Member Info for Fernan10

Adonis paid nothing for his initial equity holding in CHAR. In 2021 or 2022, he invested a few million in a placing. But, after a few years, he will earn a lot more than that through his salary, bonuses and free share awards.

As it´s the usual case for management, more "ventures " mean more power, higher salaries, especial bonuses, etc.

Not sure he is fully aligned with us.

I have noticed the efforts made by some posters here trying to find the reasons for this unexpected shareholders dilution.

Some say that capturing this onshore acreage is necessary to secure better farm out terms for Anchois. I find it difficult to defend such argument.

Others think that this onshore acreage should be too good an opportunity to let it go (in spite of the fact that, apparently, we are talking about an exploration license that was previously relinquished by SDX).

There are those that believe management´s comments about the chance of getting to cash flow quicker from this new onshore acreage, in comparison to Anchois. I doubt that, since, as stated in the press release, the new acreage will likely use the same gas processing facilities to be built for Anchois.

For me, this placing is related to 2 things:

- Adonis is more interested in “building an empire” than in “maximizing shareholder returns”. It seems to me he doesn´t care about diluting shareholders, in order to growth for the sake of growth.

In this particular case, we shareholders are losing a 10% equity interest in a project with a NPV of US$ 1.6 billion (net to 75% Chariot interest in Anchois), just to drill 4 exploratory wells that obviously carry exploration risk, and have a potential resource of only a few billion cubic feet each.

- They were running out of money. Only US$ 12 million out of the US$ 18 million to be raised will be invested in the new acreage. The remaining US$ 6 million will be used for “working capital purposes” (i.e., wages) and “new ventures”

The message from management to us shareholders is: no matter what we said previously, we can unexpectedly dilute you any time we find an interesting business opportunity to pursue.

I think this message will endure in the minds of investors for a long time.

Regards

With each subsequent placing, we shareholders lose a share of Anchois´future cash flows.

I would like to see the company growing in an organic way (that is, by reinvesting operating cash flows) instead of over expanding at the expense of shareholders.

According to the terms of the First Complimentary Period under the Grand Tendrara Exploration Permit, Sou/Calvalley must drill the TE-4 prospect before 1 October 2024.

See SOU announcement on December 22th, 2022 here:

https://www.lse.co.uk/rns/SOU/exploration-permit-update-756lo2u3wy29wip.html

Regards

Fernan

As per the farm-out agreement, Calvalley will fund 100% of the TE-4 Horst well costs up to a cap of US$7 million

The prospect is located very close to the infraestructure to be built for the Tendrara production concession. In case of success, it could be developed with minimal aditional OPEX and CAPEX. It will only require the drilling of a few development wells, flowlines and a short pipeline to connect with the central facilities.

Calc of economic benefit for the success case

Gas in place (gross): 260 bcf

Recoverable resource (gross): 50% of gas in place (similar to the TE-5 horst)= 130 bcf

Selling price: US$ 10/mcf

CAPEX: US$ 100 million (conservative)

Undiscounted free cash flow (gross): (130 bcf x US$ 10/mcf) x (1-royalty 3,5%) - CAPEX US$ 100 million= US$ 1.154 million

Undiscounted free cash flow (net to SOU):

US$ 1.154 million X 35% X (1- Schlumberger's net profit interest 10%)= US$ 364 million.

Regards

Fernan

On June 14th, 2021, SOU announced the acquisition of Schlumbergr´s 27,5% participating interest in the Anoual and Tendrara exploration licenses, together with the Tendrara production concesion.

Consideration to be paid by SOU:

"In consideration for the Acquisition, the Group shall make an initial payment of US$1 (one US dollar) to the Seller in cash on completion and may make future payments to the Seller pursuant to a Profit Sharing Deed ("PSD")."

"Under the principal terms of the PSD, the Group will pay to the Seller an amount equivalent to between 8% and 11% of total net profits (after costs, taxes and other applicable deductions) arising from the Concession over a period of 12 years from first commercial production from the Concession."

I think one of most important issues to ask management next week is what options are being analyzed in relation to the selling of this uncontrated gas.

The upside to the current share price could be significant.

Regards

Fernan

Hi Southmead.

The correct calc of the upside is:

195,3 bcf X 35% X (US$ 12 - US$ 9) X (1- royalty rate 3,5%)= US$ 198 million / 2 billon shares= US$ 0,10/share

Regards

Fernan

There are 195,3 bcf of gross gas resources ( 68 bcf net to SOU) for which we don´t have a buyer yet (see last SP Angel note).

SP Angel´s assumption in their model is that this gas will be sold at US$ 9/mcf.

If SOU can sell this excess gas to Europe, at an average price of, say, US$ 12/mcf, the tax free upside to SOU will be:

195,3 bcf X 35% X (US$ 12 - US$ 9) X (1- royalty rate 3,5%)= US$ 198 million= US$ 0,05/share

I understand that Schlumberger has an equity participation in that upside (because of a previous agreement), but even after computing that, there is still a significant upside to SOU.

Regards

Fernan

Part of the gap to get to the required amount of equity for a 65% debt gearing is due to the fact that Calvalley will direct part of their funding to exploration (drilling of the TE 4 will) instead of phase 2 development. Exploration costs should be fully funded by the private partners of the exploration license, without any contribution from ONHYM.

I´m sure that Sound and Calvalley had made all the calculations before agreeing that, and they are confident that Free Cash Flow from phase 1 will be enough to secure a 65% gearing for a US$ 237 million debt.

Regards

Fernan

Then, how will the borrower (the SPV) contribute the required equity of US$ 128 million?

*Phase 1 equity

From June 13th press release: “Calvalley will fund its 40% working interest share of all Phase 1 costs to a cap of US$16.4 million (net to the 40% working interest)”.

If Calvalley´s 40% working interest amount to US$ 16.4 million, it means that, on a 100% interest, the SPV partners (Sound 35%, Calvalley 40%, ONHYM 25%) will have to contribute US$ 41 million for the development of phase 1.

I know that SOU´s equity contribution is partially funded by the Afriquia loan. But this loan was taken by SOU, it doesn´t have anything to do with the SPV in charge of the production concession. After the farm out, SOU will partially repaid the loan, since it won´t be required to draw it down entirely.

*phase 2 equity

Calvalley will put up US$ 48 million for phase 2, representing both SOU and Calvalley´s equity contribution for phase 2.

Then, if the entities that have a 75% interest in the SPV (Sound and Calvalley) jointly put US$ 48 million of equity, ONHYM will be obligated to fund US$ 16 million for its prorrata share of the project.

So, we have:

Phase 1 equity: US$ 41 million

Phase 2 equity: Sound/Calvalley: US$ 48 million

ONHYM: US$ 16 million

Subtotal: US$ 105 million

There is still a gap of US$ 23 million to get to the required US$ 128 million, in order to have a 65% gearing for a US$ 237 million loan.

I expect SOU to pay its prorrata share of that gap (US$ 8 million) by reinvesting part of the free cash flows to be generated by phase 1 of the project.

I hope it helps

Regards

Fernan

The moroccan bank will lend up to US$ 237 million, “subject to a maximum gearing level of 65%”.

In order to accomplish with that condition, the borrower will have to put up to US$ 128 million of its own equity (237 / 65% X 35%).

And who exactly will be the “borrower”?

June 28th press release:

“Borrower: A to be newly incorporated Tendrara Production Concession partner special purpose vehicle incorporated under Moroccan law (the "Borrower")”

Then, the JV partners (Sound, Calvalley and ONHYM) will have to incorporate a new local entity (an SPV) that will be entitled to the right to produce gas in the area of the production concession.

Owners of the SPV will be: Sound (35%), Calvalley (40%) and ONHYM (25%)

The Tendrara Production concession will be set up by curbing the area where the producing gas wells and the infrastructure will be located, out of the rest of the Tendrara Exploration License. The rest of the area will be kept under the Exploration License

According to Sound´s website, the production concession will have an area of 133,5 km2, versus 14,411 km2 for the whole Tendrara exploration license.

The Tendrara Production Concession will encompass both phase 1 and 2, since both phases will take place in the same production area. See description of the Tendrara production concession on Sound´s website.

This is confirmed by the fact that Calvalley will not only fund phase 2, but phase 1 also, with the same percentage (40%) in both phases.

It's not "she", but "he".

I'm working on it

Hi Kilye.

The answer to that question is a little complicated, but I will try to explain it in a couple of hours.

Regards

Hi Jimmy.

Sales for the industrial market will be done through a joint venture with Vivo. Our partner will receive part of the price.

Regards

At the end of 2022, the were c. 80 million outstanding share awards that, with the passing of time, will be eventually converted into shares, for an 8% dilution to us (see note 26 to the financial statements).

This 80 million number includes shares awarded under both the Long Term Incentive programme (LTIP) and the Non-executive directors restricted share unit scheme (RSU).

Just during 2022, more than 44 million shares were awarded to management and employees under both programmes. As far I as know, only 16 million of those awards were informed to market.

At the current rate, management will own 25% of the company (at no cost) within the next 4 years. By the end of the decade, c.40% of the shares will be controlled by management, at no cost for them.

What do you think of that?

Regards

Hi Jimmy.

We have a preliminary agreement to supply 60 mmcfd to the state energy company (ONEE) at an unknown price.

Sound Energy has a gas sales agreement with ONEE, for 30 mmcfd, at aprox US$ 8/mcf. I think we have cut a similar selling price for our future gas sales to ONEE.

Then, I see an average gas sales price (for ONEE, local industrial customers and potencial exports) of US$ 9/mcfd as more realistic and conservative.

Regards

Ferna

Ok Jimmy thanks very much.

Regards

Fernan

Hi Jimmy.

You've always said that, in the onshore part of the basin where the Lixus license is located, the chance of success of exploration has been 85%.

For example here:

"Now technically chariot is correct to report that the chances of success of increasing proven gas volumes to over 1.6 tcf are between 49% to 61% , however the success rate onshore for similar geology with similar geophysical seismic signatures is 85%."

Could you please elaborate on that? Who reported that high chance of sucess onshore? Do the onshore seismic prospects exhibit similar atributes to our own prospects in Lixus?

Thanks in advance Jimmy

Regards

Fernan

I sent the following email to Investor relations:

__________

I have a question about the awarding of shares to the directors and employees of the company under the Long Term Incentive Scheme (LTIP”), as follows:

I noticed that the company granted c. 16 million share awards on 12 August 2022 to the following officers and directors:

George Canjar 2.788.104

Adonis Pouroulis 5.111.524

Julian Maurice-Williams 4.182.156

Duncan Wallace 4.182.156

In spite of that, according to note 26 to the financial statements for 2022, 40.888.091 shares were awarded during the year to employees and directors, under the Long Term Incentive Scheme (LTIP”)

My question is: when were the remaining 24 million shares awarded, and to whom? When did the company inform the market about those share awards?

Regards