- --------------- -------------- ---------
Other income - - 43 43
--------------------------------------- --------- --------------- -------------- ---------
Reversal of impairment of development
assets and exploration costs - 5,678 - 5,678
--------------------------------------- --------- --------------- -------------- ---------
Administration expenses (3,175) - - (3,175)
--------------------------------------- --------- --------------- -------------- ---------
Operating profit/(loss) segment
result (3,175) 5,678 43 2,546
--------------------------------------- --------- --------------- -------------- ---------
Interest receivable 13 - - 13
Finance costs and exchange adjustments 4,016 - - 4,016
--------------------------------------- --------- --------------- -------------- ---------
Profit/(loss) for the period before
taxation from continuing operations 854 5,678 43 6,575
--------------------------------------- --------- --------------- -------------- ---------
The segments assets and liabilities at 31 December 2022 is as
follows:
Development Exploration
Corporate and production and appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- --------------- -------------- ---------
Non-current assets 944 167,346 35,988 204,278
Current assets 4,224 2,141 1,413 7,778
Liabilities attributable to continuing
operations (23,024) (8,301) (2,646) (33,971)
--------------------------------------- --------- --------------- -------------- ---------
The geographical split of non-current assets is as follows:
Europe Morocco
GBP'000s GBP'000s
---------------------------------------- --------- ---------
Development and production assets - 163,074
Interest in Badile land 637 -
Fixtures, fittings and office equipment 5 9
Right of use assets 274 -
Software - 19
Prepayments - 4,272
Exploration and evaluation assets - 35,988
---------------------------------------- --------- ---------
Total 916 203,362
---------------------------------------- --------- ---------
Segment results for the year ended 31 December 2021 were as
follows:
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 were 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
2022 2021
GBP'000s GBP'000s
-------------------------------------------- --------- ---------
Research and development expenditure credit 43 223
-------------------------------------------- --------- ---------
During the year, 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
(a) Analysis of the tax charge for the year:
2022 2021
GBP'000s GBP'000s
---------------------------------------------------- --------- ---------
Current tax
UK corporation tax - -
Adjustment to tax expense in respect of prior years (7) (42)
Tax cases settlement (overseas tax) (1,595) -
---------------------------------------------------- --------- ---------
Total current tax (charge)/credit (1,602) (42)
Deferred tax credit arising in the current year - -
---------------------------------------------------- --------- ---------
Total tax (charge)/credit (1,602) (42)
---------------------------------------------------- --------- ---------
(b) Reconciliation of tax charge
2022 2021
GBP'000s GBP'000s
-------------------------------------------------- --------- ---------
Profit before tax 6,575 2,460
Tax (charge)/credit charged at UK corporation tax
rate of 19% (2021: 19%) (1,249) (467)
Tax effect of:
Expenses not deductible for tax purposes (49) (38)
Settlement of tax cases (1,595) -
Temporary differences not recognised 1,276 451
Differences in overseas tax rates 15 12
-------------------------------------------------- --------- ---------
Total tax (charge)/credit (1,602) (42)
-------------------------------------------------- --------- ---------
Deferred tax assets have not been recognised in respect of tax
losses available due to the uncertainty of the utilisation of those
assets. Unrecognised tax losses as at 31 December 2022 were
estimated to be approximately GBP8.8 million (2021: GBP6.1
million).
In September 2022, Sound Energy Morocco SARL AU ("SARL AU") a
wholly owned subsidiary of Sound Energy Morocco East Limited
("SEME") received findings of the Local Tax Committee ("LTC") that
upheld the tax authority's intended assessment of approximately
$21.4 million (excluding penalties and interest that may be levied)
relating to the fiscal years 2016 and 2017. The Group, having taken
legal and tax advice, continues to believe that the assessment
arises from a misunderstanding of the historical licence
relinquishment and intercompany funding arrangements and has
appealed to the Court where the case is progressing.
On a separate tax case, in December 2022, SEME was notified of
the judgement by the Court indicating that SEME's demand for the
annulment of the LTC finding was rejected. The LTC had upheld the
tax authority's claim of tax liabilities of approximately $2.5
million (excluding penalties and interests that may be levied),
relating to the fiscal years 2016 to 2018, 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 Grand
Tendrara. In January 2023, SEME appealed against the judgement and
the case is progressing in Court.
Post period end, in May 2023, the Company entered into a phased
payment schedule with Morocco tax authority for full and final
settlement of the tax cases for undiscounted amount of
approximately $2.45m (GBP2.0m). The discounted amount is
approximately $1.97 (GBP1.63m) with a current liability of
approximately $152k (GBP126k) and non current liability of
approximately $1.82m (GBP1.5m). The tax settlement is subject to
the Court agreeing that the cases can be withdrawn.
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 year. The calculation
of diluted profit/(loss) per share is based on profit/(loss) after
tax on the weighted average number of ordinary shares in issue,
plus the weighted average number of shares that would be issued if
dilutive options, RSUs and warrants were converted into shares.
Basic and diluted profit/(loss) per share is calculated as
follows:
2022 2021
GBP'000s GBP'000s
----------------------------------- --------- ---------
Profit for the year after taxation 4,973 2,418
----------------------------------- --------- ---------
2022 2021
Million Million
------------------------------------------ -------- --------
Basic weighted average shares in issue 1,752 1,494
Dilutive potential ordinary shares 7 1
------------------------------------------ -------- --------
Diluted weighted average number of shares 1,759 1,495
------------------------------------------ -------- --------
2022 2021
Pence Pence
------------------------- ------ ------
Basic profit per share 0.28 0.16
------------------------- ------ ------
Diluted profit per share 0.28 0.16
------------------------- ------ ------
Dilutive potential ordinary shares included in the calculation
of diluted weighted average number of shares relates to nil options
granted during the year. LTIP options awards and warrants totalling
138.8 million (2021: 105 million) were all anti-dilutive and were
not included in the calculation of diluted weighted average number
of shares.
6 Property, Plant and Equipment
Fixtures,
Development fittings
and production and office Right-of-use
assets equipment assets 2022
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------- --------------- ----------- ------------ ---------
Cost
At 1 January 2022 144,735 626 - 145,361
Additions 1,597 4 331 1,932
Disposal - (3) - (3)
Exchange adjustments 16,742 29 - 16,771
----------------------------- --------------- ----------- ------------ ---------
At 31 December 2022 163,074 656 331 164,061
----------------------------- --------------- ----------- ------------ ---------
Impairment and depreciation
At 1 January 2022 5,107 588 - 5,695
(Reversal)/charge for period (5,678) 30 57 (5,591)
Disposal - (2) - (2)
Exchange adjustments 571 26 - 597
----------------------------- --------------- ----------- ------------ ---------
At 31 December 2022 - 642 57 699
----------------------------- --------------- ----------- ------------ ---------
Net book amount 163,074 14 274 163,362
----------------------------- --------------- ----------- ------------ ---------
Fixtures,
Development fittings
and production and office Right-of-use
assets equipment assets 2021
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------- --------------- ----------- ------------ ---------
Cost
At 1 January 2021 142,447 778 150 143,375
Additions 997 - - 997
Disposal - (155) (150) (305)
Exchange adjustments 1,291 3 - 1,294
----------------------------- --------------- ----------- ------------ ---------
At 31 December 2021 144,735 626 - 145,361
----------------------------- --------------- ----------- ------------ ---------
Impairment and depreciation
At 1 January 2021 9,204 665 119 9,988
(Reversal)/charge for period (4,024) 77 31 (3,916)
Disposal - (155) (150) (305)
Exchange adjustments (73) 1 - (72)
----------------------------- --------------- ----------- ------------ ---------
At 31 December 2021 5,107 588 - 5,695
----------------------------- --------------- ----------- ------------ ---------
Net book amount 139,628 38 - 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 2022 and has, accordingly, revised the discount
rate to 12.5% as at 31 December 2022 (2021: 10%). 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 year, the
Company concluded that an average forecast gas price referenced to
the Title Transfer Facility ("TTF") in the Netherlands and the UK
National Balancing Point ("NBP") is more representative of the
conditions in the gas market instead of indexation to the Brent
price. Accordingly, the Company used an average of TTF and NBP
forecast gas price for its impairment testing as at 31 December
2022.
The Company's market capitalisation was GBP16.2 million as at 31
December 2022, which is below the Group's net assets of
GBP179.7 million and the Company's net assets of GBP168.4
million. An impairment indicator therefore exists. The Company is
pursuing a micro-LNG development (phase 1) followed by full field
development (phase 2) of its TE-5 Horst concession at the Group's
Tendrara licence and an impairment test was undertaken on the
carrying amount of the TE-5 Horst concession. The Company used a
DCF model ("Model") to calculate the recoverable amount for the
Company's share of the TE-5 Horst concession. The Model has an NPV
of $207.9 million (GBP171.8 million) which when compared to the
carrying amount of the development expenditure of GBP163.1 million
indicated that no impairment was required and as a result a
reversal of previously recognised impairment of approximately
GBP5.7 million was made.
The Model covers the period 2023 to 2049. The input to the Model
included a discount rate of 12.5% and phase 1 gas price of $8.0 per
mmbtu rising to the phase 1 gas price ceiling of $8.346 per mmbtu,
indexed using a combination of the TTF and United States Henry Hub
benchmark indexes. Phase 2 gas price used is a fixed price for the
first 10 years for annual volume of 0.3 bcm and the price for
uncontracted volumes referenced to an average forecast price of TTF
and NBP with price range of $37.05 per mmBTU in 2023 and $17.41 per
mmBTU in 2033, increasing at 2% per annum thereafter, consistent
with published sources. The base gas prices used are consistent
with LNG GSA for the Phase 1 development and Phase 2 gas price is
based on GSA signed with ONEE for the first ten years. The
production volumes data was based on the 2018 CPR for TE-5
Horst.
The well cost assumptions used were based on management's past
experience; mLNG plant leasing costs were based on contract with
the micro-LNG plant contractor; and pipeline related costs were
based on Head of Terms entered into with a consortium of partners
that had offered to provide a build, own, operate and transfer
("BOOT") solution for the Phase 2 of the development. The Company's
latest forecast covered the period to 2027, but the model extends
to 2049, as that is the period required to produce the gas
resources at TE-5 Horst concession and the economic cut-off. A
change in the discount rate by 1% has a $22.4 million (GBP18.5
million) impact on the NPV and change in average TTF and NBP
forecast gas price by $1/bbl has a $9.4 million (GBP7.8 million)
impact on the NPV.
7 Intangibles
Exploration
& Evaluation
Software Assets 2022
GBP'000s GBP'000s GBP'000s
---------------------------- ---------- -------------- ----------
Cost
At 1 January 2022 352 42,204 42,556
Additions 23 813 836
Exchange adjustments - 3,577 3,577
---------------------------- ---------- -------------- ----------
At 31 December 2022 375 46,594 46,969
---------------------------- ---------- -------------- ----------
Impairment and depreciation
At the start of the year 352 10,606 10,958
Charge for the year 14 - 14
Exchange adjustments (10) - (10)
---------------------------- ---------- -------------- ----------
At 31 December 2022 356 10,606 10,962
---------------------------- ---------- -------------- ----------
Net book amount 19 35,988 36,007
---------------------------- ---------- -------------- ----------
Exploration
& Evaluation
Software Assets 2021
GBP'000s GBP'000s GBP'000s
---------------------------- ---------- -------------- ----------
Cost
At 1 January 2021 349 41,203 41,552
Additions - 698 698
Exchange adjustments 3 303 306
---------------------------- ---------- -------------- ----------
At 31 December 2021 352 42,204 42,556
---------------------------- ---------- -------------- ----------
Impairment and depreciation
At the start of the year 289 10,606 10,895
Charge for the year 60 - 60
Exchange adjustments 3 - 3
---------------------------- ---------- -------------- ----------
At 31 December 2021 352 10,606 10,958
---------------------------- ---------- -------------- ----------
Net book amount - 31,598 31,598
---------------------------- ---------- -------------- ----------
Exploration and evaluation assets
Details regarding the geography of the Group's E&E assets is
contained in note 2. The Directors assess for impairment when facts
and circumstances suggest that the carrying amount of an E&E
asset may exceed its recoverable amount. In making this assessment,
the Directors have regard to the facts and circumstances noted in
IFRS 6 paragraph 20. In performing their assessment of each of
these factors, at 31 December 2022, the Directors have:
a. reviewed the time period that the Group has the right to
explore the area and noted no instances of expiration, or licences
that are expected to expire in the near future and not be
renewed;
b. determined that further E&E expenditure is either budgeted or planned for all licences;
c. not decided to discontinue exploration activity due to there
being a lack of quantifiable mineral resource; and
d. not identified any instances where sufficient data exists to
indicate that there are licences where the E&E spend is
unlikely to be recovered from successful development or sale.
On the basis of the above assessment, the Directors are not
aware of any facts or circumstances that would suggest the carrying
amount of the E&E asset may exceed its recoverable amount.
During the year, the Group had capitalised interest costs of
approximately GBP0.1 million (2021: GBP0.1 million).
8 Prepayments
Non-current prepayment of GBP4.3 million relates to activities
of the Company's Phase 1 mLNG Project in the Concession.
9 Capital and Reserves
2022 2021
Number Number
of shares GBP'000s of shares GBP'000s
--------------------- ------------- -------- ------------- --------
Ordinary shares - 1p 1,848,702,674 18,487 1,629,183,907 16,292
--------------------- ------------- -------- ------------- --------
2022 2021
Number Number
of shares of shares
-------------------------------- ------------- -------------
At 1 January 1,629,183,907 1,326,244,389
Issued during the year for cash 200,000,000 159,731,651
Non-cash share issue 19,518,767 143,207,867
-------------------------------- ------------- -------------
At 31 December 1,848,702,674 1,629,183,907
-------------------------------- ------------- -------------
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.
Share issues
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
Concession and for establishing the commercial framework for
monetisation of Phase 2 of the Concession.
In May 2022, the Company issued 1,057,211 shares following
vesting of historically awarded RSUs to members of staff and former
employees of the Company.
In May 2022, the Company issued 1,617,621 shares to third
parties in settlement of GBP25,000 for services provided to the
Company.
In June 2022, the Company issued 200,000,000 shares at a price
of 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.
Reserves
In 2018, the Company sought, and was granted, a court order
approving a capital reduction following the cancellation of the
share premium account. This resulted in the transfer of GBP277.7
million to distributable reserves.
10 Share-Based Payments
2022 2021
GBP'000s GBP'000s
------------------------------------------------- --------- ---------
Expense arising from equity-settled LTIP and RSU
awards 159 30
Bonuses paid in shares and nil cost options 810 -
------------------------------------------------- --------- ---------
969 30
------------------------------------------------- --------- ---------
LTIP Awards
During the year, 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 that 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 ten year
period. Awards granted under the LTIP will, generally, be subject
to a three-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, out of which 31,769,085 options
were allocated to qualifying Executives and senior management and
the balance of 17,106,430 was retained for future allocations. The
LTIP awards are exercisable at 2.4 pence per share and expire ten
years after the grant.
The fair value of LTIP awards granted was estimated at the date
of grant using a Black-Scholes model, taking account of the terms
and conditions upon which the awards were granted.
The expected life of the LTIP award is based on the maximum
award period and is not necessarily indicative of exercise patterns
that may occur. Expected volatility was determined by reference to
the historical volatility of the Company's share price over a
five-year period. The expected volatility reflects the assumption
that the historical volatility is indicative of future trends,
which may not necessarily be the actual outcome. The valuation
assumed an expected life of ten years and used the following
additional assumptions for the LTIP awards granted during the
year:
(i) Share price on grant date: 2.53 pence
(ii) Average risk free interest rate: 1.79%
(iii) Expected volatility: 99.11%
(iv) Assumed forfeitures: 0%
(v) Expected dividends: nil
No other features of the LTIP awards were incorporated into the
measurement of fair value. The fair value of the LTIP award granted
was 2.26 pence. The remaining contractual life of the LTIP awards
outstanding at 31 December 2022 is 9.3 years. If all the 31,769,085
LTIP awards were exercisable immediately, new ordinary shares equal
to approximately 1.7% of the shares currently in issue, would be
created.
One time bonus and nil-cost options
In May 2022, the Company issued 13,419,891 shares as one-time
bonus to a staff member and also granted 20,236,628 nil-cost
options to employees in settlement of bonus awards. The nil-cost
options vested immediately and expire five years from the date of
grant. The nil-cost options were recognised at fair value on grant
date by reference to the closing share price of the Company's
shares on the trading day prior to the grant of the options.
Share options
All previously outstanding share options expired during the
year.
Weighted Weighted
average average
exercise exercise
2022 price 2021 price
Number Pence Number Pence
--------------------------------- ----------- --------- ----------- ---------
Share options outstanding at the
start of the year 5,450,000 66.47 8,950,000 44.93
Share options granted - - - -
Share options expired (5,450,000) 66.47 (3,500,000) 22.29
Share options exercised - - - -
--------------------------------- ----------- --------- ----------- ---------
Share options outstanding at the
end of the year - - 5,450,000 66.47
--------------------------------- ----------- --------- ----------- ---------
RSU awards
All RSU awards vested or expired during the year.
2022 2021
Number Number
------------------------------------------------ ----------- ---------
RSU awards outstanding at the start of the year 1,165,400 1,487,765
Granted during the year - -
Expired during the year (108,189) -
Vested during the year (1,057,211) (322,365)
------------------------------------------------ ----------- ---------
RSU awards outstanding at the end of the year - 1,165,400
------------------------------------------------ ----------- ---------
The weighted average share price at the date of vesting of the
RSU awards was 2.5 pence (2021: 1.9 pence).
Warrants
As at 31 December 2022, the Company had the following
outstanding warrants to subscribe to the Company's ordinary
shares.
Exercise Number
price Number Granted/ at
2022 Pence Expiry date at 1 January (exercised) Expired 31 December
-------------- -------- ------------ ------------- ------------ ------- ------------
2022 Warrants 2.75 13 June 2025 - 7,056,875 - 7,056,875
21 December
2021 Warrants 2.75 2027 99,999,936 - - 99,999,936
-------------- -------- ------------ ------------- ------------ ------- ------------
99,999,936 7,056,875 - 107,056,811
-------------- -------- ------------ ------------- ------------ ------- ------------
Exercise
price Number Granted/ Number at
2021 Pence Expiry date at 1 January (exercised) Expired 31 December
-------------- -------- ------------ ------------- ------------ ------------ ------------
2016 Warrants 30.00 21 June 2021 52,411,273 - (52,411,273) -
21 December
2021 Warrants 2.75 2027 99,999,936 - - 99,999,936
-------------- -------- ------------ ------------- ------------ ------------ ------------
152,411,209 - (52,411,273) 99,999,936
-------------- -------- ------------ ------------- ------------ ------------ ------------
11 Loans and Borrowings
Secured Loan note- Total
bonds Afriquia 2022 2021
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- ---------- --------- ---------
Current liabilities
At 1 January - - - 24,709
Amount converted into ordinary shares
of the Company - - - (3,000)
Fair value of warrants issued - - - (1,534)
Amortised finance charges - - - 1,564
Interest payments - - - (389)
Exchange adjustments - - - (919)
Reclassification from/(to) non-current
liability 1,121 - 1,121 (20,431)
--------------------------------------- --------- ---------- --------- ---------
At 31 December 1,121 - 1,121 -
--------------------------------------- --------- ---------- --------- ---------
Non-current liabilities
At 1 January 20,039 - 20,039 -
Drawdown during the year - 7,233 7,233 -
Amortised finance charges 1,245 324 1,569 810
Interest payments (431) - (431) (489)
Exchange adjustments 1,123 656 1,779 (713)
Reclassification (to)/from current
liabilities (1,121) - (1,121) 20,431
--------------------------------------- --------- ---------- --------- ---------
At 31 December 20,855 8,213 29,068 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 repaid, at a rate of 5% every
six months, commencing on 21 December 2023. Until maturity, the
Bonds bear 2% cash interest paid per annum and a 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 year, the Company made drawdowns totaling $9.5
million from the Company's $18.0 million 6% secured loan note
facility with Afriquia Gaz maturing in December 2033 (the "Loan").
The drawn down principal bears 6% interest per annum payable
quarterly, but deferred and capitalised semi-annually, until the
second anniversary of entry of the Loan agreement. Thereafter,
principal and deferred interest will be repayable, annually, in
equal installments commencing December 2028. The Loan is secured on
the issued share capital of Sound Energy Meridja Limited. The
weighted effective interest of the drawdowns made during the year
is, approximately, 6.2%.
Reconciliation of liabilities arising from financing
activities
Non-cash changes
-------------------------------
Amortised
1 January finance Exchange Office 31 December
2022 Cash flows charges adjustments lease 2022
2022 GBP'000s GBP'000s GBP'000s GBP'000s entry GBP'000s
----------------------- ---------- ---------- --------- ------------ ------ -----------
Long-term borrowings 20,039 6,802 1,569 1,779 - 30,189
Leases - (58) 10 - 331 283
----------------------- ---------- ---------- --------- ------------ ------ -----------
Total liabilities from
financing activities 20,039 6,744 1,579 1,779 331 30,472
----------------------- ---------- ---------- --------- ------------ ------ -----------
Non-cash changes
----------------------------------
Issue of
Amortised equity
1 January finance Exchange and fair 31 December
2021 Cash flows charges adjustments value of 2021
2021 GBP'000s GBP'000s GBP'000s GBP'000s warrants GBP'000s
----------------------- ---------- ---------- --------- ------------ --------- -----------
Long-term borrowings 24,709 (878) 2,374 (1,632) (4,534) 20,039
Leases 30 (31) 1 - - -
----------------------- ---------- ---------- --------- ------------ --------- -----------
Total liabilities from
financing activities 24,739 (909) 2,375 (1,632) (4,534) 20,039
----------------------- ---------- ---------- --------- ------------ --------- -----------
Reconciliation of finance expense
2022 2021
GBP'000s GBP'000s
------------------------------------- --------- ---------
Amortised finance charges 1,569 2,375
Unwinding of discount on lease 10 -
Less capitalised interest (133) (69)
------------------------------------- --------- ---------
Total external interest for the year 1,446 2,306
------------------------------------- --------- ---------
12 Post Balance Sheet Events
In March 2023, the Company provided an update on progress being
made in securing financing for the Company's Phase 2 development of
the Concession. Significant progress had been made by the Company's
mandated lead finance arranger, who had completed legal and
technical due diligence in respect of the proposed financing.
Whilst other aspects of pre-financing were continuing, the parties
were progressing to detailed financial structuring and had entered
a further amendment to the mandate and extended the deadline by
which the parties would seek to negotiate binding terms for the
proposed financing to 28 April 2023. In April 2023, the Company
announced that the lead finance arranger's credit committee
consideration had been delayed and was not expected to be held
prior to 28 April 2023. With the lead arranger's credit committee
consideration of the financing re-scheduled, the parties continue
to work in good faith in advancing the financing.
Post period end, in May 2023, the Company entered into a phased
payment schedule with Morocco tax authority for full and final
settlement of the tax cases for undiscounted amount of
approximately $2.45m (GBP2.0m). The discounted amount is
approximately $1.97 (GBP1.63m) with a current liability of
approximately $152k (GBP126k) and non current liability of
approximately $1.82m (GBP1.5m) (note 4). The tax settlement is
subject to the Court agreeing that the cases can be withdrawn.
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END
FR EAFSDEAPDEAA
(END) Dow Jones Newswires
May 04, 2023 02:00 ET (06:00 GMT)
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