Member Info for Exploration

Here’s the original CPR for Predator’s area.

http://www.fastnetoilandgas.com/~/media/Files/F/Fastnet-Oil-and-Gas/financial-and-other-reports/cpr-report-pathfinder.pdf

There was also a CPR written by SLR for Tendrara. I think if BM had bothered to read it Sound might not have rushed into risky exploration could have avoided all the hype. SLR’s Tendrara CPR gave realistic gross prospective resources between 1 and 4 tcf for the whole of Tendrara.

WTD

Fastnet left Morocco after their offshore well called Foum Assaka near Agadir came in dry. Their board grabbed the steering wheel from Paul Griffiths and elected not to exercise their option to farm in to Tendrara. With no assets Fastnet was used as a vehicle by investors to buy into a pharmaceutical company and changed it name. Paul left.

Paul’s original plan for Tendrara was to appraise and find the money to develop TE-5 and SBK first, followed by exploration. He had also applied for the acreage now held by Predator. He published CPRs for both areas which were needed to qualify for an AIM listing.

Thanks Sounding Off,

I’ll take your word for it. But if Sound Energy Morocco East (i.e. Tendrara etc) is sold why would the buyer pay off a ‘mortgage’ on Sound Energy Morocco South (i.e. Sidi Moktar)?

Wtd

There’s a web of legal charges and companies involved here - let alone Sound Newco Ltd - or even C4, remember that one?. The charges are outstanding are;

The first charge involves the holding company, Sound Energy PLC. The second relates to a charge over Sidi Moktar (Sound Energy Morocco South Ltd). The third is Schlumberger’s charge over Sound Energy PLC which provided Schlumberger’s ‘synthetic’ interest in Tendrara (Sound Energy Morocco East Ltd)

In detail;

Link below is to summary of charges over Sound Energy PLC

https://beta.companieshouse.gov.uk/company/05344804/charges

The one below is the 28 million euro charge over Sound Energy PLC where the collateral was originally the Italian properties, but after that sale, the new collateral is the entire share capital of Sound Energy Morocco Ltd (Sidi Moktar)

https://beta.companieshouse.gov.uk/company/05344804/charges/uH9NJb7uegL7ololCV2nJNj380k

The one below is the charge over Sound Energy PLC to guarantee Schlumberger’s ‘synthetic’ interest in Tendrara. I don’t know why this is outstanding because Schlumberger now has a direct interest in the new 8-year license.

https://beta.companieshouse.gov.uk/company/05344804/charges/EySpa59qj4UyR2xc8z-P6URf83g

I wonder about the the consequences of the outstanding charges, but anyone reviewing the legal aspects of a possible transaction for due diligence will scrutinize in great detail.

Then there are related party transactions involving Directors Loans, Greenberry etc. I don’t understand all that.

https://www.lse.co.uk/rns/SOU/issue-of-bonds-and-warrants-twfa9bd84mrzhe9.html

Bajaman

All,

Tendrara is held under Sound Energy Morocco East Ltd

Sidi Moktar is held under Sound Energy Morocco South Ltd

Both are subsidiaries of Sound Energy PLC.

The loan is tied to Sidi Moktar - which cannot be sold without settling the loan as I understand it.

According to Q1 2019 presentation;

€28.8 million corporate bonds
• 5% coupon
• Due 21 June 2021
Secured on Sound Energy Morocco South Ltd

Shell has extended their 3D survey to 600 sqkm to cover adjacent blocks 41/4 and 41/9.

See link

https://docs.wixstatic.com/ugd/f5673e_2387f7aae1aa4f24a1357e181f32080b.pdf

That’s the most common approach. All the talk about bidding wars I would effectively be an ‘auction’ whereas Rothscholds brings realistic, achievable process without ‘gazumping’ etc.

Scarf

Assuming Rothschilds are running the sale they will establish a preferred buyer and be sure they can actually deliver and the is acceptable to Morocco.

We should expect to see an Exclusivity Agreement which identifies the prospective buyer.

The prospective buyer and Sound will enter the Exclusivity Agreement which describes the buyer’s and seller’s obligations to work diligently towards a deal. It will also prevent the seller from continuing to solicit third party interest.

It will also specify the duration of the agreement.

Some exclusivity agreements require the buyer to pay a cash sum which is forfeited if the transaction does not close.

FD

In my experience I reckon Shell/CNRL will be in a position to recommend a firm well by August 2020.

Why so long?

Firstly, the 3D seismic data will take about one month to acquire. Some on-board processing will be done mainly as QC and the field data transmitted to one of Shearwater’s processing centers - probably in Tonbridge Wells.

Secondly, so-called ‘fast track’ processing of the whole 3D volume will take 8 to 12 weeks to complete. This means the work will be complete by late- November.

Thirdly, there will be interpretation of the 3D survey + additional special processing, incorporation of the details of the gas source, reservoir properties, expected volumes and risks.

Fourthly, conceptual scoping economics, including costing of possible development plans, will be needed to ensure the project competes with others in Shell & Cluff’s UKCS portfolios. This work will take us to this time next year when Shell/Cluff will be in a position to recommend drilling an exploration well - or not as the case may be.

I doubt we’ll hear much on progress from CNRL because they’ll want to keep it confidential until the decision about drilling is made.

Polar Empress, on contract to Shell to acquire 3D seismic, looks to be in the P2252 area. See link below.

https://www.marinetraffic.com/en/ais/details/ships/shipid:3390342/mmsi:257908000/imo:9687370/vessel:POLAR_EMPRESS

Medi111

I’m backing Qatar too.

Since Emir Tamim took the throne in Qatar, relations between Doha and Rabat have improved a lot - especially in terms of investment. And with that, lots of new contracts for friends of M6 seem to be on the cards. Morocco has sided with Qatar and Yemen in the last year, which has caused Saudi relations to cool.

Emir Tamin’s father preferred to visit Algeria and Tunisia but the new emir seems to like Morocco. Shortly before Tamim became Emir last year he started to build a fancy palace near Ifrane in Morocco. The Qatar Investment Authority - their sovereign wealth fund - is involved in several strategic projects in Morocco including real estate, banking and agriculture with M6’s support.

Also, Rothschilds is M6’s banker. JP is a minor player in the kingdom’s plans.

IfonlyIhad

The GSA will include details of delivery date, quantities, quality, plateau rate and so on. ONEE will not execute a GSA for delivery of gas unless the seller provides a start date and actually ‘sanctions’ the project.

In most industries project sanction is a major milestone and means the final approval by the participants to fund the project as described in the detailed Development Plan.

But Sound has neither money nor expertise to develop the TE-5 gas field project. So the GSA heads of agreement will remain in draft form until a buyer of Sound with financial capability and capacity arrives on the scene and demonstrates the project will be sanctioned.

Cabby

More like Sadim touch I think

Mancave

Since the start of process to sanitize the internet of the golden ticket videos etc I suspect the Directors have been made aware of the small print in the Companies Act on fiduciary duties. In effect, this means private e-mails to individual shareholders, statements that everyone will make money, etc are off limits, and always have been.

Let’s calm down and wait for the next RNS.

Cash was $14 million as at May 14.

But at December 31 cash was £20.5 million, call it $30 million so the cashburn was/is pretty steep. Based on previous annual PLC overheads, the PLC spend rate for the remainder of 2019 will be another $6 million? Moreover trade payables as at December 31 probably exceeded trade receivables. In other words the company may have negative net current assets by December even without drilling anything else so it HAS to try and sell the Moroccan assets - and quickly. Then there is the outstanding debt Sound carries £20.476 million as at the year end. And who is paying to demobilize Saipem’s rig and restore the well sites?

Tendrara Exploration; Sure, all commitments have been met. But by September the partners must unanimously agree a budget and work programme for the next 12 months. Sound just can't stop the clock - Onhym will want more activity.

Sidi Moktar. The work commitment on Sidi Moktar of 500 km of seismic by mid-2000 is outstanding to qualify for the next period of the licence. The outstanding loan is secured against the Sidi Moktar asset as far as I know. Then there is the financial guarantee redeemable when the work programme is completed.

TE5 Concession; Sound/Schlumberger are obliged to submit and implement a development plan. But they can't without a GSA.

Jacklevi

I agree with you that we will not see Sound doing any more drilling. Looking at the numbers it boils down to how much money they have in the bank.

The ‘deadline’ is not so much defined by an arbitrary date but rather the date the cash will run out towards the end of the year - based on JJ’s interview with Malcy and a reasonable projection of cash burn looks like the ‘zero cash’ deadline is 4 or 5 months away.

A company is insolvent when it can’t pay its debts. This could mean either:

it can’t pay bills when they become due
it has more liabilities than assets on its balance sheet

Without cash, trade payables, acreage rental fees, salaries, office costs will be due on Greater Tendrara and Sidi Moktar. Have the TE-8, TE-9 and TE-10 well sites been re-instated? Have the demobilization fees for rigs and equipment been paid?

Lacking a farm in partner, Sound will default on their work commitment on Sidi Moktar which is security for the outstanding loan. Onhym might grant an extension, but that is far from certain.

But it is absolutely critical to remain solvent, because the moment a company becomes insolvent creditors are first in line to receive payment - not shareholders.

JP and Directors are in difficulties at the moment, but they’ve put themselves in this position. The Companies Act requires all directors fiduciary duty to shareholders to a) act in interests of all shareholders and b) not conceal material information. Penalties for ‘wrongful trading’ - basically knowing insolvency is on the horizon - are severe.

I remain convinced the ‘grown ups’ in the Royal Palace will eventually intervene. In recent months M6 has strengthened relations with the Al Thani family (Qatar) and withdrawn support to Saudi Arabia and their war in Yemen. Indeed, Morocco has airlifted emergency supplies to Yemen. Sound will be replaced by Qatar ‘Inc’ and perhaps Schlumberger charged with developing the TE-5 gas field. Qatar Petroleum certainly has the skills and access to capital to get the job done.

https://qp.com.qa/en/Pages/Home.aspx

Hawkander

There is no GSA yet despite all the assurances. Why would ONEE delay it? After all, they need the gas on stream by 2021.

Perhaps it is Sound who delayed its completion to avoid the contractual commitment to develop the TE-5 gas field as required by the Petroleum Code and associated concession agreements. That would have needed serious money was not in Sound’s plan.

Sounding off

There is no GSA yet. I presume Sound delayed its completion to avoid being committed to undertake the development of TE-5 as required by the petroleum code and associated agreements. That would have needed serious money and a big team.

Strictly speaking no GSA means the project is not bankable. That’s not to say TE-5 gas field is worthless, but its current value is reduced without a GSA.

Longwait,

Here’s some evidence on why Shell farmed in to CNRL’s blocks comprising P2252.

Take a look at Figure 4 in the CPR (link below) which shows how Shell discovered 4 or 5 tcf of gas in Netherlands in an area roughly the same size as P2252 (600 sq km). So Shell is pursuing a neglected play fairway in a mature basin with nearby pipelines, shore terminals and a highly ‘liquid’ gas market. It’s the same play tested recently by Union Jack near Hull. It’s the new ‘hot’ area in the Southern North Sea.

The new 3D seismic is due to be acquired in next couple of months and further de-risk the area.

Clearly, CNRL had some top-notch geo-scientists led by an experienced CEO and got on with their work without any song and dance. Market cap has moved from 8 million pounds to 25 million in 4 years and with couple of wells to be drilled by Shell it could go a lot higher in the next year.

https://www.cluffnaturalresources.com/wp-content/uploads/2016/01/5-Axis-CPR-on-Southern-North-Sea-Assets-02-December-2015_Optzd.pdf

LD

Based on limited information we've seen Sound must sell promptly before being overwhelmed by future costs and commitments.

I thought JJ’s recent account of the situation was calm and measured, but the numbers speak for themselves;

Cash was $14 million as at May 14.

But at December 31 cash was £20.5 million, call it $30 million so the cashburn was/is pretty steep. Based on previous annual PLC overheads, the PLC spend rate for the remainder of 2019 will be another $6 million? Moreover trade payables as at December 31 probably exceeded trade receivables. In other words the company may have negative net current assets by December even without drilling anything else so it HAS to try and sell the Moroccan assets - and quickly. Then there is the outstanding debt Sound carries £20.476 million as at the year end. And who is paying to demobilize Saipem’s rig and restore the well sites?

Tendrara Exploration; Sure, all commitments have been met. But by September the partners must unanimously agree a budget and work programme for the next 12 months. Sound just can't stop the clock - Onhym will want more activity.

Sidi Moktar. The work commitment on Sidi Moktar of 500 km of seismic by mid-2000 is outstanding to qualify for the next period of the licence. The outstanding loan is secured against the Sidi Moktar asset as far as I know. Then there is the financial guarantee redeemable when the work programme is completed.

TE5 Concession; Sound/Schlumberger are obliged to submit and implement a development plan. But they can't without a GSA.

So what will happen? I'm pretty sure our Moroccan partners will have a solution lined up. They did when Lone Star and Fastnet left. Meanwhile, I doubt our BOD can tell us anything, since they do not know what will happen either. Let them get on with it and wait for the outcome is all I can say.