Member Info for i-man

Yesterday’s meeting was very positive and upbeat.

GL had no explanation for Friday’s plunge in the SP. Like the rest of us, he was expecting a rise after announcing the agreement with Attijariwafa bank, which effectively ensures funding for 75% of the Phase 2 pipeline and pumping stations. He explained that the full details were awaiting confirmation and could not yet be revealed but hinted that this would bring even better news.

He did not think the SP drop could be explained by fears of another fund raise, causing further dilution, as he was very confident that there would be sufficient additional financial support from vendors and local interests to complete Phase 2.

They have made a farm out, to support near term drilling, very attractive by making it a three-well deal including both the low risk drills in the already proven Te4 and SBK fields with the higher risk, unproven but potentially massive M5 Anoual field. This means that all three drills can be achieved without any cost to Sound. There are a number of bids already being assessed.

I got the impression that even though the terms of the exploration license carry a commitment to drill Anoual before the end of this year, the Moroccan Government is unlikely to hold Sound to this, especially in light of the Pandemic. So there may be no rush for this drill, which I think is disappointing.

Now that most of the Moroccan Tax claim has been resolved, even if the judgment went against sound for the remaining claim, this would take a long while to fully resolve and according to GL, is quite modest and would have no significant impact on Sound’s finances. He really did not appear to have any concern in this regard.

I was very reassured that Italfluid is already making good progress with what are much more massive civil engineering works than had I envisaged for a “micro” LNG plant. The storage tank is going to be huge and able to contain several day’s of production of LNG. Much of the outsourced plant has already been purchased. An American company with a depth of experience in cryo-engineering, will be supplying and supervising the refrigeration plant.

I am disappointed that it is going to be the end of 23 before first LNG and a few months beyond for first cash but definite progress is being made. The Afriquia Gaz loan will cover all costs of phase1.

Excellent find Ducati2.
It is quite clear that the Moroccans are really keen to encourage investment into hydrocarbon exploration and development with very generous tax incentives. Why would they do the opposite by pursuing this spurious tax claim? Sound is the biggest on-shore exploration licence holder. We hold a few aces!

The response to today's final results RNS is overwhelmingly muted. Considering that, this time last year, we were looking at the real possibility that the Bond could have been called in last June and that shares in Sound would have been worth zero. Nothing!
What Graham and his team have achieved is quite amazing. The Bond is resolved with much improved terms. The $18m loan from Afriquia Gaz covers the costs of Phase1 and gives the company financial security to continue. He has secured future revenue with the go-ahead to Italfluid to achieve Phase1. The highly complex Phase2 appears to be progressing with leaps and bounds. The out standing Moroccan tax issue should be resolved and in the unlikely event that it is not, will not break the company. There is very real exploration potential. Angus is a mystery but any deal is entirely in the control of Graham, who is no fool. I am sure he would not enter any agreement that was not in the best interests of Sound and its shareholders.
Sound now has a future for those prepared to wait.

I wrote to Graham expressing my concerns about the continuing drop in the SP, despite the confirmation of Phase 1 and two recent RNS, which conveyed what is really amazingly good news about the advancement of Phase 2. He replied very promptly, as usual, telling me that he was in Morocco furthering the other CPs needed for Phase 2, mostly financing.

I told him that I was not alone in my lack of enthusiasm for the merger with Angus, which I feel is a major distraction. He confirmed that Sound's priority is indeed Tendrara. As expected he could not discuss the Angus deal save to say what is in the public domain. He confirmed that for any deal to make sense to Sound shareholders, an accretive transaction needs to take place.

He didn’t feel that the share price slide was due to Angus alone but that the tax issue and the delay in revenue to the end of 2023 as well as the market volatility were factors. He said that he and the team would continue to do whatever they think will enhance the share value.

In my opinion, with all the recent and soon expected, continuing good news, it is hard to explain, why any genuine LTHs would be selling such large numbers of shares at such a low prices, unless there is some concerted effort to keep the price low; possibly pending a bid for what will now be a very major and accessible resource?

I continue to be impressed with GL and the team. The current SP does not reflect the value of Tendrara and Sound's other potential assets.

The whole production of the Te5 horst could easily be transported by a 12" pipeline, which would have been significantly cheaper to build, but from early on, the Moroccan authorities have demanded a 20" pipe so there will be plenty of extra capacity to accommodate increased production at Te5 or if additional fields come on line.

This SPA valuation dates back to the beginning of August and was based on an average LNG sales price of US$7.9/mmbtu, which was fair valuation at that time. Since then the price of LNG in Europe has touched about US$34 and Algeria has cut off supply. Graham's complex formula for calculating the price paid by AG to Sound when the market price exceeds US$8.2 will have to come into play, which means a valuation of 8.2p must be a significant underestimate.

Even though Graham is adamant that the Phase 1 LNG plant will be built, it make little sense to have the plant at the well-head and transport LNG by road running parallel to the pipeline if the Phase 2 pipe line is going ahead. Starting the ten year tax holiday clock running by processing a relatively small amount of gas through the LNG plant makes little sense if Phase 2 is going ahead. The delay in announcing the LNG contract should be looked at a a very positive sign that Phase 1, which was just to keep the lights on, is very much a side line. The Phase 2 is a far more complex deal that can't be rushed.
If Afriquia Gaz really need LNG and the LNG plant is to be built, it should be at the northern end of the pipeline, nearer customers. The purpose of a micro LNG plant is for a gas field that really is stranded, which Te 5 is not when Phase2 succeeds.

"Phase 1 will supply an annual contractual quantity of 100Mcm/y of gas (c.4Bcf/y) at an average gas sales price of US$7.9/mmbtu "

The European price recently touched $34/mmbtu.
I am sure that Graham has this worked out!
The delay in finalising the contract may not be such a bad thing.

LPG is not LNG.
LNG is not pressurised and so cannot "burst". It is safe to transport.
Sound has nothing to do with LPG.
End of.

Thank you Tincan, you make my point so very well, that the public concept is, that transporting LNG is really high risk. The Youtube videos are indeed truly horrifying. Liquified Petroleum Gas LPG is indeed a potential bomb on wheels.

We are producing liquified NATURAL gas LNG not LPG. LPG is heavier butane, propane and pentane, liquified by compression into pressurised metal containers. If the container bursts, the compressed gas expands suddenly into a huge ball of highly combustible gas, that is heavier than air and so accumulates until ignited.

LNG is liquified pure methane CH4 at a temperature of -164 degrees at about atmospheric pressure, not in a pressurised container. As it evaporates, the temperature drops and the gas is really cold. The gas is lighter than air, so if there is leakage it goes up and dissipates and doesn't pool as a potential threat. It has an autoignition temperature of over 1000 degrees F more than twice that of petrol and diesel and it has a very slow flame speed preventing an explosive fireball, as can occur with LPG.
Do read and understand the link. It is really interesting and should overcome what I am sure is a widespread misconception about the hazards of transporting LNG. Thank you for making my point so well!
https://breakingenergy.com/2014/12/22/how-dangerous-is-lng/

I was concerned that Afriquia Gaz might face government concerns about the safety issues of transporting our LNG across Morocco. Although, it is no longer Sound's concern, Graham has reassured me that LNG at -164 degrees is far safer to transport than petrol, diesel or LPG.
I found the following interesting, especially pictures of a lighted cigarette being extinguished by LNG.
As it has the lowest carbon footprint of any fossil fuel, LNG may be the fuel of the future, even for aeroplanes?
The demand and price can only increase.
https://breakingenergy.com/2014/12/22/how-dangerous-is-lng/

There wasn’t anything dramatic revealed at yesterday’s Sound meeting that has not been covered by today’s RSN half yearly report. Graham was, as ever, very cautious not to reveal anything unsubstantiated or has not had RNS release.

There were presentations from Afriquia Gaz and Italfluids, which were very positive.

The long delay in signing both the Afriquia Gaz contract and the Italfluid contracts were explained by their complexities, which have been added to by the fact that LNG is a totally new domestic market. Although AG or their holding group Akwa own large storage facilities for imported LNG, domestic production, marketing and transportation is new to them. The initial agreement with Italfluid had to be revised, as more onsite LNG storage was needed than originally thought, to comply with AG’s transport requirements. The signing with Italfluid is imminent.

It is unlikely that mLNG plant construction completion will be any sooner than 18-24 months.

The atmosphere of the meeting was all very positive with the hint that real progress is being made with Phase 2. All is dependent on the Gas sales agreement with ONEE and progress is being made in this regard. The future demand for natural gas in Morocco is assured.

It is really good to have AG as a significant shareholder and partner, especially with their billionaire lead and major shareholder having just been elected as Prime Minister of Morocco!

According to Morocco World New's figures, below, Tendrara's 377bcf resource at the Te5 Horst on its own, would be enough to provide Morocco's entire current national consumption for nearly 9 years. After the recent spat with Algeria, one would think that Moroccan political wheels must be turning at speed, in our favour.
Why is it taking so long?
https://www.moroccoworldnews.com/2021/08/343984/morocco-announces-promising-30-year-long-natural-gas-plan

Rubber Soul
Thanks for sharing this Bloomberg report on rising LNG prices. If we came anywhere near to receiving these reported prices for the Tendrara LNG, Sound's revenue would exceed $50m pa. Debts, loans and interest paid off in no time. Graham Lyon is being seriously conservative in setting the price ceiling at just over $8 per mmBTU. He has set up a complex mechanism for adjusting the price in response to market influences but Sound will not come close to receiving these prices. However, Afriquia Gaz must be rubbing their hands and one would have thought they would be falling over themselves to get things underway ASAP.

The Company has entered into a binding and fully termed conditional LNG sale and purchase agreement with Afriquia Gaz pursuant to which SEMEL will sell not less than 171,000 cubic metres of LNG per year (approximately 100 million cubic metres a year of gas to be produced and liquefied from the Phase 1 Development)

There are 22.34mmBTU/cubic meter of LNG.

At the minimum price of $6 per mmBTU this will generate $23m p.a.

At the maximum production rate of 546cubic metre per day and maximum price of $8.36/mmBTU the revenue could be as much as $37.5m p.a.

Italfluid are to be paid $36,000/day ($13m p.a.) for five years. After which Sound will own the plant.

Afriquia Gaz $18m loan 6% interest ($1m p.a.) for 12 years

$25m Bond interest payment @ 2% $0.5m p.a. for six years

As AG is taking over the costs of transportation, distribution, storage and regasification, Sound does not have any other significant costs (Other than the spurious tax claim, which Graham is confident, will be overturned, or at the very worst delayed.) We can therefore be confident in a Net revenue of at the very least $8.5m. p.a. and possibly as much as $23m. p.a.

As a result of significant previous investment, Sound has identified a number of high potential sites, which could commence exploratory drilling at short notice. There is potential at Sidi and the phase 2 pipeline would unlock at least five times the capacity of phase 1 for well over a ten year period. We now have a highly effective and trustworthy CEO & BOD. We are teamed up with Afriquia Gaz, which a well established and powerful Moroccan company that now has a 10% share in Sound.
It defies logic that the SP has remained so low, even considering the 160m shares at 1.25p coming onto the market.

Patience!

I think all us LTH owe Graham Lyon huge thanks for the amazing job he has done and continues to do. He picked up the poisoned chalice left by JP and has literally saved the company... Again! He has renegotiated the Bond so that the Bond holders didn't take over control on June 21st, leaving us shareholders with nothing, Zero. The recovery of the share price after this was remarkable poor, as was it after the take over from Schlumberger announcement. I'm sure this was a reflection of the general sentiment left after the long series of broken promises made by Parsons and the previous BOD.
We were all desperate for confirmation of the Afriquia Gaz deal. I was getting increasingly fearful that it would not go through and Sound would have to fold. That dreadful spectre is now well behind us and Sound does have a future with a very substantial asset under the ground in Tendrara and real possibilities elsewhere. We have a long way to go but there is now light at the end of the tunnel!

Sorry old news. Wrong link.
This was published early this morning by Africa Intelligence:
https://mail.aol.com/webmail-std/en-gb/DisplayMessage?ws_popup=true&ws_suite=true

May have little relevance but Lydec have close links to ONEE

Help from on high?
See end of page:
https://www.africaintelligence.com/north-africa_business/2021/06/28/banker-to-the-royal-family-mohamed-benslimane-takes-a-seat-at-utility-lydec,109675984-art

There has been a great deal of very negative discussion on this chat line that is being reflected by the poor SP. Considering the poisoned chalice that he picked up, I believe that Graham Lyon and his team have been making and continue to make amazing steps forward. Today we would have been handing over control of the Company to the Bond Holders, leaving us long-term holders with nothing. This is not going to happen. He has renegotiated the Bond repayment in very favourable and achievable terms for the company. The Bond Holders obviously consider that the current Sound BOD has better chance of restoring value to the company than a team that they might have imposed themselves.
He has just taken back control over Schlumberger’s share of the company, which should have increased the value to the remaining share-holders but the SP has hardly shifted. We continue to hold a substantial resource with the potential to supply 9% of Morocco’s LNG demand.
The Moroccan tax claim has had a disproportionate adverse impact on the SP and I recently wrote to Graham, raising my concerns that the Moroccan tax claims could potentially wipe out Sound, as they exceed the company’s current value. He replied that, as he had said in the past, he believes that the tax claim is incorrect and there is due process to have it removed. That process is well underway and has many steps of higher and higher authorities. At each step the case(s) can be dropped. He pointed out in his last tax RNS that he was pretty clear of the farcical nature of the case, where the authority is trying to tax anyone that moves including our shareholder OGIF.
To date one claim is under review by the local tax committee, the others are awaiting formal rebuttal such that, again the process of review and consideration begins.
The processes can last more than two years if taken to conclusion. And so, he says, that there is almost zero risk that the tax authority can collect on these claims from us under these claims in the short term. IMO, Provided all continues to proceed as promised with the Afriquia Gaz contract we should be generating revenues and restored the SP well before then.
It is very disappointing not yet to have heard that a successful conclusion has been achieved with Afriqia Gaz but Graham has explained that they are part of a very big organisation and are very cautious not to make an error in the 10 year contract, however progress continues to be made. Hopefully, we will have some positive new soon?

If Graham can get the deal to produce and sell 100 million cubic meters of LNG per year sorted, that will generate an income of just over $30 million per year for many more than ten years. That is one hell of a lot more than LESS than Nothing even after paying off debts and costs or if phase 2 fails to go ahead.