Sound Energy Regulatory News (SOU)

7 June 2018

Sound Energy plc

("Sound Energy" or the "Company")

 Eastern Morocco: FEED Award and Heads of Terms for 20 inch Pipeline and Production Facilities

Sound Energy, the Moroccan focused upstream gas company, is delighted to announce signature of heads of terms with a consortium comprising Enagas, Elecnor and Fomento (the "Consortium") for the front end engineering and design ("FEED") and conditional construction and financing of all the infrastructure required, including a 20 inch pipeline and facilities, to commercialise the Company's existing gas discovery in Eastern Morocco.

Following a competitive process and negotiation, the Consortium has been awarded the FEED and exclusivity to finalise the funding, construction and operation for both a 20 inch pipeline and the central processing facility under a 'build-own-operate-transfer' ("BOOT") structure.

Sound Energy's CEO James Parsons commented:

"This is a hugely important milestone for our Company and I am delighted that Sound Energy is playing such a pivotal role in unlocking the first significant scale indigenous gas production in Morocco.

For Sound Energy and its shareholders, this innovative BOOT structure means that the Company is now firmly on the pathway to commercialising our existing and future gas resources in Eastern Morocco, all without additional equity dilution."

The Consortium will shortly begin front end engineering and design ("FEED") on a gas processing plant and a 20 inch gas pipeline intended to deliver an estimated 60 mmscf/d of gas to the Gas Maghreb-Europe pipeline system, some 120km away (the "Project").

In parallel with the FEED, the Consortium will finalise plans to secure access to some US$184 million of development capital that will be required to fund the Project.

Subject to the completion of FEED, and conclusion of a final BOOT contract with associated debt funding put in place, the Consortium will be responsible for the construction of the Project and for its operation for a period of 15 years. In exchange, Sound Energy and its partners will pay an annual fee to the Consortium with effect from the commencement of commercial gas production. The fee payable by the Company will be agreed post FEED but will be subject to an open book target fee calculated by reference to a target internal rate of return for the Consortium and to a 'not to exceed' fee of US$45 million per annum. At the end of a 15 year operating period, and subject to a possible extension by the parties, the ownership of the Project facilities will be transferred to Sound Energy and its partners, or to another entity appointed by the partnership, at no cost.

FEED is expected to last for some six months, following which the Company will be in a position to take the Final Investment Decision ("FID").

Upon signature of the BOOT contract, Sound Energy and its partners expect to pay a success fee to Advisory & Finance Group Investment Bank, the Company's advisor in Morocco.

The Consortium has agreed to pay Sound Energy a break fee of US$1.5 million, and to provide Sound Energy and its partners with the FEED at cost, in the event that the BOOT contract is not concluded to the Consortium's satisfaction. Sound Energy and its partners have agreed to buy out the FEED from the Consortium for US$2.2 million, should the Company elect not to proceed with the Consortium.

Today's heads of agreement is subject to approvals of the Company's partners. The final BOOT contract will be subject to both parties Board and regulatory approvals.

Further announcements will be made, as appropriate, in due course.

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

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mmscf/d means million standard cubic feet of gas per day.