Sound Energy Regulatory News (SOU)

5 October 2017

Sound Energy plc

("Sound Energy" or the "Company")

Heads of Terms

Creation of Coro Energy plc through the combination of Sound Energy Italy with Po Valley Energy Ltd and Saffron Energy plc

Sound Energy, the African and Italian upstream gas company, notes the announcement made this morning by Saffron Energy plc ("Saffron") and is pleased to announce that it has entered into non-binding conditional heads of terms (the "Heads of Terms") with Saffron and Po Valley Energy Limited ("Po Valley") under which it is proposed that Sound Energy disposes of its portfolio of Italian interests and permits (the "Italian Interests") through the sale of Sound Energy's wholly owned subsidiaries Appenine Energy SpA ("APN") and its holding company Sound Energy Holdings Italy Limited ("SEHIL") to AIM quoted Saffron (the "Disposal"). It is intended that the Saffron shares received as consideration for the Disposal will be distributed directly to Sound Energy shareholders.

Commenting on today's announcement, Sound Energy's Chief Executive Officer James Parsons said:

"This transaction will provide an elegant exit from our Italian activities thereby delivering strategic focus for our province opening activities in Morocco and enabling Sound Energy shareholders the opportunity to continue their participation in an early stage consolidated but growth focused Italian E&P company."

The Disposal, together with the grant by ASX listed Po Valley to Saffron of a call option to acquire all of the issued share capital of Po Valley's wholly owned subsidiary Po Valley Operations Limited (the "PVO Option"), will result in the combination of the Italian oil and gas portfolios of Sound Energy, Saffron and Po Valley (the "Proposed Transaction"). Po Valley is currently interested in 53.8 per cent. of Saffron's issued ordinary share capital.

The enlarged company would be re-named Coro Energy plc ("Coro").

James Parsons, Sound Energy's Chief Executive Officer, would be appointed as Non-Executive Chairman of Coro as part of the Proposed Transaction and Sara Edmonson, Po Valley's Chief Executive Officer, would assume the role of Chief Executive Officer of Coro. Key local executive staff from each of Saffron, Po Valley and the Company would be retained by Coro to drive the business forward.

The consideration for the Disposal, which remains subject to, inter alia, contract, would be fully satisfied through the issue of 185,907,500 new ordinary shares in Saffron (the "Consideration Shares").

The consideration payable by Saffron on exercise of the PVO option would be settled through the issue to Po Valley by Saffron of 185,907,500 new ordinary shares in Saffron (the "PVO Option Shares").

The Consideration Shares, which would represent 50.0 per cent. of Saffron's enlarged issued ordinary share capital following completion of the Disposal and 33.3 per cent. of Saffron's enlarged issued ordinary share capital should Saffron exercise the PVO Option, would be distributed to Sound Energy shareholders through a scheme of arrangement.

Under the Disposal, Sound Energy would agree to dispose of 100 per cent. of the issued ordinary share capital of SEHIL, the Company's wholly owned subsidiary which holds all of the Company's Italian Interests through APN, but would retain its economic rights to receive the proceeds of the sale of Badile land owned by APN (the "Badile Land"), which had an unaudited carrying value of £1.6 million as at 30 June 2017, and the benefit of expected APN Italian VAT receivables to the end of 2017 totalling EUR4.0 million linked to Badile drilling costs (the "VAT"). Under the Disposal, Saffron would undertake to remit the net proceeds of the Badile Land and the VAT to Sound Energy on receipt by APN.

As at 30 June 2017 APN had unaudited total assets of £11.0 million inclusive of the Badile Land and the VAT. APN generated revenues of £0.8 million and a loss before tax of £4.9 million in the year ended 31 December 2016 and unaudited revenues of £0.4 million and an unaudited loss before tax of £14.5 million in the six months ended 30 June 2017.

Whilst the Heads of Terms are conditional and subject to contract, Sound Energy has agreed under the Heads of Terms to bear 50 per cent. of Saffron's costs relating to the Proposed Transaction in the event that the Proposed Transaction do not proceed for any reason.

Under the Proposed Transaction, Saffron would also issue James Parsons, in his capacity as non-executive chairman of Saffron, with warrants to subscribe for 10 million new ordinary shares in Saffron at a price of 4.38 pence per new Saffron ordinary share, being the closing mid-market price per Saffron ordinary share on 4 October 2017.

The Proposed Transaction is expected to require Saffron and Po Valley shareholder approval and entry by Sound Energy into binding agreements to effect the Disposal and the Proposed Transaction would amount to a related party transaction for Sound Energy under Rule 13 of the AIM Rules for Companies. Further announcements will be made, as appropriate, in due course.

This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

For further information please contact:

Further information on Saffron and on Po Valley can be found on their websites at www.saffronenergy.co.uk and www.povalley.com respectively.