Member Info for Exploration

Sidi Moktar is in the Essaouira Basin which has two proven hydrocarbon plays - Triassic (TAGI) and Jurassic, each with their own source system - which helps. There are 80 wells in Sidi Moktar - 42 exploration wells and 38 development wells. Of the 42 exploration wells, 38 targeted Jurassic prospects (defined mainly by surface mapping) and only 4 targeted Triassic gas prospects. It’s a huge area - roughly same as 30 UKCS blocks. Over 4000km of seismic is available too.

In 1977, BRPM drilled the MKL-1 exploration well on a Jurassic anticline structure designed to reach the Devonian and found gas in Triassic. (Tagi). After seismic in 1980, they drilled MKL-101 and discovered gas condensate (GOR=3000) in the Tagi - which was the discovery of the Meskala field (~50 bcf). ONAREP took over in 1981-1992 using World Bank finance and drilled 9 development wells on Meskala, although only 4 became producers. The failures were down to halite plugging (similar to Tendrara) and formation damage with 2.0 sg mud. All the Meskala wells showed a sandy supra-volcanic Lias reservoir with gas shows - the so-called Argovian reservoir tested by Sound a couple of years ago. MKL-104 flowed gas from Devonian limestones at 2.4 mmscfd. A pipeline was built from Meskala to the closest phosphate mine to burn the gas for drying the crushed phosphate, but it is now unserviceable due to corrosion. At least one of the Meskala producers is leaking at the surface due to use of cement past its ‘sell-by’ date, the processing plant is rusting away in the sun and the remains of ONAREP’s Ideco drilling rig is there too.

In terms of exploration, we’ve become used to JP’s ‘11 tcf’ figures. This comes from work done by Lasmo when they had a reconnaissance permit. Lasmo saw 22 Triassic features, each defined on one or two seismic lines, worthy of additional seismic. But looks to me like Sound has bitten off more than it can chew because there is no way they can fulfill their seismic commitment on Sidi Moktar by the end of the first licence period - even if they started tomorrow.

Is Sidi Moktar any good? Of course it is - if explored by a competent team in a logical manner using appropriate seismic and drilling technology. But above all, like Tendrara, success will only come if Tagi reservoir presence and effectiveness can be predicted.

And marketing the gas? Early cash flow using micro-LNG by truck to power plants using enough gas proved to justify a new pipeline.

Tableleg

I could be wrong. But the history of Tendrara from Lone Star, Maghreb to OGIF has involved the same cast of characters. Looking at it through the lens of the royal palace, OGIF had to devise a way to retain/increase its interest in Tendrara rather than deal with a completely new entity who doesn’t understand how Morocco works.

After nearly 30 years of trying, Luca et all could be within touching distance of seeing gas production from Tendrara. This type of thing happens all over the world when one person champions a project.

I wonder if the new investor has anything to do with Luca Madeddu and his company Enexon via a UK subsidiary. Enexon was set up by Luca’s brother, Stefano and designed to do precisely what this new JV is trying to achieve. Luca has all the right connections in Rabat for the venture to succeed.

According to its website Enexon is “Leveraging on its expertise and resources and on a network of specialists, the Company can directly operate petroleum agreement licences or production concessions and provide a full range of services from integrated reservoir modelling and design of traditional engineering to management of production operations of gas or oil fields, refinery and pipelines”

The way the proposed deal is structured requires considerable insight into the challenges of reservoir development of the TE-5 gas field and the upside of nearby, un-drilled prospects in the immediate area of the Horst. From Sound’s perspective they would want to ensure the new investor can function in Morocco and qualifies as a competent operator to Onhym.

Luca knows the OGIF and AFG people. They may even be the source of the staged payments and see the opportunity to double their money from Luca’s knowledge of the subsurface. Luca has inside knowledge of Morocco's key gas projects. Sound Energy went into partnership in 2017 with OGIF, which took over Prince Moulay Abdellah Alaoui's interests in the Tendrara field. Following this link-up which was organized by merchant bank AFG (owned by Mohamed Benslimane, husband of Lalla Zineb, a cousin of M6, Sound made former AFG partner and OGIF director Mohammed Seghiri managing director of its Moroccan subsidiary.

I have to admit that I am surprised that it is as good as it appears to be for both buyer and seller.

I didn’t think they’d manage to find a buyer for its 47.5% in the field and exploration area at all, given that the TE-5 Horst discovery, with 377bcf of contingent resources, was a pre-existing discovery when Sound acquired the licence.

The Edison report valued the TE-5 gas at $2.3 million/bcf. The new investor is getting 91 bcf for $112 million or about $1.2 million/bcf - roughly half price.

So everyone should be reasonably satisfied.

Posted on 6 November 2019 Posted in Flash Blog

Sound has updated the market on the ongoing marketing process in respect of its Eastern Morocco portfolio. The plan has been to explore the monetisation options for the company’s interests in the area with a view to selling all or part of this portfolio prior to FID.

It seems that the company has seen a great deal of interest from potential buyers with 23 companies in non-disclosure agreements followed by the board hosting 15 management presentations which resulted in them receiving a number of non-binding offers. The number of companies showing interest is testimony to the acreage offer available and included I would imagine a range of majors and and independent companies both private and quoted, accordingly the company received a range of valuations and risk/reward profiles. With the need, according to the company, for further exploration to unlock fully the basin potential the choice of partner has been key in unlocking enhanced value to shareholders.

So, the heads of terms agreement has been signed with a ‘privately-owned, UK registered company specialising in energy asset development and investment’, as yet unnamed…This company will buy a substantial proportion of Sound’s interest in their Eastern Morocco portfolio whilst Sound shareholders will continue to benefit from significant potential upside in those assets.

The nuts and bolts of the deal are interesting, subject to completion Sound will sell 51% of its share ie 24.2% of its 47.5% stake for a total consideration of $112.8m of which cash is $54.3m (payable in tranches) and a carry worth $58.5m for Sound’s future capital expenditure requirements to first gas. This will leave Sound with a 23.3% interest in the Eastern Morocco portfolio held synthetically through this new JV, in addition Sound has provided the buyer with an option to buy a further 9% of the asset on the same terms which would take them down to 14.3%.

Looking at the transaction metrics this is a read across 19p deal on an enterprise value basis…  split roughly 4p upfront cash, 4p of carry with the P50 value of the remaining 23.3%, according to the brokers, valued at circa NPV 10 of 11.3p which gives a total read through of around 19.3p from which you would have to deduct the around 2p of debt to get to a read through equity price of above 17p.   Furthermore this figure is before any exploration upside which is substantial given the huge basin potential and the near term drill ready prospects, which presumably are one of the main upside attractions for the prospective buyers. This looks like an interesting result for Sound shareholders, who whilst disappointed with some of the recent drilling results now get early monetisation of the Eastern Morocco portfolio, a line to funded first gas as well as possible substantial exploration upside. This is validated by the substantial interest in the assets for sale and the huge size and range of those expressing an intere

JTF

I really don’t understand whether Sound Morocco East is up for sale or Rothschilds’ are just trying to assess a market value to ‘explore monetization options’.

Sound/Schlumberger have fulfilled their license commitments on Greater Tendrara and do not need to drill TE-11, so pressing the ‘pause’ button to preserve cash makes sense.

But all that aside, if the current work turns into a sale of Greater Tendrara, aside from buyer/seller bureaucracy, the Energy, Finance and Tax ministries here in Rabat will have to be involved and grant their approvals before assignments can be finalized and a sale completed and funds released to the seller. All this takes time - weeks at least.

Seaton/Spencer

Sound has chosen a ‘bespoke’ approach to marketing using Rothschilds who, using their networks, will have made a shortlist of likely qualified buyers of the Tendrara contract area. Rothschilds has been involved in oil/banking since the 1870s when they worked with the Nobel brothers in Azerbaijan - so they have the pedigree and networks + the skills to handle big transactions.

There is an ‘estate agent’ alternative which is really just designed to do the work involved in promoting deals and all the hard work of organizing data rooms, presentations etc which is pretty dull, time-consuming drudgery. Examples are shown on these links;

http://envoi.co.uk/

https://www.simco-pet.com/

https://www.moyesco.com/mobile

You’ll see these companies create synopses of each project, including prospect inventories, risks and so on. They organize confidentiality agreements etc. The disadvantage of this approach is that it enables anyone to come in and ‘kick the tyres’ although the client is able to block such approaches. On the other hand they have global reach.

Z-cars

Working with Onhym constructively is absolutely crucial. Failing to fulfil commitments or conflicting with the Petroleum Code, Association Agreements or Exploration Agreements spells trouble for foreign investors.

Let’s remember how Petromaroc refused to test the well in Sidi Moktar because, in their view, it was sub-commercial. They argued for months until OGIF introduced Sound to replace Petromaroc who were essentially forced out.

Here’s a family portrait of Onhym’s leadership team at the signing of a recent agreement for co-operation with a Russian research organisation. See link below.

The Onhym people in the team administer Sound’s activities and ensure they comply with the Petroleum Code and exploration and concession agreements.

On the right is Madame Benhammou, who is the main interface between foreign investors and Onhym’s petroleum team of lawyers and accountants. Next to her (2nd right) is Mr Nahim, who runs the exploration department with a team of accomplished geoscientists. 5th from right is Madame Benkhadra, Onhym’s Director General who is the main interface with the Minister of Energy and Mines.

The man holding the agreement is the Russian leader of their team, all to his right.

http://www.onhym.com/en/component/content/article/43-en/new-feed/523-october-17-2019-signature-of-a-memorandum-of-understanding-between-onhym-and-the-research-center-of-the-russian-federation-keldysh-research-center-related-to-oil-shale-of-tarfaya.html

The Onhym team are well known in the industry for their attention to detail and conducting ventures in an orderly manner. Mr Nahim chairs Technical Committee meetings with Sound/Schlumberger/Onhym. Mr Nahim is the focal point for approvals by the Environment and Security permits. Madame Benhammou chairs Management Committee meetings which approve annual work programmes and budgets and the legal/tax/finance ministry contacts.. Sound must report monthly on progress against the work programme and submit records of how much money they have spent on seismic, drilling and administrative overheads, including their UK office costs - including salaries. The Onhym team also approves assignment of agreements which are passed to the Energy Minister for approval and publication in the Official Gazette.

So what?

Well, with latest cash forecast, Sound will run out of money sooner or later and cannot commit to any serious work or expenditure on Tendrara. Onhym will have been informed (I hope!)
Sound cannot sign the final GSA because they have no money to comply with timing of gas delivery to the buyer. The recent MOU just seems to be an agreement about the production profile and price during build-up period - sure its a step forward, but that’s all.

Bajaman

Sidi Moktar is in the Essaouira Basin which has two proven hydrocarbon plays - Triassic (TAGI) and Jurassic, each with their own source system - which helps. There are 80 wells in Sidi Moktar - 42 exploration wells and 38 development wells. Of the 42 exploration wells, 38 targeted Jurassic prospects (defined mainly by surface mapping) and only 4 targeted Triassic gas prospects. It’s a huge area - roughly same as 30 UKCS blocks. Over 4000km of seismic is available too.

In 1977, BRPM drilled the MKL-1 exploration well on a Jurassic anticline structure designed to reach the Devonian and found gas in Triassic. (Tagi). After seismic in 1980, they drilled MKL-101 and discovered gas condensate (GOR=3000) in the Tagi - which was the discovery of the Meskala field (~50 bcf). ONAREP took over in 1981-1992 using World Bank finance and drilled 9 development wells on Meskala, although only 4 became producers. The failures were down to halite plugging (similar to Tendrara) and formation damage with 2.0 sg mud. All the Meskala wells showed a sandy supra-volcanic Lias reservoir with gas shows - the so-called Argovian reservoir tested by Sound a couple of years ago. MKL-104 flowed gas from Devonian limestones at 2.4 mmscfd. A pipeline was built from Meskala to the closest phosphate mine to burn the gas for drying the crushed phosphate, but it is now unserviceable due to corrosion. At least one of the Meskala producers is leaking at the surface due to use of cement past its ‘sell-by’ date, the processing plant is rusting away in the sun and the remains of ONAREP’s Ideco drilling rig is there too.

In terms of exploration, we’ve become used to JP’s ‘11 tcf’ figures. This comes from work done by Lasmo when they had a reconnaissance permit. Lasmo saw 22 Triassic features, each defined on one or two seismic lines, worthy of additional seismic. But looks to me like Sound has bitten off more than it can chew because there is no way they can fulfill their seismic commitment on Sidi Moktar by the end of the first licence period - even if they started tomorrow.

Is Sidi Moktar any good? Of course it is - if explored by a competent team in a logical manner using appropriate seismic and drilling technology. But above all, like Tendrara, success will only come if Tagi reservoir presence and effectiveness can be predicted.

And marketing the gas? Early cash flow using micro-LNG by truck to power plants using enough gas proved to justify a new pipeline.

10mg Ramipril daily, gekko - you should try it.

Joecreed

On the re-entry discussion, a joint venture between AGIP and BRPM (Bureau de Recherches et de Participations Minières)drilled the first two exploration wells (TE-1 and TE-2) in the Tendrara area of what was known as the Hauts Plateaux Permit in 1966/67. These wells were drilled on surface geology without seismic, but both found gas in the Tagi which each had over 30m of net pay using a porosity cut-off of 6%. TE-5 net pay is 30m with 5.5% porosity cut off. Since both early wells were searching for oil and there was no gas market, neither was tested although the reservoir quality was much the same as TE-5. Both wells bottomed in Carboniferous with no shows.

TE-1 is within the general TE-5 horst area. TE-2 is on a separate small structure about 20km north-east of TE-5, but on the same ‘master fault’ which runs through the TE-5 horst itself. Bearing in mind TE-1 and TE-2 were drilled over 50 years ago, re-entry may not be the best option. However, Fastnet and MPE reckoned the Tagi reservoir would flow with stimulation at these locations. So the best option would be to re-drill at these locations rather than re-enter old wells.

I’ve mentioned this before, but drilling prospects shown on the existing 3D seismic and those close to the TE-5 could add 4 or 5 times to existing contingent resources and amplify the value to Sound accordingly. It follows that if the value expectations of the marketing process fail to meet a reasonable threshold, there could be ‘life after marketing’ if there is an appetite for more drilling.

Lyndondavies

Thanks. Since Morocco started supporting Qatar, Saudi investment/interest has declined. So why not try another supporter? But why?

A number of reports indicate that Russia invited 54 AFrican Union member states to attend the Sochi summit but chose not to issue an invitation to the self-proclaimed Sahrawi Arab Democratic Republic (SADR) - or ‘Spanish Sahara’.

Meanwhile, the Polisario Front made an announcement turning the ‘insult’ from Russia in their own favour by claiming that their non-attendance was a Polisario decision. While Putin prepared to welcome African leaders to the recent Sotchi summit a SADR spokesperson announced that the self-proclaimed republic would abstain from participating in the Sochi summit. 

For more of same, see;

https://www.ft.com/content/a5648efa-1a4e-11e9-9e64-d150b3105d21

Lyndondavies

Russians have already been and gone from upstream Morocco. In the 1980’s a group of Russian scientists worked with Onarep on Tendrara and completed a review which is in Onhym’s library in Rabat. By co-incidence this report calculated 31 tcf of gas had been generated.

In 2012 Gulfsands acquired CabreMaroc from Caithness Petroleum which gave them a position in the Rharb Basin. Gulfsands is 37% owned by Michael Kroupeev. The background to the acquisition was Gulfsands departure from Block 26, Syria where they declared force majeure after imposition of sanctions and could not comply with UK law. They needed another asset and moved to Morocco, but it ended with Gulfsands exit and a legal wrangle when Onhym refused to refund their bank guarantees. Kroupeev also had a big stake in Sterling Energy.

Most observers today think the Russian Foreign policy is pursuing in Africa today is driven largely by opportunism — a departure from the ideological approach of the ‘USSR’, which invested heavily to create client regimes among revolutionary and post-colonial leaders. Meanwhile, the USA has disengaged from Africa, creating vacuums Moscow can exploit. There has been an uptick in Russian upstream involvement in W Africa in last couple of years. Let’s remember Igor Sechin, current head of Rossneft, speaks fluent Portuguese because he was head of KGB in Luanda and got the Cuban troops into Angola to prop up the regime during the war. In recent months Russian traders have been forward buying crude from DRC’s state company and getting exploration licenses and leverage in return. Lukoil appears to be the Kremlin’s new vehicle for Sub-Saharan West Africa.

The recent refinery deal is with a new Moroccan company called MYA Energy and Russia’s state bank VEB. The General director of MYA Energy IS Youssef El Alaoui, M6’s cousin and advisor.

Russia's parliament passed a law in 2007 which regulated VEB's mandate and made it a ‘state development bank’. Then PM Putin increased lending when he became the VEB's chairman of its board in 2008. By late 2009, VEB quadrupled its assets to nearly $65 billion. In 2014, the USA imposed economic sanctions that greatly restricted US persons/entities from providing doing business with VEB after the 2014 pro-Russian unrest in Ukraine. Between 2014 and 2017, the Russian Ministry of Finance spent $10 billion on the bank. VEB has suffered massive losses in 2014-2015, leading to a government bailout in 2015, and another in 2016 and more in 2017. VEB was the main lender for the 2014 Winter Olympics, and many of the loans originating from the games missed original returns forecasts, or had to be restructured. VEB’s current Chairman is PM Medvedev.

Sounding off

ENI’s challenge at Obiafu in Nigeria is to produce the condensate and dispose of the gas for whatever they can get rather than flare it. Luckily for them they can afford to ‘sell’ the gas to their own IPP Kwale Okpai power plant for nothing and sell their power for $70/mwh with negligible fuel cost. The tax on revenue from oil/gas production in Nigeria is 85%. So reducing upstream revenue from gas is a good idea. Sure, ENI pays tax on the power revenue, but it’s less than 85%.

So it’s not so much volume or gas price that matters, but rather the financial engineering of running integrated projects - quite different from Morocco where there are no IPPs.

PNE79

On 3D seismic, AGIP and ONAREP drilled TE-1, 2, 3 & 4 in the vicinity of the TE-5 horst. All had gas shows in the Tagi reservoir, but no flow on test. The locations were defined by 2D seismic.

In 2004 MPE acquired 3D seismic over the area and drilled the TE-5 discovery well. The same 3D was used to define the locations of TE-6 and TE-7. So 3D seismic played a central role in the discovery and appraisal of the TE5 gas field.

The 3D showed promising correlation of amplitude anomalies with areas believed to have better reservoir properties. The same applied to 3D over the Meskala gas field next to Sidi Moktar,

A sensible forward programme would be to revisit the original 3D seismic area around TE-5 and add more detailed coverage for exploration drilling close to the development area. This is known as ‘develo-catting’

Modern land 3D is cheaper and more efficient than 20 years ago using telemetry to connect geophone arrays to recordering equipment which eliminates miles of heavy cables. The trend is for sparse 3D.

Here’s an interesting publication which illustrates the point.

https://csegrecorder.com/articles/view/sparse-3d-whats-in-a-name

Here’s the post;

RE: When post get removed01 Oct 2019 12:26
Gassy

Thinking it through using published facts and figures, it is plausible that the value is there although the technical team has failed to see it. Sound is doing itself no favours by neither publishing its own prospect inventory nor a CPR which would provide more credibility.

I posted the comments below yesterday, but the post was removed within an hour. Since it was based on open-source information, I can only assume it was removed because it may have been uncomfortably close to the truth for someone.

Recent posts seemed to agree we will never see Sound’s Prospect Inventory or a CPR for Tendrara. So how can investors understand Sound’s NAV for the property through the eyes of a prospective buyer?

Come to that, how will Rothschilds/Sound justify and recommend the ‘right price’ to shareholders without revealing the commercial metrics in terms of, for example, $/bcf? Will it be a fair value relative to the current market value? To put it another way, does Sound run the risk of selling Tendrara ‘on the cheap’ by failing to understand its own full value potential to potential buyers?

As ‘advertised’ Tendrara is a 10,000 boe/d development + some risky exploration over the long run. But it could just as easily be a 50,000 boe/d project or even more, as described below, with some modest ‘close in’, low risk exploration with a short cycle time. This will attract the attention of potential buyers.

Tendrara Value?

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 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.

Belgrinate 212bcf
Rass 353bcf
TE4 262bcf
TE1 312bcf
SBK 205bcf
TE5 310bcf
TOTAL 1655bcf

See pages 14 and 15 of Fastnet’s 2014 presentation for maps/locations of these prospects.

https://www.proactiveinvestors.co.uk/upload/MediaFile/File/2/fastnet_proactive_presentation_july_2014_53c8e2af4de98.pdf

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.

https://docplayer.net/43278631-Fastnet-oil-gas-building-moroccan-momentum-once-again-tendrara-cpr-moves-drilling-closer-foum-assaka-farm-out-terms-eagerly-anticipated.html

Significance;

In a success case, drilling these prospects increases

Gregory

Naturgy is the energy company’s latest brand, replacing ‘Gas Natural Fenosa’. The changes in ownership of the Medgas Pipeline, which runs directly from Algeria to Spain, won’t affect the Maghreb Pipeline which is already 77% owned by Naturgy. The pipeline operating companies in each country remain the same and the gas sale & purchase agreements are unchanged.

Naturgy’s big plan is to position itself for the energy transition where world power consumption is expected to jump by 40% in the next 25 years, generated by gas and renewables. Having a strategic stake in cross-border gas pipelines - rather than a simple financial interest - enables them to optimise the production of electricity in the countries where they operate.

Morocco has committed to do this alone over the last decade and is now exporting these concepts and technologies elsewhere in Africa.

I think this is the video in question;

https://youtu.be/2RrHCLQE25I
I think this is the video in question;

https://youtu.be/2RrHCLQE25I

Gregory

It’s a re-shuffle of the government demanded by M6 a couple of months ago.

In true Moroccan style, one of the political parties pulled out of talks last week saying its decision is motivated by the lack of “cohesion and solidarity” among the parties. They said that citizens have lost trust in Morocco’s politics as the government has failed to meet urgent social demands about the failure of the country’s ‘development model’ to tackle social disparities. Familiar stuff?

In July M6 called on the head of government to conduct a reshuffle. 

M6 said “I ask the Head of Government to submit to me, after the summer break, proposals to fill executive posts in the Government and the civil service with high-level national elites chosen on merit and competence,” - well, that was never going to happen.

The reshuffle idea is to inject new blood into the government, but instead of dealing with reforms the parties are squabbling over ministerial positions.

And it’s effect on Sound? With OGIF as partners greasing the wheels at the royal palace, probably nothing to be concerned about. But if the ministerial bureaucracy is in disarray it will take longer for contract assignments to be ratified by the Energy Ministry and the Finance Ministry and then gazetted which provides the ‘effective date’ for completion. As we saw with the Tendrara award, TE-9 was delayed for couple of months waiting on paper-work. So all this ‘done and dusted’ chat about year-end is likely to be wrong. Winding up the Moroccan subsidiary will take several months and every MAD must be accounted for.

Nu’s approach started with re-engineering older offshore power generation using gas instead of diesel. They teamed up with Petrofac (who supply EPC advice) and Siemens who sell gas turbine power set-ups.

More recently, Siemens has started teaming up with operators of ‘stranded’ gas fields which are too small to justify a pipeline. The technology is simple and cheap and produces LNG which can be trucked to numerous points of use for simple regassification and power generation - using a Siemens turbine of course! Siemens has a finance division which effectively leases the equipment to the operator who pays for it out of revenue.

LNG is the ‘fuel of the future’ and can be used in a conventional Diesel engine by replacing the fuel tank to cope with cryogenic liquid and installing spark plugs to replace the heater plugs. There are already LNG filling stations on the M1 with more to come.

https://new.siemens.com/global/en/markets/oil-gas/midstream/lngo-micro-scale-lng-production-system.html