With the news blackout and lack of technical and commercial information, posters to this bulletin board are finding it difficult to understand what is happening to our investment and why. But it could be that James Parsons will go down in history as one of the petroleum industry’s most famous ‘useful idiots’ who entered the Moroccan business labyrinth without any understanding how it works.
This is pretty much par for the course in souks, medinas and bazaars from Morocco to Teheran where a local ‘guide’ navigates foreign visitors to salesmen happy to provide tea while emptying the visitor’s wallet. https://www.tripadvisor.co.uk/ShowTopic-g293730-i9195-k6809762-Classic_scam_with_a_twist-Morocco.html
It’s similar for businessmen who have never lived and worked in these places. They are soft targets who follow their local guide - OGIF in our case. When Lone Star was booted out of the Tendrara area in 2003, the investors were sued for $120 million for ‘misrepresentation of the size of the SBK discovery’. The case was only settled this year. With the ‘40 tcf upside’ Sound’s claims history seems to be repeating itself.
I agree. Let’s remember there is an outstanding charge on Sound Energy plc of $28 million using Sidi Moktar as collateral. It’s hardly surprising no-one has farmed in when the title to the property is pledged to an unknown lender. When the Initial Period of Sidi Moktar expires how will Sound’s successor in the JV find a substitute for the outstanding charge?
That’s what we were told, I agree. But someone is owed $28 million and the security of Sidi Moktar is hardly worth that, especially as the Exploration Agreement will likely expire middle of next year unless it is abandoned earlier.
Bank Mellon is the security trustee and is a correspondent bank with Bank Attijariwafa, part of the OGIF consortium. It could be that the $28 million came from a Moroccan investor. Who else would trade that amount against an exploration project in Morocco?
Bond issuer is Bank Mellon New York. Charge is outstanding over holding company.
Our CEO nominee Mohammed Seghiri, held senior positions at Advisory & Finance Group Investment Bank (AFG), which is advising Sound Energy for the financing of the pipeline construction with the Enagas Consortium.
AFG oversaw the sale of Sound Energy's 20% stake in Tendrara to Oil & Gas Investment Fund (OGIF) in 2017. Seghiri has been the deputy director of OGIF.
Now, the new CEO will represent Sound’s 49% in the JV and the other 51% by the purchaser’s representative.
Directors of Sound Energy, their associates from Maghreb, OGIF or AFG who held board or other senior management positions in Morocco, including in Tendrara and Sidi Moktar, means that there were many related parties with which Sound Energy has transacted in the past
We may never know how our 49% of the new JV performs.
Firstly, In forming the new JV I hope the governing law and jurisdiction of the agreement is not in Morocco.
Secondly, depending on the type of JV it may or may not enable us to see what goes on. For example, if it’s a limited liability partnership, although annual accounts must be filed, an LLP can restrict disclosure allowing much of its business to remain confidential.
Some clarification on these points from Sound would help.
Has the Purchaser presented Parsons with a one-way ticket out of Morocco?
Sound to be non-operator of Tendrara (according to the recent JJ RNS). The majority partner in the new JV will be operator and control schedule and budget.
Post deal completion, we may be unable to meet cash calls for our minority share in the new JV running Tendrara. It does take time to negotiate a JV which preserves what rights we have left - hence 14th February.
We’ll have no direct equity in Tendrara, just ‘synthetic’ interest - hardly an ‘asset’ and untradeable.
Sidi Moktar - Sound cannot pay for commitments and will have to serve abandonment notice and under terms of the Petroleum Agreement. Enables our partner, Maghreb Petroleum, to claim our equity in the licence.
Xyz = AFG?
Could it be AFG? After all, they are the ‘brains’ behind transactions so far and may have engineered the offer.
Mohammed Benslimane has been involved with Tendrara since Lone Star days. Maintaining Sound on AIM provides opportunities to raise money, move to a later LE and so on. There are plenty of Moroccan specialists in Rabat who can operate the project as part of the JV and eliminate the need for Sevenoaks.
As far as I know it was a private deal - the main point is that the TE5 project ‘champions’ - the people who make things happen - advised Maghreb and OGIF. Assuming they are still involved in the JV , we’ll see a more sensible exploration drilling campaign instead of BM’s ‘scattergun’ of risky exploration wells.
From here, Eric
It’s a long story, but in a nutshell some American investors started a Moroccan company called Lone Star and drilled a well in the Talsint area which is 20km west of TE5. This well was called SBK-1 and found gas in the Tagi and ‘oil’ in the Triassic volcanics in the overlying salt layer. The rumour-mill got out of control and King M6 visited the location to announce the discovery of between 12 and 15 billion barrels of crude! The ‘oil’ turned out to be retrograde condensate - basically wet gas which had condensed in fractures in the volcanics. Lone Star even managed to reverse circulate a bucket of the ‘oil’ to the surface.
There was then a fight over rights to the project (see link below) and the Americans were voted off the Lone Star board. A new company, Maghreb Petroleum Exploration, was formed by Moroccan investors who promptly sued the Americans for over $100 million. At the same time, Maghreb took on what we now know as the Tendrara contract area.
Maghreb conducted seismic and drilled the TE5 discovery in 2006 before running out of money. OGIF then stepped in to save Maghreb from bankruptcy and launched a farm out effort and almost concluded a deal with Fastnet Petroleum, run by Paul Griffiths - currently CEO of Predator who have a licence in Morocco’s Guercif Basin near Tangiers. The fastnet deal collapsed when they drilled a dry well offshore Agadir which undermined the Fastnet board’s support for the Tendrara deal.
OGIF were left looking for a new punter - and who should be introduced but none other than James Parsons! The middleman was Luca Madeddu who was helping Sound with Badile and had worked with AGIP on Morocco and knew the system in Rabat.
Maghreb (i.e. OGIF) also held the Sidi Moktar area and, after the departure of Longreach, followed by Petromaroc, set up Sound as candidates to licence the area.
Bottom line for overall deal;
Volume = 91 bcf for TE5 + 92 bcf for exploration = 183 bcf
Value = 183 bcf x $2.3 million/bcf = $420 million - quadruple the money.
Cost = $112 million or $0.6 million/bcf - roughly 4 times mark up for the buyer.
I like your analysis. Since this is Morocco we know any chunky business deals tend to be controlled by local entities. In this case it could be OGIF-related, but Is this a good deal or not? I’ve tried to quantify it from the bottom up, rather than top down.
Based on what we’ve been told by Sound it’s impossible to say. With no prospect inventory or CPR from Sound it’s pure guesswork. But we can try to quantify the transaction using a combination of the TE5 CPR and Fastnet’s 2013 CPR.
TE5 Development Project - how the new partner can double their money
In simple terms, the buyer is paying $112 million for 91 bcf (i.e. 23% of 377bcf) - which is $1.23 million per bcf. Compare this with the Edison valuation in the Fastnet CPR which was $2.3 million per bcf for contingent resources. So that’s roughly 100% mark up for the buyer - double their money.
Exploration upside - how the new can quadruple their money
BM & co have bungled their geological analysis so that Sound’s drilling has demonstrated the poor reservoir effectiveness of the Tagi is a regional challenge with good reservoir restricted the the TE5 and SBK areas where 3D seismic images individual fault blocks. So let’s forget the Palaeozoic and remote prospects mapped by BM for this exercise and just concentrate on the published ‘close in’ prospects around TE5.
MPE and Fastnet identified the following targets, with ‘most likely’ prospective resources (gross) in 2013. Remember, these PRE-DATE the staged-frac tests of TE6 and TE7, so the risks are probably substantially lower NOW because Fastnet’s risks were influenced by their perception of poor Tagi reservoir/production performance without stimulation.
Furthermore, various studies of the 3D seismic around TE5 showed amplitude anomalies at Tagi level which might be associated with better reservoir properties. The high side unrisked prospective resources in just this relatively small area of Tendrara exceed 4 tcf.
Prospect ML case (unrisked)
See pages 14 and 15 of Fastnet’s 2014 presentation for maps/locations of these prospects.
Taken as group, TE5 and nearby prospects could form a commercially robust development hub, instead of just TE5 on its own, because reservoir effectiveness is more likely to be correlative with TE5, 6 and 7. Here is a link to Edison’s report showing original CPR resource numbers. This is all open source material.
Most likely gross prospective resources 1345 bcf
Assume 30% chance of commercial success 403 bcf
23% of Sound’s share 92 bcf
Value @ $2.3 million/bcf $211 million
The alliance set up by Morocco’s Oil & Gas Investment Fund (OGIF) and British junior Sound Energy for the purposes of prospecting on the Tendrara and Meriidja gas permits has got the fingerprints of certain royal family members on it. They are the same ones, moreover, who illustrated themselves in the Talsint affair. This affair, which centered on an illusory hydrocarbons find, caused some turmoil during the first year of the reign of Mohammed VI in 2000.
According to our sources in Rabat, the "marriage" contract between OGIF and Sound, which will see OGIF take a 29% stake in Sound, was drawn up by small investment bank AFG. This bank is owned and run by Mohammed Benslimane, the husband of Lalla Zineb, who is a cousin of the king. Benslimane was one of those involved in the Talsint affair. He was a minority shareholder in Lone Star, the company at the heart of the Talsint affair which was partly owned by another cousin of the king, Moulay Abdellah Alaoui. Benslimane went on to become head of OGIF, a fund set up specially in 2008 to save Lone Star, since renamed Maghreb Petroleum Exploration (MPE), from bankruptcy. Backing the fund were royal bank Attijariwafa, the Financecom and Saham groups, the Caisse de Depot et de Gestion (CDG) and the CIMR and Mamda-MCMA pension funds. It was against this background that, in 2013, OGIF seems to have taken control of MPE’s interests in Tendrara, Sound’s best prospect, via a transaction which is nowhere mentioned in the official journal. Moulay Abdellah Alaoui has done business directly with Sound, moreover. In early 2016, MPE sold its interests in the Sidi Moktar block to the British group.
Rabah Bouchta, another associate of Moulay Abdellah Alaoui, worked on the allliance between OGIF and Sound. Bouchta, a geologist and former secretary general of national oil exploration office ONAREP (now ONHYM) joined Lone Star in 1999 as joint managing director and head of exploration. A member of the MPE board, he joined OGIF as head of exploration and production. Sound recruited him as a consultant when it took possession of the Tendrara concession in late 2014. Bouchta did not content himself with playing a purely technical role, however. He enabled Sound to get the permits it needed and helped it get the best possible terms from OGIF and ONHYM, as Sound chief executive James Parsons told an audience of investors in late 2016.
Extension? Well, that’s up to Onhym. But I imagine that if Sound can provide a signed contract for 500km of seismic acquisition and processing Onhym may grant a short extension to the initial period.
But the problem for Sound is money. According to the Tendrara deal, of the initial $54.3 million cash component, only 55% of it will be received on completion of the deal, or just under $30 million; with a further 30% coming when a final investment decision is made in the future; and the remaining 15% being payable within 60 days of first gas production. Sound can’t sign a seismic contract without the cash - otherwise that might be wrongful trading under company law.
Upon the Sidi Moktar Petroleum Agreement becoming effective, the Company will hold an operated 75% position in Sidi Moktar Onshore. The remaining 25% will be held by ONHYM.
The Sidi Moktar Petroleum Agreement will have a duration of 8 years from award and, as with all Moroccan licences, will be divided into 3 phases, with each phase having pre-agreed work commitments. The work commitments under the Sidi Moktar Petroleum Agreement will be:
- Initial period of 2 years and 6 months: acquire and process 500 kilometres of 2D seismic, a short well test of the Koba-1 well and abandonment of Koba-1 and Kamar-1, if required. The Koba-1 well was re-entered and tested by Sound Energy in 2017.
- Optional First complimentary period of 3 years: 1 exploration well with a minimum Liassic objective and acquire and process 150 square kilometres of 3D seismic.
- Optional Second complimentary period of 2 years and 6 months: A further single exploration well with minimum Liassic objective.