Sound Energy Regulatory News (SOU)

20 February 2017

Sound Energy plc

("Sound Energy", the "Company" and together with its subsidiaries the "Group")

Proposed Acquisition Update

Sound Energy, the African and European focused upstream gas company, is pleased to announce, further to the Company's announcement of 19 January 2017, that it has entered into binding agreements with Oil & Gas Investment Fund S.A.S. ("OGIF") for the conditional acquisition by the Company of a further 20 per cent. interest in the Company's Tendrara exploration permits, rights to apply for a 75 per cent. operated interest in an exploration permit for the Meridja area (over which the Company had previously exercised an existing option to acquire a 55 per cent. operated interest, conditional on regulatory approval) and an application and/or rights to apply for a 75 per cent. position in certain relinquished area(s) of the Tendrara exploration permit areas (the "Acquisition").

The consideration for the Acquisition will be the issue, on completion, of 272,000,000 new ordinary shares in the Company (the "Consideration Shares"), the issue of which remains subject to Sound Energy shareholder approval at a general meeting of the Company ("General Meeting").

The Consideration Shares will represent approximately 28.8 per cent. of the Company's enlarged issued share capital following the issue of the Consideration Shares (assuming no further share issues prior to completion). At the mid-market closing price of 93.50 pence per Sound Energy ordinary share on 17 February 2017, being the last practicable date prior to this announcement, the Consideration Shares had an implied market value of approximately £254.3 million.

In connection with the Acquisition, the Company and OGIF have also entered into a relationship agreement which, from admission of the Consideration Shares, will regulate the ongoing relationship between OGIF and the Company to ensure that the Company is capable of carrying on its business independently of OGIF and to ensure that transactions and relationships between OGIF and the Company are at arm's length and on a commercial basis.

A circular containing details of the Acquisition and a notice convening a General Meeting for the purposes of seeking authority for the issue of the Consideration Shares (the "Circular") will shortly be posted to shareholders.

The Acquisition

Under the Acquisition, Sound Energy will acquire:

Tendrara

A further 20 per cent. interest in the Tendrara exploration permits. The Tendrara exploration permits are located onshore in Eastern Morocco and cover some 14,857 square kilometres. Conditional on, inter alia, shareholders passing the resolution at the General Meeting, Sound Energy will have an increased 75 per cent. operated interest in Tendrara on a gross basis, representing a 47.5 per cent. operated interest in Tendrara net of the Schlumberger net profit interest arising from the Schlumberger synthetic farm in announced on 29 December 2015. The remaining 25 per cent. interest in Tendrara is held by Morocco's Office National des Hydrocarbures et des Mines ("ONHYM").

Prior to completion of the Acquisition, and pursuant to the June 2015 Tendrara farm in agreement between OGIF and the Group, the Company was granted an initial 37.5 per cent. operated interest in December 2015, on receipt of Moroccan Ministerial approval. Following the drilling of TE-6, and in June 2016, the Group elected to apply for the first complementary period under the Tendrara exploration permits - which brought with it a commitment to a second well at Tendrara. Following the drilling of TE-7, the Company's second well at Tendrara, the Group's entitlement to a further 17.5 per cent. interest in Tendrara was crystallised. Legal transfer of that 17.5 per cent. interest in Tendrara to the Group remains subject to receipt by the Company of all Moroccan regulatory approvals and consents, including approvals and consents from the Moroccan Energy and Finance ministries and ONHYM, the receipt of which is a condition of the Acquisition.

Meridja

A 75 per cent. interest in a reconnaissance permit for the Meridja area and the accompanying rights to apply for the exploration permit. Meridja is adjacent to the Tendrara exploration permits, covers an area of 8,873 square kilometres and was previously subject to an option agreement between Sound Energy and OGIF under which Sound Energy was granted an option to acquire a 55 per cent. interest in Meridja (the "Meridja Option"). Sound Energy announced on 20 June 2016 that it had exercised the Meridja Option, subject to regulatory and other approvals, which remain outstanding.

Completion of the Acquisition will render it unnecessary to finalise the completion of the Meridja Option. The remaining 25 per cent. interest in Meridja will be held by ONHYM.

Relinquished Tendrara Area

The OGIF interests to be acquired under the Acquisition also include an existing application for and/or rights to apply for a 75% position in certain relinquished area(s) of the Tendrara exploration permits.

In accordance with the Moroccan Hydrocarbon Code, and consistent with all exploration permits in Morocco, the parties to the Tendrara exploration permits, being ONHYM, OGIF and Sound Energy Morocco SARL AU (a wholly owned affiliate of the Company), are required to relinquish a proportion of the Tendrara exploration permit areas over time subject to a maximum relinquishment of 50 per cent. of the exploration permits' acreage. The area to be relinquished is at the election of the parties to the Tendrara exploration permits (subject to regulatory consents) and the accrued Tendrara relinquishment requirement to date is approximately 5,100 square kilometres. The relinquishment requirement does not affect the Company's preliminary volume estimates for Tendrara and Meridja announced by Sound Energy on 1 February 2017. Completion of the Acquisition will result in the Company acquiring an OGIF application for and/or a right to apply for a 75% position in certain relinquished areas of Tendrara.

The Acquisition and the transfer of the 17.5 per cent. interest in Tendrara to be transferred to the Group is subject to the receipt by the Company of all Moroccan regulatory approvals and consents, including approvals and consents from the Moroccan Energy and Finance ministries and ONHYM.

The Relationship Agreement

In connection with the Acquisition, the Company and OGIF have entered into a relationship agreement (the "Relationship Agreement") which will regulate the ongoing relationship between OGIF and the Company to ensure that the Company is capable of carrying on its business independently of OGIF and to ensure that transactions and relationships between OGIF and the Company are at arm's length and on a commercial basis. Pursuant to the Relationship Agreement, conditional upon admission of the Consideration Shares, OGIF has also agreed:

● Not to dispose of any of the Consideration Shares for a period of twelve months from admission of the Consideration Shares; and

● Not to exceed 29.9 per cent. ownership of the Company or launch and/or trigger individually or by virtue or acting in concert with a third party a takeover offer for the Ordinary Shares not held by OGIF, other than in circumstances where OGIF has first obtained the recommendation of the Board (acting by a majority of the Independent Directors) for a period of 36 months from the date of admission of the Consideration Shares.

Under the Relationship Agreement, OGIF will be entitled to appoint one Non-Executive Director to the Board for so long as OGIF continues to hold more than 10 per cent. of the Company's issued ordinary shares. Furthermore, voting on the appointment and/or removal of any director of the Company other than the nominee of OGIF appointed to the Board shall be a matter for independent shareholders.

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