TIDMSOU
RNS Number : 8296F
Sound Energy PLC
24 March 2022
24 March 2022
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 2021.
HIGHLIGHTS
Development of the Moroccan Tendrara Production Concession
-- Phase 1 Micro LNG project
o 10-year take or pay Gas Sales and Purchase agreement signed
with Afriquia Gaz
o Execution of $18.0 million loan facility from Afriquia Gaz
(with 6% annual coupon and a 12-year term)
o Post period end issue of notice to proceed to Italfluid, an
EPC contractor providing lease, operate and maintain facilities
-- Phase 2 Gas (pipeline) development
o 10-year take or pay Gas Sales and Purchase agreement signed
with ONEE, a key milestone to monetise the gas resources at
Tendrara
Exploration and growth
-- Extension of Anoual exploration permit duration from 8 to 9 years
-- Acquisition of Schlumberger Silk Route Services Limited
Corporate
-- Successful restructuring of EUR28.8 million corporate loan notes
-- Reduction in administrative expenses by approximately 42% compared with 2020
-- Equity subscription by Afriquia Gaz of GBP2.0 million
-- Receipt of circa EUR183,000 first payment for disposal of Badile in Italy
-- Post period announcement of a possible offer for Angus Energy plc
Graham Lyon, Executive Chairman said:
"2021 was a year of delivery in pursuit of monetising our
significant discovered gas for our Phase 1 mLNG project. This
included the successful conclusion of a number of major agreements
and the delivery of key project milestones that very clearly
demonstrated our commitment to delivering against our promises.
During 2022, we will continue to work tirelessly to deliver
additional value for our shareholders through meaningful
progression on both the Phase 1 mLNG project and the Phase 2 gas
pipeline development in our energy transition strategy in order to
deliver increased future Company growth. I look forward with
confidence to delivering a similarly productive 2022 for Sound on
behalf of all of its stakeholders."
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
Pete Lynch
SP Angel Corporate Finance LLP Tel:44 7789 865 095
Richard Hail
Statement from the Executive Chairman
Introduction
Following 2020, our year of stabilisation, 2021 was a year of
delivery for the Company. The team's relentless hard work resulted,
in spite of the challenges raised by the global Covid pandemic, in
the achievement of a number of key milestones for the business and
the commencement of our strategic shift to a production focused
energy transition business. This delivery has advanced the prospect
of gas sales and revenues from our Phase 1 micro-LNG (mLNG)
development in Morocco while, at the same time, establishing the
large-scale Phase 2 development.
The Phase 1 project made significant strides forward in 2021
with a Gas Sales Agreement (GSA) announced earlier in the year and
a financing package completed at year end. This financing will
cover the cost of bringing this development to market. In parallel,
we have materially advanced the Phase 2 development securing a
binding GSA with Office National de l'Electricite et de l'Eau
potable (ONEE), a vital step which provided certainty on gas sales
pricing and offtake from the pipeline development to unlock the
financing stage of the development process. The value of these
strategically pivotal developments to Sound shareholders was
further enhanced by our entry into a sale and purchase agreement
with Schlumberger Holdings II Limited which resulted in Sound
increasing its participating interests in the Tendrara Concession,
along with the Anoual and Greater Tendrara exploration permits,
from 47.5% to 75%. Finally, Sound secured an extension to the term
of the Anoual Permit, which covers the Tendrara concession, from
eight to nine years.
The Company was able to reschedule its longer-term bond holder
debt and gain the support of these holders to the staged
development of the business. This was completed with minimal
dilution to equity holders and has put the Company in a stronger
financial position.
In addition to the operational progress delivered in 2021, I am
also very proud that we have redoubled our commitment to
Environment, Social and Governance (ESG) best practice and, while
we have always maintained the highest environmental standards in
our operations, we now have a clear path to measuring and reporting
our ESG metrics against the UN's Sustainable Development Goals.
Furthermore, we are working with a University of Cambridge project
which will assist with the measurement of our Carbon footprint.
Phase 1
In July 2021, we signed the Phase 1 Development LNG Sale &
Purchase Agreement (LNG SPA) for the mLNG project for the TE-5
Horst. This is a ten year take or pay agreement between Afriquia
Gaz (Morocco's leading fuel distributor) and Sound Energy Morocco
East Limited (SEMEL) - a 100% subsidiary of Sound Energy plc. Under
the LNG SPA, SEMEL will commit, for 360 days a year over 10 years
from first gas, to provide a daily quantity of between 475 and 546
cubic metres of LNG and Afriquia will commit to offtake (or pay for
if not offtaken) an annual minimum of 475 cubic metres per day.
Additionally, at the end of the year, we announced binding
agreements in respect of a US$18 million loan from Afriquia Gaz for
development of the Tendrara Concession. Earlier in the year,
Afriquia Gaz also invested in the Company by way of an equity
placing of GBP2 million of Sound Energy plc shares, further
cementing the strategic relationship between the two companies.
Post period, we were delighted to announce that we have entered
into a binding contract with Italfluid Geoenergy srl for the
leasing, operation and maintenance of gas processing and
liquefaction facilities in respect of our Phase I development. This
novel vendor financing arrangement provides the lion's share of the
development capital required for Phase 1 thus providing the
platform for attractive shareholder returns.
Subsequent to this, the Company has issued a notice to proceed
to Italfluid, thus commencing the project execution stage and
paving the way for first gas within 24 months. Whilst I do not
underestimate the project challenges that lie ahead, particularly
in a world post COVID experiencing inflation and supply chain
issues, we are pleased that the Company is now on a pathway to
becoming cash generative.
Phase 2
In November 2021, the Company announced the signature of the
binding Gas Sales Agreement with offtaker, ONEE. The agreement
means that the Tendrara JV Partners (Sound and Office National des
Hydrocarbures et des Mines (ONHYM)- the Moroccan Government
Department for Energy) have committed to delivering gas from the
Tendrara Production Concession to the Gas Maghreb-Europe pipeline
for an annual contractual volume of up to 350 million cubic metres
of pipeline gas for a period of 10 years, with an annual take or
pay volume of 300 million cubic meters at a market competitive
price.
This binding Gas Sales Agreement for Phase 2 represents a major
milestone for the Company, so I am extremely proud that it was
completed in 2021.
Anoual
In September 2021, we announced an update to the Anoual Permits
extending their duration from eight to nine years. While the team
has worked relentlessly to deliver our operational goals, COVID has
undoubtedly impacted progress on the ground and we have been unable
to progress at the speed that we would have wished. As a result of
this, Sound was granted an extension to the Permits resulting in an
extension to the permits from eight to nine years, giving us
further time to mature our plans for this important and potentially
transformative exploration permit.
Schlumberger Holdings II Limited sale and purchase agreement
In June 2021, the Company entered into a sale and purchase
agreement to acquire the entire issued share capital of
Schlumberger Holdings II Limited in return for a minority profit
share from the concession development plus a share in any cash
disposal of the Anoual and Greater Tendrara exploration permits
(should this occur prior to 28 February 2023). This agreement, at
no upfront cash cost to the Company, materially increased our
working interest in the Tendrara Concession together with the
Anoual and Greater Tendrara exploration permits to 75% (from
47.5%), positioning the Company to benefit from enhanced returns,
cashflows and value as it moves forward.
Corporate
In February 2021, we announced the appointment of SP Angel as
our corporate broker whilst, in March 2021, we announced the
receipt of the first payment (EUR 183k) in respect of the disposal
of legacy Badile land in Italy.
In April 2021, we successfully concluded the restructuring of
the Company's Luxembourg listed EUR 28.8 million 5.0% senior
secured notes due 2021 extending the maturity to December 2027,
converting part of the loan into equity, partially amortising and
changing the structure of the interest due to minimise near term
cash outflow.
We continue to constructively engage with the Moroccan Tax
Administration in relation to a number of tax notifications.
The Company remains clear that the assessments by the Moroccan
Tax Administration, as previously announced, arise from a
fundamental misunderstanding of the historical licensing changes
(relinquishing old licences and entering new licences covering
revised acreage with revised terms - with no continuation or
transfer of the original licence) and inter-group ownership outside
of Morocco. We hope to bring this to a conclusion so that we can
continue our very positive and productive relationship with a
number of the Country's ministries.
We have continued to scrupulously and efficiently manage our
expenditure and corporate overheads, to sustain cash balances
whilst at the same time strengthening our team and our resourcing
capability necessary for the Company's operations.
Whilst the pandemic has challenged our ability to engage face to
face with shareholders and other key stakeholders, we undertook a
variety of virtual stakeholder and investor events and I was
delighted to welcome shareholders into our London office for our
first face to face event since 2019. I look forward to more
shareholder events through 2022, giving us the opportunity to
share, in real time, our exciting plans for the growth of the
Company.
Post period, the Company announced that it was considering a
possible offer for Angus Energy plc ("Angus"). The possible offer
would be an all-share offer whereby Angus shareholders would
(subject to Sound Energy shareholder approval) receive the
Company's ordinary shares in exchange for their holding in Angus at
an agreed exchange ratio. The deadline by which the Company is
required to announce a firm intention to make an offer for Angus or
announce that it does not intend to make an offer expires on 8
April 2022.
Board Strengthening
We further strengthened our Board as we welcomed Christian
Bukovics as Senior Independent Non-executive Director. Christian
has over 40 years of experience across various international roles
in the energy industry and he has already made a considerable
contribution to the Company since his recent appointment.
Summary
As I have already outlined, 2021 was a year of delivery in
pursuit of monetising our significant discovered gas for our Phase
1 mLNG project. This included the successful conclusion of a number
of major agreements and the delivery of key project milestones that
very clearly demonstrated our commitment to delivering against our
promises. During 2022, we will continue to work tirelessly to
deliver additional value for our shareholders through meaningful
progression on both Phase 1 mLNG project and the Phase 2 gas
pipeline development in our energy transition strategy in order to
deliver increased future Company growth. I look forward with
confidence to delivering a similarly productive 2022 for Sound on
behalf of all of its stakeholders.
Graham Lyon
Executive Chairman
Portfolio Review
Tendrara Production Concession
Permit Area
Located proximate to Gazoduc Maghreb Europe ("GME") pipeline
approximately 120 kilometers to the North. The 522 kilometres long
Moroccan section is owned by the Moroccan State and operated by
Metragaz. The pipeline connects Morocco to the Spanish/Portuguese
gas grids as well as the Moroccan gas-firedpower stations.
Geology
Gas reservoir with flow rates significantly enhanced by
application of proven mechanical stimulation techniques.
Ongoing and Planned Developments
Potential capacity to meet gas demand in a phased manner with
Phase I being the implementation of a micro-LNG development scheme
and Phase II being the development of a larger scale central
processing facility ("CPF") and gas export pipeline.
Phase 1
Supply of LNG displacing higher carbon LPG
Phase 1 Micro LNG Development - Sound fully funded for pre first
gas share of 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 of 100
million standard cubic metres of gas (approximately 3.5 billion
standard cubic feet of gas per year) over a ten-year period in a
liquid form.
Binding gas sales agreement and associated funding in place with
Afriquia Gaz. 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 well stock of TE-6 and TE-7,
with additionally the drilling of one new well as required to
maintain the ten-year period of potential production plateau.
LNG Central Processing Facility and Environmental Impact
Assessment permit approved and binding agreement with 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 two-step 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): FEED completed
by Metragaz (EMPL operator)
-- Pipeline EIA permit approved
-- 70 mmscf/d raw gas CPF processing capacity: FEED completed by Enaga s Consortium
-- CPF EIA permit approved
-- 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 10-year term
-- Six horizontal wells planned for First Gas (Phase 2)
Exploration
Greater Tendrara - two Triassic Trias Argilo-Gréseux Inférieur
(TAGI) discoveries
Permit Area
Surrounds the Tendrara Production Concession.
Geology
Only eight wells drilled across the entire area, all encountered
evidence of a petroleum system.
Two Triassic TAGI gas discoveries:
-- 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
Exploration potential in the Triassic TAGI reservoir of 7.97 Tcf
gross/5.98 Tcf net (arithmetical sum of mid-case un-risked original
gas in place, internal exploration potential estimates) identified
in sub-salt concepts, leads and prospects.
Future Developments
A number of targets are available for near term drilling.
All work commitments completed for the current period. The next
voluntary period commences mid-September 2022 with one well
commitment to be drilled before September 2024.
Anoual
Permit Area
Adjacent to the Tendrara Production Concession.
Geology
Only one well drilled across the entire area.
Committed geophysical surveying completed with a single well
commitment remaining.
Exploration potential in the Triassic TAGI1 reservoir of 11.48
Tcf gross/8.61 Tcf net (arithmetical sum of mid-case un-risked
original gas in place, internal exploration potential estimates)
identified in sub-salt concepts, leads and prospects.
Future Developments
"M5" prospect matured for drilling a TAGI target, operational
planning progressing.
Sidi Mokhtar
Permit Area
The permit is located on the Atlantic seaboard of Morocco
approximately 100 kms to the west of Marrakech.
In 2016, Sound Energy entered into binding agreements with
Maghreb Petroleum Exploration S.A and PetroMaroc Corporation Plc to
acquire a 75% operated position in the Sidi Mokhtar Petroleum
Agreement. ONHYM retains the remaining 25% position under the
Petroleum Agreement. In July 2017, the Company reported the results
of a re-entry, completion, perforation and flow testing of the
existing Koba-1 well, focused 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 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 farm-in partner
to participate in a geophysical survey programme focused on
these
deeper objectives.
In October 2020, the Company announced a two-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
The Sidi Mokhtar permit hosts a variety of proven plays.
Previous exploration has focused on the shallower post- salt plays.
Sound Energy believes that the deeper, sub-salt Triassic and
Palaeozoic plays, already proven by the Meskala Gas Field, may
contain significant prospective resources, in excess of any
discovered volumes in the shallower stratigraphy.
Un-risked exploration potential of up to 9 Tcf (internal
exploration potential estimates, arithmetical sum of mid-case
unrisked original gas 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.
Sound believes that all elements of petroleum system are present
and commissioned integrated geological mapping, basin restoration
and 3D petroleum system modelling to de-risk the Triassic and
Palaeozoic plays in the basin, proven by the Meskala Field which
produces gas and condensate from a Triassic reservoir. Note that
the salt forms a critical and extensive seal retaining sub-salt
overpressures and preserving this deeper petroleum system from the
later Atlantic and Alpine tectonics.
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 currently hoped to culminate in an
exploration well targeting a high-impact gas prospect.
Financial Review
Income Statement
The profit for the year before tax from continuing operations
was GBP2.4 million (2020: GBP18.8 million loss). Reversal of
impairment of development assets of GBP4.0 million (2020: GBP9.8
million impairment loss) related to the TE-5 Horst production
concession following revision to forecast assumptions, primarily
higher forward Brent price and gas price assumption in line with
long-term market price forecast as at 31 December 2021 compared to
the position as at 31 December 2020. Administrative costs at GBP1.7
million were 42% lower than 2020 administration costs (GBP2.9
million) due to continued focus on cost reduction.
Foreign exchange gains primarily related to intra-Group loans
and offset by exchange losses in 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 2021, equity issuances raised approximately GBP2.0
million (2020: GBP4.6 million) net of issue costs.
Financing costs were GBP2.3 million (2020: GBP3.3 million),
primarily due to amortised costs of the notes, net of interest
capitalised to the development and exploration licences of GBP0.1
million (2020: GBP0.1 million). The decline in finance costs arose
due to restructuring of the Company's EUR28.8 million bond which
inter alia extended the maturity of the loan notes to 21 December
2027, converted EUR 3,479,999 of the notes to 141,176,448 new
ordinary shares in the Company 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.
Further details on the restructuring are provided in note 9.
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").
In March 2021 a partial sale of the Badile land for EUR250,000
occurred which, after deducting amounts then due from the Company
for Badile land remediation, the Company received net proceeds of
EUR183,000. The sale of remaining area of the Badile land is
expected to complete during 2022 for gross proceeds of
EUR350,000.
The Group spent GBP1.2 million (2020: GBP1.3 million) on
investing activities during 2021 (net of GBP0.2 million receipt
from interest in Badile land) which consisted of spend on the
Group's Morocco licences and capitalised general and administrative
expenses.
Balance Sheet
As at 31 December 2021, the carrying amount of property, plant
and equipment was GBP139.7 million (2020: GBP133.4 million),
primarily related to the development and production assets in
Morocco with a carried value of GBP139.6 million (2020: GBP133.2
million) after taking account of impairment reversal, additions and
foreign exchange movement.
Additions of GBP0.7 million intangible assets largely consisted
of capitalised general and administrative expenses.
The Company has a carrying amount of approximately GBP0.7
million (2020: GBP1.0 million) as interest in Badile land. The
Company expects the sale of Badile Area 2 to be completed before
the end of 2022.
Other receivables amounting to GBP0.9 million (2020: GBP1.4
million), primarily related to receivables from our partners in
Morocco licences and recoverable VAT in Morocco.
Trade and other payables amounting to GBP1.5 million (2020:
GBP2.2 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. The Company has a carrying
amount of GBP0.4 million (2020: GBP0.5 million) relating to the
obligation for the Badile land remediation in line with the 2018
Italy divestment agreement.
During 2021 the Company issued 302,939,518 shares of which
159,731,651 were issued for cash and 143,207,867 were non-cash
share issues. The primary non-cash share issue related to
141,176,448 shares issued to the Company's bondholders as part of
corporate bond restructuring in April 2021.
Going Concern
As detailed in note 1, the Company's cash flow forecasts for the
next twelve-month period to March 2023, indicated that additional
funding will be required to enable the Company to meet its
obligations. These conditions, along with other matters described
in note 1, indicate existence of a material uncertainty on the
Company's ability to continue as going concern.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2021
2021 2020
Notes GBP'000s GBP'000s
--------------------------------------------------------- ----- --------- ---------
Continuing operations
Revenue - -
Other income 3 223
Reversal of impairment/(impairment loss) on development
assets and exploration costs 4,024 (9,777)
--------------------------------------------------------- ----- --------- ---------
Gross profit/(loss) 4,247 (9,777)
--------------------------------------------------------- ----- --------- ---------
Administrative expenses (1,695) (2,904)
--------------------------------------------------------- ----- --------- ---------
Group operating profit/(loss) from continuing operations 2,552 (12,681)
--------------------------------------------------------- ----- --------- ---------
Finance revenue 4 46
Foreign exchange gain/(loss) 2,210 (2,877)
Finance expense 9 (2,306) (3,304)
--------------------------------------------------------- ----- --------- ---------
Profit/(loss) for the year before taxation 2,460 (18,816)
--------------------------------------------------------- ----- --------- ---------
Tax expense 4 (42) -
--------------------------------------------------------- ----- --------- ---------
Profit/(loss) for the year after taxation 2,418 (18,816)
--------------------------------------------------------- ----- --------- ---------
Other comprehensive income/(loss)
Items that may subsequently be reclassified to the
profit and loss account
--------------------------------------------------------- ----- --------- ---------
Foreign currency translation gain/(loss) 1,179 (4,010)
--------------------------------------------------------- ----- --------- ---------
Total comprehensive profit/(loss) for the year 3,597 (22,826)
--------------------------------------------------------- ----- --------- ---------
Profit/(loss) for the year attributable to:
Owners of the Company 3,597 (22,826)
--------------------------------------------------------- ----- --------- ---------
2021 2020
Notes Pence Pence
------------------------------------------------------- ----- ------ ------
Basic and diluted profit/loss per share for the year
attributable to the equity shareholders of the parent
(pence) 5 0.16 (1.54)
------------------------------------------------------- ----- ------ ------
Consolidated Balance Sheet
as at 31 December 2021
2021 2020
Notes GBP'000s GBP'000s
-------------------------------- ----- --------- ---------
Non-current assets
Property, plant and equipment 6 139,666 133,387
Intangible assets 7 31,598 30,657
Interest in Badile land 663 988
-------------------------------- ----- --------- ---------
171,927 165,032
-------------------------------- ----- --------- ---------
Current assets
Inventories 871 912
Other receivables 852 1,371
Prepayments 31 23
Cash and short-term deposits 2,913 4,468
-------------------------------- ----- --------- ---------
4,667 6,774
-------------------------------- ----- --------- ---------
Total assets 176,594 171,806
-------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 1,500 2,206
Lease liabilities - 30
Loans and borrowings 9 - 24,709
-------------------------------- ----- --------- ---------
1,500 26,945
-------------------------------- ----- --------- ---------
Non-current liabilities
Loans and borrowings 9 20,039 -
-------------------------------- ----- --------- ---------
20,039 -
-------------------------------- ----- --------- ---------
Total liabilities 21,539 26,945
-------------------------------- ----- --------- ---------
Net assets 155,055 144,861
-------------------------------- ----- --------- ---------
Capital and reserves
Share capital and share premium 34,573 29,540
Accumulated surplus 123,872 117,334
Warrant reserve 1,534 4,090
Foreign currency reserve (4,924) (6,103)
-------------------------------- ----- --------- ---------
Total equity 155,055 144,861
-------------------------------- ----- --------- ---------
Group Statements of Changes in Equity
for the year ended 31 December 2021
Foreign
Accumulated Warrant currency Total
Share capital Share 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 8 3,030 2,004 - - - 5,034
Share issue costs - (1) - - - (1)
Fair value of warrants
issued during the
year - - - 1,534 - 1,534
Reclassification on
expiry of warrants - - 4,090 (4,090) - -
Share-based payments - - 30 - - 30
----------------------- ----- ------------- ------------- ----------- --------- --------- ---------
At 31 December 2021 16,292 18,281 123,872 1,534 (4,924) 155,055
----------------------- ----- ------------- ------------- ----------- --------- --------- ---------
Foreign
Accumulated Warrant currency Total
Share capital Share premium surplus reserve reserves equity
Notes GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
----------------------- ----- ------------- ------------- ----------- --------- --------- ---------
At 1 January 2020 10,796 14,039 135,481 4,090 (2,093) 162,313
Total loss for the
year - - (18,816) - - (18,816)
Other comprehensive
income - - - - (4,010) (4,010)
----------------------- ----- ------------- ------------- ----------- --------- --------- ---------
Total comprehensive
loss - - (18,816) - (4,010) (22,826)
Issue of share capital 8 2,466 2,656 - - - 5,122
Share issue costs - (417) - - - (417)
Share-based payments - - 669 - - 669
----------------------- ----- ------------- ------------- ----------- --------- --------- ---------
At 31 December 2020 13,262 16,278 117,334 4,090 (6,103) 144,861
----------------------- ----- ------------- ------------- ----------- --------- --------- ---------
Group Statement of Cash Flows
for the year ended 31 December 2021
2021 2020
Notes GBP'000s GBP'000s
----------------------------------------------------- ----- --------- ---------
Cash flow from operating activities
Cash flow from operations (1,513) (1,873)
Interest received 4 46
Tax paid (42) -
----------------------------------------------------- ----- --------- ---------
Net cash flow from operating activities (1,551) (1,827)
----------------------------------------------------- ----- --------- ---------
Cash flow from investing activities
Capital expenditure (959) (461)
Exploration expenditure (454) (821)
Receipt from interest in Badile land 218 -
----------------------------------------------------- ----- --------- ---------
Net cash flow from investing activities (1,195) (1,282)
----------------------------------------------------- ----- --------- ---------
Cash flow from financing activities
Net proceeds from equity issue 2,000 4,589
Interest payments 9 (878) (1,269)
Lease payments (31) (128)
----------------------------------------------------- ----- --------- ---------
Net cash flow from financing activities 1,091 3,192
----------------------------------------------------- ----- --------- ---------
Net (decrease)/increase in cash and cash equivalents (1,655) 83
Net foreign exchange difference 100 (223)
Cash and cash equivalents at the beginning of the
year 4,468 4,608
----------------------------------------------------- ----- --------- ---------
Cash and cash equivalents at the end of the year 2,913 4,468
----------------------------------------------------- ----- --------- ---------
Note to Statement of Cash Flows
for the year ended 31 December 2021
2021 2020
Notes GBP'000s GBP'000s
-------------------------------------------------------- ------ --------- ---------
Cash flow from operations reconciliation
Profit/(loss) for the year before tax 2,460 (18,816)
Finance revenue (4) (46)
Decrease in drilling inventories 41 102
Decrease in receivables and prepayments 511 139
Decrease in accruals and short-term payables (841) (315)
(Reversal of impairment)/impairment loss on development
assets and exploration costs (4,024) 9,777
Impairment of interest in Badile land 50 -
Depreciation 168 328
Share-based payments charge and remuneration paid
in shares 30 777
Finance costs and exchange adjustments 96 6,181
---------------------------------------------------------------- --------- ---------
Cash flow from operations (1,513) (1,873)
---------------------------------------------------------------- --------- ---------
Non-cash transactions during the year included the issue of
141,176,448 ordinary shares at a price of 2.125 pence per share as
part of restructuring of the Company's loan Notes. The Company
issued 322,365 ordinary shares to former employees under the
Company's RSU plan. 1,709,054 ordinary shares were issued at
approximately 1.86 pence per share to a third party for services
provided.
The Group has provided collateral of $1.75 million (2020: $1.75
million) to the Moroccan Ministry of Petroleum to guarantee the
Group's minimum work programme obligations for the Anoual 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 2021
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 2021 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
Financial Reporting 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 2021 were authorised for issue by the Board
of Directors on 23 March 2022.
Going concern
As at 28 February 2022, the Group's cash balance was GBP7.9
million (including approximately GBP1.3 million held as collateral
for a
bank guarantee against licence commitments). The Directors have
reviewed the Company's cash flow forecasts following the
taking of micro-LNG FID and reflecting expected costs. While the
Company's funding obligation of the micro-LNG project is financed
through associated commercial arrangements, the forecasts and
projections indicate that to fulfil its other obligations the
Company will require additional funding.
The COVID-19 pandemic has not had a material impact on the
Company's operations. Following the sanctioning of the micro-
LNG project the Company will continue to monitor the situation
as deterioration could impact the supply chain and affect the
project schedule and therefore could impact the Company's
liquidity.
These conditions indicate the existence of a material
uncertainty which may cast significant doubt about the Company's
ability
to continue as a going concern. These financial statements do
not include adjustments that would be required if the Company
was unable to continue as a going concern. The Company continues
to exercise cost control to conserve cash resources and
the Directors believe that there are several corporate funding
options available to the Company, including a cash generative
acquisition. Furthermore, based upon the Company's proven
success in raising capital in the London equity market and
based on feedback from advisors, 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.
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 7. 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 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 in order 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 6.
At 31 December 2021, the Company's market capitalisation was
GBP35.0 million, which is below the Group and Company's net asset
value of GBP155.1 million and GBP145.2 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 latest budgets, expenditure and price data in
signed gas sales agreement, project contract or agreed heads of
terms and latest management plans on project phasing. The
recoverable amount is sensitive to the discount rate 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 GBP4.0 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 payment
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.
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, 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 believes that the Morocco tax authority has misunderstood
or misinterpreted the underlying transactions and has appealed
against the assessment. The matter is now pending in Court. In May
2021, the Group received notification from Morocco tax authority of
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.
Accordingly, no liability has been recognised in the financial
statements but the assessment is considered to be a contingent
liability. A disclosure has been made 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 2021, the Group's 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 2021:
Development Exploration
Corporate and production and appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------------- --------- --------------- -------------- ---------
Other income - - 223 223
--------------------------------------------- --------- --------------- -------------- ---------
Reversal of impairment of development
assets and exploration costs - 4,024 - 4,024
--------------------------------------------- --------- --------------- -------------- ---------
Administration expenses (1,695) - - (1,695)
--------------------------------------------- --------- --------------- -------------- ---------
Operating profit/(loss) segment result (1,695) 4,024 223 2,552
--------------------------------------------- --------- --------------- -------------- ---------
Interest receivable 4 - - 4
Finance costs and exchange adjustments (96) - - (96)
--------------------------------------------- --------- --------------- -------------- ---------
Profit/(loss) for the period before taxation
from continuing operations (1,787) 4,024 223 2,460
--------------------------------------------- --------- --------------- -------------- ---------
The segments assets and liabilities at 31 December 2021 were as
follows:
Development Exploration
Corporate and production and appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- --------------- -------------- ---------
Non-current assets 701 139,628 31,598 171,927
Current assets 3,097 244 1,326 4,667
Liabilities attributable to continuing
operations (20,669) (94) (776) (21,539)
--------------------------------------- --------- --------------- -------------- ---------
The geographical split of non-current assets is 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
---------------------------------------- --------- ---------
Segment results for the year ended 31 December 2020:
Development Exploration
Corporate and production and appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------------------------- --------- --------------- -------------- ---------
Impairment of development assets and exploration
costs - (9,787) 10 (9,777)
------------------------------------------------- --------- --------------- -------------- ---------
Administration expenses (2,904) - - (2,904)
------------------------------------------------- --------- --------------- -------------- ---------
Operating loss segment result (2,904) (9,787) 10 (12,681)
------------------------------------------------- --------- --------------- -------------- ---------
Interest receivable 46 - - 46
Finance costs and exchange adjustments (6,181) - - (6,181)
------------------------------------------------- --------- --------------- -------------- ---------
Loss for the period before taxation from
continuing operations (9,039) (9,787) 10 (18,816)
------------------------------------------------- --------- --------------- -------------- ---------
The segments assets and liabilities at 31 December 2020 were as
follows:
Development Exploration
Corporate and production and appraisal Total
GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------------------------------- --------- --------------- -------------- ---------
Non-current assets 1,192 133,243 30,597 165,032
Current assets 4,598 800 1,376 6,774
Liabilities attributable to continuing operations (25,878) (58) (1,009) (26,945)
-------------------------------------------------- --------- --------------- -------------- ---------
The geographical split of non-current assets is as follows:
Europe Morocco
GBP'000s GBP'000s
---------------------------------------- --------- ---------
Development and production assets - 133,243
Interest in Badile land 988 -
Fixtures, fittings and office equipment 5 108
Right-of-use assets 31 -
Exploration and evaluation assets - 30,597
Software - 60
---------------------------------------- --------- ---------
Total 1,024 164,008
---------------------------------------- --------- ---------
3 Other Income
2021 2020
GBP'000s GBP'000s
-------------------------------------------- --------- ---------
Research and development expenditure credit 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 during 2018 and 2019.
The amount was not recognised when the expenditure was incurred due
to uncertainty as to whether it would qualify for a credit under
the RDEC scheme.
4 Taxation
a) Analysis of the tax charge for the year:
2021 2020
GBP'000s GBP'000s
---------------------------------------------------- --------- ---------
Current tax
UK corporation tax - -
Adjustment to tax expense in respect of prior years (42) -
Overseas tax - -
---------------------------------------------------- --------- ---------
Total current tax (charge)/credit (42) -
Deferred tax credit arising in the current year - -
---------------------------------------------------- --------- ---------
Total tax (charge)/credit (42) -
---------------------------------------------------- --------- ---------
(b) Reconciliation of tax charge
2021 2020
GBP'000s GBP'000s
------------------------------------------------------- --------- ---------
Profit/(loss) before tax 2,460 (18,816)
Tax (charge)/credit charged at UK corporation tax rate
of 19% (2020: 19%) (467) 3,575
Tax effect of:
Expenses not deductible for tax purposes (38) (189)
Temporary differences not recognised 451 (3,409)
Differences in overseas tax rates 12 23
------------------------------------------------------- --------- ---------
Total tax (charge)/credit (42) -
------------------------------------------------------- --------- ---------
Deferred tax assets have not been recognised in respect of tax
losses available due to uncertainty of utilisation of those assets.
Unrecognised tax losses as at 31 December 2021 were estimated to be
approximately GBP6.1 million (2020: GBP8.2 million).
In August 2020, the Group received a notification from the tax
authority in Morocco of its intention to assess Sound Energy
Morocco East Limited ("SEME") for additional withholding taxes and
VAT liabilities totalling approximately $14 million, and intention
to consider a revision of the tax bases for previously submitted
corporation tax returns, which could lead to additional corporate
taxes being assessed. The Group believes that the assessment arises
from a misunderstanding of the underlying transactions and appealed
to the Local tax committee ("LTC"). According to the tax authority
original assessment, the main assessment related to the historical
licensing changes of the Tendrara Lakbir Exploration Permits and
the transfer of Operatorship from Sound Energy Morocco SARL AU
("SARL AU") to SEME raised taxation claims against SEME. In August
2021 the Group received written notification that the LTC found the
assessment on the transfer of intangible assets would be dropped.
The LTC did not drop the assessment relating to the tax authority's
claim that there was a disposal of assets by SEME to its partner,
Schlumberger on entry to a brand-new petroleum agreement for
exploration at Greater Tendrara.
The Group has appealed to the court to have the findings that
were upheld by the LTC be dropped and the matter is pending at the
court.
In May 2021, the Group received from the tax authority an
information request and a notification (1st notification) of its
intention to assess SARL AU. The information request levied
penalties (approximately $0.3 million) claiming late remittance of
withholding taxes and the notification intended to assess
additional VAT and withholding taxes of approximately $22.2
million. The Group believes that the assessment arises from a
misunderstanding of the historical licence relinquishment and
intercompany funding arrangements and in June 2021, appealed
against the assessment. Following SARL AU appeal, in August 2021,
the tax authority issued a notification (2nd notification)
retaining the assessment included in the 1st notification. The
Group has appealed to the LTC which has up to 12 months to make a
decision.
No liability has been recognised in the financial statements but
the assessments are considered to be a contingent liability.
5 Profit/(loss) per Share
The calculation of basic profit/(loss) per ordinary share is
based on the profit/(loss) after tax and on the weighted average
number of ordinary shares in issue during the 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
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:
2021 2020
GBP'000s GBP'000s
------------------------------------------ --------- ---------
Profit/(loss) for the year after taxation 2,418 (18,816)
------------------------------------------ --------- ---------
2021 2020
Million Million
------------------------------------------ -------- --------
Basic weighted average shares in issue 1,494 1,225
Dilutive potential ordinary shares 1 -
------------------------------------------ -------- --------
Diluted weighted average number of shares 1,495 1,225
------------------------------------------ -------- --------
2021 2020
Pence Pence
-------------------------------- ------ ------
Basic profit/(loss) per share 0.16 (1.54)
-------------------------------- ------ ------
Diluted profit/(loss) per share 0.16 (1.54)
-------------------------------- ------ ------
Dilutive potential ordinary shares included in the calculation
of diluted weighted average number of shares relates to the
Company's RSUs. Options and warrants totalling 105 million were all
anti-dilutive and were not included in the calculation of diluted
weighted average number of shares. In 2020, the effect of the
potential dilutive shares on the earnings per share would have been
anti-dilutive and therefore were not included in the calculation of
diluted earnings per share.
6 Property, Plant and Equipment
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
----------------------------- --------------- ----------- ------------ ---------
Fixtures,
Development fittings
and production and office Right-of-use
assets equipment assets 2020
GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------------------- --------------- ----------- ------------ ---------
Cost
At 1 January 2020 146,876 785 410 148,071
Additions 494 - - 494
Derecognition on termination of lease - - (262) (262)
Exchange adjustments (4,923) (7) 2 (4,928)
-------------------------------------- --------------- ----------- ------------ ---------
At 31 December 2020 142,447 778 150 143,375
-------------------------------------- --------------- ----------- ------------ ---------
Impairment and depreciation
At 1 January 2020 - 544 185 729
Charge for period 9,787 128 133 10,048
Derecognition on termination of lease - - (193) (193)
Exchange adjustments (583) (7) (6) (596)
-------------------------------------- --------------- ----------- ------------ ---------
At 31 December 2020 9,204 665 119 9,988
-------------------------------------- --------------- ----------- ------------ ---------
Net book amount 133,243 113 31 133,387
-------------------------------------- --------------- ----------- ------------ ---------
During the year the Company acquired Schlumberger Silk Route
Services Limited ("SSRSL"). The transaction was accounted for as an
acquisition of a group of assets. SSRL held a 27.5% participating
interest in the Anoual and Greater Tendrara exploration permits in
Eastern Morocco (the "Exploration Permits"), together with a 27.5%
indirect interest in the Tendrara Concession (the "Concession")
through its contractual relationship with the Group. Following the
completion of the acquisition, the Company controls operated
working interest of 75% in the Exploration Permits and in the
Concession. The consideration for the acquisition was an initial
payment of US$1 (one US dollar) and the Group will make future
contingent payments for an amount equivalent to between 8% and 11%
of total net profits (after costs, taxes, and other applicable
deductions) (net profit interest or "NPI") arising from the
Concession over a period of 12 years from first commercial
production from the Concession. In addition, in the event of a
disposal of the exploration permits prior to the end of February
2023, the Seller would be entitled to receive a share of any cash
proceeds.
The additions in the table above of GBP0.5 million includes
approximately GBP0.2 million transaction costs capitalised relating
to the SSRSL acquisition. The NPI is expected to be recognised on
first gas from the Concession as that is the event that would
trigger the crystallisation of the liability.
The Company's market capitalisation was GBP35.0 million as at 31
December 2021, which is below the Group's net assets of GBP155.1
million and the Company's net assets of GBP145.2 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 $188.2
million (GBP139.3 million) (excluding interest acquired from SSRSL)
which led to recognition of an impairment reversal of GBP4.0
million. The impairment reversal arose primarily due to higher
Brent and gas price assumptions in the Model in line with market
long-term price assumption at the end of 2021 compared to end of
2020.
The Model covers the period 2022 to 2045. The input to the Model
included a discount rate of 10% 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 European Title Transfer Facility
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 additional volume indexed to Brent. The
model included Brent price range of $75 per bbl in 2022 to $79 per
bbl in 2031 (2020: $50/bbl in 2021 to $67/bbl in 2030), 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 10 years and price for additional volume is per
original binding memorandum of understanding with ONEE. The
production volumes and production profile was based on the 2018 CPR
for TE-5 Horst.
Well costs 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 budgets covered the period to 2026 but the model extends to
2045, as that is the period required to produce the gas resources
at TE-5 Horst concession and economic cut-off. A change in the
discount rate by 1% has a $20 million (GBP14.8 million) impact on
the NPV and change in the Brent price by $1/bbl has a $0.7 million
(GBP0.5million) impact on the NPV.
7 Intangibles
Exploration
Software & Evaluation 2021
GBP'000s Assets 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 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
& Evaluation
Software Assets 2020
GBP'000s GBP'000s GBP'000s
------------------------------------ ---------- -------------- ----------
Cost
At 1 January 2020 359 41,272 41,631
Additions - 939 939
Exchange adjustments (10) (1,008) (1,018)
------------------------------------ ---------- -------------- ----------
At 31 December 2020 349 41,203 41,552
------------------------------------ ---------- -------------- ----------
Impairment and depreciation
At start of the year 231 10,616 10,847
Charge/(release) for the year 67 (10) 57
Exchange adjustments (9) - (9)
------------------------------------ ---------- -------------- ----------
At end of the year 289 10,606 10,895
------------------------------------ ---------- -------------- ----------
Net book amount at 31 December 2020 60 30,597 30,657
------------------------------------ ---------- -------------- ----------
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 2021 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 (2020: GBP0.1 million).
8 Capital and Reserves
2021 2020
Number Number
of shares GBP'000s of shares GBP'000s
--------------------- ------------- -------- ------------- -------------
Ordinary shares - 1p 1,629,183,907 16,292 1,326,244,389 13,262
--------------------- ------------- -------- ------------- -------------
2021 2020
Number of Number of
shares shares
---------------------------------------------- ------------- -------------
At 1 January 1,326,244,389 1,079,612,264
Issued during the year for cash 159,731,651 238,537,888
Non-cash share issue 143,207,867 8,094,237
---------------------------------------------- ------------- -------------
At 31 December 1,629,183,907 1,326,244,389
---------------------------------------------- ------------- -------------
Non-cash transactions during the year included the issue of
141,176,448 ordinary shares at a price of 2.125 pence per share as
part of restructuring of the Company's loan Notes. The Company
issued 322,365 ordinary shares to former employees under the
Company's RSU plan. 1,709,054 ordinary shares were issued at
approximately 1.86 pence per share to a third party for services
provided.
Share issues
In April 2021, the Company issued 141,176,448 shares at 2.125
pence per share as part of the restructuring of the Company's then
existing EUR28.8 million bond.
In May 2021, the Company issued 322,365 shares following vesting
of RSUs held by former employees of the Company.
In June 2021, the Company issued 808,095 shares at approximately
1.86 pence per share to a third party as payment for services
provided to the Company.
In July 2021, the Company issued 159,731,651 shares at a price
of 1.2521 pence per share following equity subscription by Afriquia
Gaz S.A.
In September 2021, the Company issued 900,959 shares at
approximately 1.86 pence per share to a third party as payment for
services provided to the Company.
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.
9 Loans and Borrowings
2021 2020
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 1,731
Interest payments (389) (647)
Exchange adjustments (919) (220)
Reclassification (to)/from non-current liability (20,431) 23,845
----------------------------------------------------- --------- ---------
At 31 December - 24,709
----------------------------------------------------- --------- ---------
Non-current liabilities
Secured bonds
At 1 January - 21,235
Reclassification from current liabilities 20,431 -
Amortised finance charges 810 1,637
Interest payments (489) (622)
Exchange adjustments (713) 1,595
Reclassification to current liabilities - (23,845)
----------------------------------------------------- --------- ---------
At 31 December 20,039 -
----------------------------------------------------- --------- ---------
In April 2021, the Company successfully restructured its then
outstanding EUR28.8 million secured bonds (the "Bonds"). Following
the restructuring the revised terms of the Bonds are as below:
1. The Maturity date of the Bonds was extended by six years from
21 June 2021 to 21 December 2027;
2. The outstanding principal amount of the Bonds will be
partially settled, at a rate of 5% every six months, commencing on
21 December 2023;
3. Approximately EUR3.5 million of the Bonds were converted to a
total of 141,176,448 new ordinary shares in the Company at a
conversion price of 2.125 pence per share;
4. The Bonds bear until maturity 2% cash interest paid per annum
and 3% deferred interest per annum to be paid at redemption for the
period commencing on 21 June 2021;
5. The Company issued to the Bondholders 99,999,936 warrants to
subscribe for new ordinary shares in the Company at an exercise
price of 2.75 pence per share. The warrants expire on 21 December
2027; and
6. The Company will have the right, at any time until 21
December 2024, to redeem the Bonds in full for 70% of the principal
value then outstanding together with any unpaid interest at the
date of redemption.
After taking account of the revised terms above, the effective
interest rate on the Bonds is approximately 6.2%.
Reconciliation of liabilities arising from financing
activities
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
----------------------- ---------- ---------- --------- ------------ --------- -----------
Non-cash changes
------------------------------------
Amortised
1 January finance Exchange 31 December
2020 Cash flows charges adjustments Termination 2020
2020 GBP'000s GBP'000s GBP'000s GBP'000s of lease GBP'000s
----------------------- ---------- ---------- --------- ------------ ----------- -----------
Long-term borrowings 21,235 (1,269) 3,368 1,375 - 24,709
Leases 225 (128) 10 2 (79) 30
----------------------- ---------- ---------- --------- ------------ ----------- -----------
Total liabilities from
financing activities 21,460 (1,397) 3,378 1,377 (79) 24,739
----------------------- ---------- ---------- --------- ------------ ----------- -----------
Reconciliation of finance expense
2021 2020
GBP'000s GBP'000s
------------------------------------- --------- ---------
Amortised finance charges 2,375 3,378
Less capitalised interest (69) (74)
------------------------------------- --------- ---------
Total external interest for the year 2,306 3,304
------------------------------------- --------- ---------
10 Post Balance Sheet Events
In January 2022, the Company announced that it was considering a
possible offer for Angus. The possible offer would be an all-share
offer whereby Angus shareholders would receive the Company's
ordinary shares in exchange for their holding in Angus at an agreed
exchange ratio. The deadline by which the Company is required to
announce a firm intention to make an offer for Angus or announce
that it does not intend to make an offer expires on 8 April
2022.
In February 2022, the Company announced that its wholly owned
subsidiary, Sound Energy Morocco East Limited had issued a Notice
to Proceed to Italfluid Geoenergy S.r.l (the "Contractor") and
following an initial payment of $5 million will obligate the
Contractor to commence works for construction of a Micro-LNG plant
for gas processing and liquification in relation to the Phase 1
development of the Company's Tendrara Production Concession (the
"Concession"), Onshore Morocco.
In March 2022, the Company announced a 90-day extension period
by which conditions to its binding gas sale and purchase agreement
(the "GSA") with ONEE in respect of Phase 2 development of the
Concession for the sale of natural gas from the Concession over a
10 year period are required to be satisfied. Progress had been made
in the preparation of pipeline entry agreements, term sheets for
financing, approvals and FID and consequently all parties agreed to
a 90 day extension period to the GSA.
In March 2022, the Company announced the entry of a pipeline
tie-in agreement to the GME Pipeline with ONHYM in respect of the
Phase 2 development of the Concession (the "Pipeline Tie-in
Agreement"). The GME Pipeline, which was transferred to Moroccan
state-owned entity ONHYM by the previous operator on 1 November
2021, is owned and operated by ONHYM. Pursuant to the Pipeline
Tie-in Agreement, ONHYM has now approved the connection of the
Concession via a gas export spur pipeline to the GME Pipeline. The
entry of the Pipeline Tie-in Agreement fulfils one of the key
remaining conditions for the GSA with ONEE.
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END
FR EANDDALSAEFA
(END) Dow Jones Newswires
March 24, 2022 03:00 ET (07:00 GMT)
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