Member Info for ps200306

Have to admit I've been confused about these loan note conversions. Had to go back and reread the detail in the RNS from last June. Main point of confusion was why the investor would be converting the notes to shares at 2.25p when the market price of shares is much lower.

https://www.lse.co.uk/rns/SOU/issue-of-convertible-bonds-and-issue-of-warrants-j2mdirm7ar0ldh3.html

If I'm understanding it right, when the loan notes are converted the entire interest that would have been due over five years becomes payable (at a shocking 15% pa). Furthermore, the interest can be converted to shares at a weighted average of recent daily prices. So basically they take a hit on the conversions at 2.25p but then they get 75% interest which can be converted to more shares at 1p. Shares end up costing about 1.1p, a bit higher than market, but they would never have been able to buy tens of millions of shares on the open market at that price. (Open to correction on my logic and arithmetic here).

What a truly horrible deal for SOU (or, at least, its ever more diluted shareholders). As a sign of how over a barrel they were back in June, even the fees associated with the issue of the loan notes were paid by way of new shares in lieu of cash to SOU's financial advisor and the investor, plus a ton of additional warrants to both.

The thing that's REALLY puzzling me is that the £2.5m in notes was just the first tranche of a total of £4m which SOU said would provide working capital through the end of 2023. The second tranche worth £1.5m never materialised because it was conditional on a minimum share price at the time of drawdown which wasn't met. So how are SOU still going if they were short £1.5m at year end and we are now a whole additional quarter in?

Total shares on issue have now gone from 1.86 billion to 2 billion -- a dilution of about 7% -- and we are not done yet with the loan notes. All to fund just a few months of working capital. With the share price at an even lower ebb now, and the prospect of another raise seemingly inevitable, what's the hit going to be? GL is not a straight talker when it comes to this. Look at the 13-Jun RNS in detail. The implications of the loan notes are strewn throughout different parts of it as if to be intentionally obfuscatory.

It's so frustrating and disappointing to see SOU value trickling like water into desert sand. Meanwhile, everyone's focused on Calvalley and twitter pics of LNG tanks. I've been saying to watch the creeping dilution for the past couple of years now. It's still the elephant in the room.

"I'd rather be positive and wrong than negative like the miserable tw&t kylie/ps/keepitfiction/trellis/whatever pseudonym he picks next. "

To the best of my knowledge those are four different people. (Obviously all I know for sure is that I am only one of them). I don't consider myself negative, just realistic. The whole funding/Calvalley thing is baked into the assumptions in the SP Angel research notes. People are talking about Calvalley as if they were the cavalry riding over the ridge (Calvalley/cavalry -- you could have some fun with words there). The reality is that closing this deal is just the absolutely necessary step to keeping going as planned, not some big new development.

It's highly unlikely IMO that it is being held up in order to agree some glorious new drilling program. TE-4 is the only drill planned and I can't see how that could "double existing reserves" as the entire mapped reservoir volume is only half that of TE-5. Also, the six wells planned for Phase 2 are not exploration drills, they are just the necessary number of holes required to exploit the existing known horste volumes.

Any further drilling requires SOU to come up with cash (which they won't have until Phase 2 revenue is flowing and after they have paid down some immediately due debts), or another partner steps in (which COULD be Calvalley) in exchange for yet another chunk of equity. SOU has paid dearly for not exploiting TE-5 years ago, with the consequent costs (and attendant dilution) of keeping the company on life support all this time.

Every additional delay is more painful than the last as they have to keep giving away a relatively larger slice of a diminishing pie. And the current one is the most egregious as GL has no explanation for an entire quarter's delay (so far) with nothing but the usual platitudes: "it's not going as quickly as we'd like and everyone is working really hard". He's been given plenty of benefit of the doubt and is rightly credited with managing to keep the show on the road, but at this stage his track record on actual delivery can only be characterised as abysmal. I expect to see some sort of fund raise in the very near future.

The next RNS is equally likely to be the announcement of yet another fund raise.

... quel surprise.

"Adam , don’t you feel you have repeatedly said this line or something very similar an awful lot now ?"

If it was just the ramptastic statements he spews every day I would put it down to over-enthusiasm.

But he repeatedly claims to have inside information, which makes it sinister rather than merely annoying.

He's either a fantasist or a liar or both.

We were expecting everything to be finalised by year end 2023 when the last announced extension to the GSA and Attijariwafa bank funding offer expired. The Calvalley deal was an instrumental part of that. Nearly an entire additional quarter has now elapsed. Remember, a binding transaction with Calvalley was originally anticipated within 45 days of June 13th 2023. We got strung along with stories about multiple flavours of due diligence but that is wearing incredibly thin.

In conjunction with the June Calvalley announcement, SOU raised up to $4m to tide it over to end of 2023. In fact, only 60% of that materialised because the share price sank too low to fulfill the conditions for the remainder. It seems somewhat miraculous that the company is still meeting day to day expenses, but it must be running on fumes at this stage.

Even if there are now other options on the table, it's easy to see why GL would still be holding out for Calvalley completion. The deal involved an instant cash injection for Phase 1 back costs. If the Calvalley saga is anything to go by, you would be talking about another 6-9 months of negotiations and due diligence. Anyone have any idea how SOU would survive that long without additional funds and/or dilution? Answers on a postcard. Apart from that, it would mean a whole additional year onto the (currently expired) Attijariwafa/GSA extension. At what point do the parties start losing patience?

Adam2911: Not perfect? You've been wrong EVERY SINGLE TIME. This is nothing to do with doing your homework before investing. This is to do with a non-stop senseless stream of predictions plucked from your nether regions. You've variously claimed they are based on research, insight, leaks, mails, crystal balls and more. You have no more idea than I do when the Calvalley deal will drop. How about just waiting for it to happen, as it more than likely will. Nobody cares if you finally get it right, as it will be no more surprising than if you won the lottery by buying all the tickets.

A more interesting prediction would be what happens to the SP after the deal drops. My prediction is a short term spike but no medium term resilience. Phase 1 is worth zilch to SOU and Phase 2 FID is probably 6 months to a year away following by 2 years of construction and 6 more months of commissioning -- 2028 for revenue. The time horizon is just too long for fickle AIM investors (except maybe the tortured souls of SOU LTHs).

Even the Jehovah's Witnesses had the good sense to be less commital about their predictions after a hundred years of failure.

;-)

Adam2911, 13-Mar: "Tic toc tic toc....getting closer and closer..rns could drop any moment..."

Cringe. There's optimism and then there's embarrassingly willful self-delusion.

09-Feb: "All will be revealed next week"

07-Feb: "2 weeks I told you all cavrlly is a done deal..announcement is imminent now.."

06-Feb: "Can drop any day now before 15th Feb...chances are very high."

05-Feb: "Clue is in the opening phase... soundenergy is pleased to.\n\nCavalley deal is done and dusted.why say pleased to"

04-Feb: "Could this be the week..we wait ."

29-Jan: "My crystal ball tells me cavalley deal is sooooon ..sound boy.always right."

28-Jan: "Exciting week coming up.hold on to your hats"

27-Jan: "Big news coming soon"

26-Jan: "News is getting closer....tic toc tic toc"

25-Jan: "a little bird tells me cavalley deal soon to be announced...SOUNDBOY.legend in soundenergy.."

25-Jan: "Investors taking position before the inevitable news.cpuld fall next week..leaky leaky.."

24-Jan: "Something happening o the back ground"

21-Jan: "This is the week.transformation week.."

18-Jan: "Any time the big rns will drop.producing by April.. all looking good."

13-Jan: "Should have some sort of action before end of January.. could even start this coming week..SOUNDBOY"

06-Jan: "REMEMBER within 3 weeks there will be news.see I have done my research."

05-Jan: "Buy buy buy..something big happenning within next 3 weeks......soundboy."

14-Dec: "It's all good got an email from Graham.im happy with the reply. back in uk 21st Dec.. with cavalley in the bag."

So here we are seven years later in March 2024 with no Sidi farm-in and the three-well program covering Tendrara and Anoual now consisting of just a single well at TE-4. You'll have to forgive my cynicism about the statement at the Q&A about continuing farm-in talks. That's one thing that hasn't changed between the Parsons years and the Lyon years. Mind you, I think they were both eclipsed by Mohammed Seghiri's brief tenure as interim CEO. In February 2020 he announced that Phase 1 FID would be completed by June 2020 and first gas would be in 2021 !!! ;-)

SOU should always be judged by what they do, not what they say, as the two rarely match up.

... continued from previous post ...

16-Sep-2021 :-- The Group continues to seek to progress a farm out process for this [Sidi] permit

24-Mar-2022 :-- Strategically, the Company has shifted its focus on the Sidi Mokhtar area towards what it believes to be the potentially more significant opportunity of the deeper Triassic TAGI and Palaeozoic gas plays ... and is now actively seeking a farm-in partner to participate in a geophysical survey programme focused on these deeper objectives.

09-Aug-2022 :-- the Company announces that it has initiated a formal farm-out process for the Tendrara Production Concession and the surrounding Greater Tendrara and Anoual exploration permits and has appointed Gneiss Energy Limited, a leading energy corporate finance advisory firm, to manage the farm-out process.The objective of the area-wide farm-out is to seek a co-investing partner in each licence to both fund the expected balance of Phase 2 development costs and also to progress an exploration and appraisal drilling programme in the Greater Tendrara and Anoual exploration permit areas... Our re-evaluation of the potential of the Greater Tendrara and Anoual exploration permits has high-graded three drilling targets, two of which have previously encountered gas shows.

31-Oct-2022 :-- The objective of the area-wide farm-out is to seek a co-investing partner in each licence to both fund the expected balance of Phase 2 development costs ... and also to progress an exploration and appraisal drilling programme in the Grand Tendrara and Anoual exploration permit areas. The Company has received strong interest in the process from a wide range of credible and well-funded parties. Management presentations and data room evaluations are ongoing... Commenting, Garry Dempster (CFO) said: "Furthermore, I am encouraged by the strong level of interest in the ongoing farm-out process, from well-established and notable industry players."

22-Dec-2022 :-- We are now making good progress with our farm-out process to secure partner participation for our next exploration drilling campaign which will target near-field opportunities within the TAGI play in Eastern Morocco assets of Grand Tendrara and Anoual but also progress our seismic campaign in Essaouira Basin covered by Sidi Moktar.

13-Jun-2023 :-- The Company announced on 9 August 2022 that it had initiated a formal farm-out process to identify a partner for the Tendrara Production Concession and the surrounding Grand Tendrara and Anoual exploration permits. The Company is pleased to announce that it has now entered into exclusivity for a period of 45 days on the basis of an otherwise non-binding term sheet with Calvalley.

21-Sep-2023 :-- The Company continues to seek to progress a farm out process for this [Sidi] permit, offering an opportunity to a technically competent partner to acquire a material position in this large tract of prospective acreage.

SOU farmout announcements via RNS on the dates shown, featuring the amazing on-again-off-again SIDI farmout:

28-Mar-2017 :-- In early 2016, Sound acquired a 75% interest in the Sidi Moktar licences area in the Essaouira basin ... We have also agreed Heads of Terms to farmout a portion of the licence, de-risking the asset financially.

18-Apr-2017 :-- Given the Company's strong financial position, the Company also announces that it has decided not to proceed with the previously announced proposed farm out of Sidi Moktar, and to instead retain its 75% operated position in the Sidi Moktar licences.

14-Sep-2017 :-- ... we have drilled three complex wells safely, re-entered Sidi Moktar with gas flared to surface to fulfil the licence commitment, [and] secured a further US$27.5 million farm out of select Eastern Morocco licences to Schlumberger ...

05-Jun-2018 :-- Following receipt of the Ministerial Approval, completion of the above technical work and recent significant inbound third party interest, the Company has initiated a formal farm out process with the objective of funding the forward 2018 work programme at Sidi Moktar, whilst retaining operatorship.

13-Sep-2018 :-- In June we were delighted to receive Ministerial approval of a new 8 year Sidi Moktar Onshore Petroleum Agreement. The Company continues to progress a potential farm down, whilst retaining operatorship of the permits, ahead of further exploration operations in 2019.

11-Oct-2018 :-- s announced on 5 June 2018 the Company initiated a farm out process for the Sidi Moktar onshore licence with the objective of funding the forward work programme whilst retaining operatorship and has subsequently shared technical data with multiple potentially interested parties. As a result of this the Company is now in discussion with a few remaining parties and will update the market in due course.

19-Sep-2019 :-- the Company continues to pursue discussions for a potential farm-down of its interest ahead of the programme commencing.

23-Apr-2020: -- The Company continues to progress a farm out process for this permit, offering an opportunity to a technically competent partner to acquire a material position in this large tract of prospective acreage.

29-Jul-2020: Update to Partial Farm-down of Eastern Morocco ... The Company announces that it is no longer in discussions with the previously proposed purchaser but ... the Company continues to engage with multiple other potential farminees who have expressed interest in participating in the Company's strategy by way of a potential farm-in.

11-Sep-2020 :-- the Company continues to engage with other parties who have expressed interest in participating in the Company's strategy by way of a potential farm-in.

20-May-2021 :-- The Company continues to seek to progress a farm out process for this [Sidi] permit, offering an opportunity to a technically competent partner to acquire a material position

... continued in next post ...

Adam2911: "Ps 200306.. What utter rubbish you have posted...if you were so good .you should be director of the company.or better still a retried billionaire from trading shares. Why are uou wasting your time on lse share board on a Sunday...what's your real agenda.."

I *am* comfortably retired, thanks for asking. Not from trading shares though, I've never claimed any expertise in that (quite the opposite). I don't consider my time here wasted, again thanks for your concern. The fact that it rankles you means it's having some effect. You've been posting completely unfounded speculation month after month, and you have the gall to ask me about *MY* agenda? What's more you've insinuated that there is leaked information that you were privy to. So what's YOUR agenda? Mine is straightforward -- to warn the more naive posters here against the constant ramping by people like yourself. I attempt to glean whatever tidbits of information I can from actual published company material. If anyone points out errors in my position (like Fernan10 did just now) I acknowledge that and take it onboard immediately. How about you? -- with all the claims you made in the last several months about exciting news dropping "this week", how many times have you held up your hands and admitted you were talking through your back orifice?

Adam2911: "As we speak Graham is speaking to farm out partners. Listen to the q&a."

Maybe you don't have a sinister motive and are just completely naive. SOU have been trotting out that old chestnut for more than seven years. Since I work from factual information, I will dig you out the specific quotes.

Thanks Fernan10, I see that. Still not sure I understand the implications. Do Schlumberger forego a big chunk of their expected return just because SOU had to give away a 40% interest in order to get development moving?

Still not clear, though, what the situation is. SOU is giving Calvalley a 40% interest in the Tendara concession, but I'm not sure it counts as a "cash disposal" since they are being paid by way of Calvalley taking on some costs of development (and some other stuff). Yes, chances are SOU can refinance the debt once they have an income coming in.

Fernan10, you could be right. I'd be the first to admit I don't how the percentage due to Schlumberger changes if SOU assigns some of their equity to a third party like Calvalley after the fact. Does it mean Calvalley would have to pay their share of total net profits to Schlumberger? Yes, SOU could end up with 31% instead of 26%. I don't believe it materially affects the conclusion that -- if SOU only starts making revenue from Phase 1 in 2025 they won't make enough money to repay the bondholders by 2027 unless Phase 2 is also operating by then.

I don't believe 30p is possible, ever. It represents a market cap of £600m ($750). SOU only own 26% of the profits from Greater Tendrara, and that could be reduced by further dilution or the need to borrow more from Calvalley (at 1% of Tendara for every $1m). So even as it stands, Tendrara would have to be worth $3 billion.

The part of the TE-4 structure that has been drilled is not permeable so a new exploration well will be a shot in the dark. Even if successful, TE-4 only has GIIP of 40% of the existing discovery. And it is the only drill that is funded.

SOU do not have money for any more drilling. They won't have it after the Calvalley deal comes through (which begs the question why all the excessive ramping about that on here), and they won't have it after Phase 1 goes live. They will lose some or all of the Anoual and Sidi licenses if they don't find the farmout partner that they have failed to find for the past three years. They have already conceded part of Tendara. They won't have drilling money of their own until 2027 at the very earliest and even that assumes Phase 2 FID in the next few months. Without that, not only do they not have drilling money they can't even afford to pay back their bondholders by the due date.

Could there be a surge in SP in the shorter term? Unlikely, in my view, but there are enough nutters on this board that seem determined to remain oblivious to the known facts that they could cause a short term spike. But 30p? Graham would have to saddle up his flying pig, strap on a gradiometer and go solo prospecting over eastern Morocco at the speed of Santa Claus.

We may have an octogenerian running Sound Energy by the time it starts turning a net profit ;-)

"But T4 is interesting. Any speculation on how strategic it could be (depending on outcomes)? Is there any chance it could be a game changer if good results?"

TE-4 has much less than half the gas-in-place of TE-5, so not a game changer. The numbers are a simple multiplication of the volume of the resource and its porosity. It could materially add to reserves eventually. The value to SOU is already included in the SP Angel projections. Bear in mind that even TE-5 is still a contingent resource, not yet "proved and probable". But at least it can produce gas to surface under its own pressure, and more with stimulation. The existing TE-4 well drilled in 2006 did not flow gas to surface. What's more it encountered "pervasive cementation", the bane of SOU's exploration so far. A new well would rely on drilling the crest of the structure in the hope of finding a more permeable zone. It is definitely not a slam dunk.

Smudger, like tincan, my 1.8p prediction is also a temporary spike.