Sound Energy PLC Final Results (5253I)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Sound Energy Plc	LSE:SOU	London	Ordinary Share	GB00B90XFF12	ORD 1P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	0.78	0.702	0.85				0.00	08:05:24

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Crude Petroleum & Natural Gs	0	4.97M	0.0026	3.00	14.94M

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TIDMSOU

RNS Number : 5253I

Sound Energy PLC

22 March 2018

SOUND ENERGY PLC

("Sound Energy" or the "Company")

Sound Energy, the Moroccan focused upstream oil and gas company, announces its audited final results for the year ended 31 December 2017.

highlights

Morocco

   --     Successful TE-7 extended well test 
   --     Acquisition of Oil & Gas Investment Fund's interests in Eastern Morocco 
   --     US$27.2 million Schlumberger carried seismic programme 
   --     Paleozoic play opening TE-8 well

-- Continued preparation for next exploration drilling, including ongoing 2D seismic acquisition and aerial gradiometry

Corporate

   --     Cash balance at 31 December 2017 of GBP21.2 million 
   --     Strong safety record 
   --     Disposal of Italian interests in progress 
   --     Appointment of new Chief Financial Officer

For further information please contact:

 
 Vigo Communications - PR Adviser           Tel: +44 (0)20 7830 9700 
  Patrick d'Ancona 
  Chris McMahon 
  Kate Rogucheva 
  Sound Energy                               j.parsons@soundenergyplc.com 
   James Parsons, Chief Executive Officer 
 Smith & Williamson - Nominated Adviser     Tel: +44 (0)20 7131 4000 
  Azhic Basirov 
  David Jones 
  Ben Jeynes 
 RBC - Joint Broker                         Tel: +44 (0)20 7653 4000 
  Matthew Coakes 
  Martin Copeland 
  Laura White 
  Macquarie Capital (Europe) Limited         Tel: +44 (0)20 3037 2000 
   - Joint Broker 
   Alex Reynolds 
   Nick Stamp

Statement from the Chairman and Chief Executive Officer

2017 was a busy year for Sound Energy with a successful extended well test on TE-7, the acquisition of Oil & Gas Investment Fund's ("OGIF") interests in Morocco, two material exploration wells drilled safely, a further Schlumberger investment in Eastern Morocco and significant progress on a fully carried seismic programme.

Morocco Portfolio and Schlumberger Field Management Agreement ("FMA")

During 2017, the Company built on its early success in Tendrara with the acquisition from OGIF of a further 27.5% interest in Tendrara and a 75% interest in both the Anoual exploration permit and the Matarka reconnaissance licence.

The Company granted a 27.5% working interest in the Anoual permit and the Matarka reconnaissance (subject to definitive agreements) to Schlumberger. This has enabled a fully funded material seismic programme which we believe will prove to be critical in de-risking the forthcoming exploration drill programme.

Tendrara

During the period, the Company completed a successful extended well test on TE-7 and drilled a third well, TE-8, which was largely funded by Schlumberger under its carried arrangement. Drilling was completed in May 2017 and despite tighter TAGI sands than in TE-6 and TE-7, this well established the westward extension of the primary hydrocarbon system proven in Algeria into Morocco.

Building on the outstanding TE-6 and TE-7 well results in 2016 and 2017, the Company is progressing with the development of its existing discovery. As outlined in our recent resource certification, the discovery has a gross (100%) mid-case unrisked gas originally in place ("GOIP") of 651 Bcf with an 873 Bcf upside case and a 349 Bcf downside case. The Company intends to sign a Gas Sales Agreement, secure development funding and apply for a concession, all during 2018.

Seismic Programme

The Company continues to progress its 2,900 km 2D seismic programme which is now already more than 47% complete. The objective of the seismic is to de-risk the forthcoming three well exploration programme and provide line of sight on the potential of the province. The US$ 27.2 million cost of the programme is fully funded by Schlumberger.

Sidi Moktar

During 2017, the Company completed its licence obligations with a positive re-entry and work over of the Koba-1 well. Sound has recently received, subject to Ministerial approval, a new eight year exploration permit and is looking forward to further drilling in 2019 once a seismic programme is complete.

Italy

Following the safe but unsuccessful drilling of the Badile well in Italy, an agreement was signed with Saffron Energy PLC to divest of the Company's Italian portfolio. It is anticipated that this transaction will complete in early April 2018. The consideration shares in Saffron Energy PLC are to be distributed directly to Sound shareholders on the register on 26 March 2018.

Corporate

The Company remains in a solid financial position as it enters 2018. Funding through the Schlumberger seismic carry, and cash balance of GBP21.2 million as at 31 December 2017 will support the forthcoming exploration well programme. We continue to work with strategic partners to technically and financially de-risk our portfolio.

During 2017, we also continued to broaden and deepen the team and we were delighted to welcome JJ Traynor to the Company (and soon to the Board) as Chief Financial Officer.

Summary

The Company continues to believe that the TAGI and Paleozoic plays across Tendrara, Anoual and Matarka have the potential to become a material hydrocarbon province on a regional scale and therefore transform both Sound Energy and the Moroccan gas industry.

Unlocking such a province requires time and technical skill and none of this would be possible without the efforts of our people, our shareholders and other stakeholders.

We remain hugely excited about our future and look forward to success together.

Richard Liddell

Chairman

James Parsons

Chief Executive Officer

operational review

Overview of the Operational Performance for the Year

2017 was a busy year for Sound Energy in Morocco.

Wells Programme

Two challenging wells were safely delivered in the year, Moirago-1 at Badile in Italy and the TE-8 step out well at Tendrara in Morocco. The Italian well was ultimately unsuccessful with insufficient hydrocarbon shows. The TE-8 step out well completed drilling in May 2017 and despite lower quality TAGI sands than in the previous wells, is the first well to establish significant gas shows with a Westphalian aged sequence.

Sidi Moktar

During 2017, the Company completed the licence obligations with a positive re-entry and work over of the Koba-1 well. Sound Energy has, subject to final approvals, recently received the exploration permit for the next phase on the licence and is looking forward to progressing the work programme in this area in late 2018 onwards.

Seismic

2017 saw Sound Energy commence its geophysical programme in Eastern Morocco. The coverage of all the 22,800km(2) of the licences with flown Gravity Gradiometry, Magnetics and LiDAR data was completed during Q4 and augmented with detailed satellite imagery. The proposed 2,900km of 2D seismic was commenced in October and the phase 1 lines completed in early December. In total, 598km were acquired in 2017. In addition to this operational programme, the Company has completed reprocessing of the existing 522km(2) of 3D seismic data across the TE-5 Horst discovery and an integrated programme of geological studies including commissioning new petrographic, geochemical, chemostratigraphic and biostratigraphic analyses of the new and historical well data.

TE-5 Horst Development

Good progress has been made on the development project, including the resource certification issued in January 2018. Key forward steps include the contracting, engineering and financing which are progressing as well as offtake and other related commercial agreements. The Company intends to apply for the concession in 2018 with final sanction estimated for later in the year.

The Company's HSE record has been strong with only one LTI (Lost Time Incident) during the year.

EASTERN Morocco

Permit Area

   --     Figuig Province, North-East Morocco 
   --     120km from Gazoduc Maghreb Europe (GME) pipeline (connecting Algeria and Morocco to the Spanish/Portuguese gas grids) 
   --     Sub-divided into eight blocks

Geology

Represents a continuity of the Algerian Triassic Province and Saharan Hercynian platform. Same tectono-sedimentary as the evolution in the Algeria Basins.

Partnerships

-- Sound Energy farmed in to the Tendrara licence in June 2015, taking a 55% working interest in the licence, partnering L'Office National des Hydrocarbures et des Mines ("ONHYM") (25% interest) and OGIF (20% interest) and assuming Operatorship

-- In December 2015, Sound Energy entered into a Field Management Agreement ("FMA") with Schlumberger. Schlumberger agreed to fund a significant portion of the capital expenditure on the first three Tendrara wells and provide technical services, equipment, personnel to Sound Energy as Operator in exchange for an upside linked to production performance

-- In February 2017, Sound Energy entered into binding agreements with OGIF for the conditional acquisition by the Company of a further 20% interest in the Company's Tendrara-Lakbir permits and a 75% position in Matarka (relinquished area of the Tendrara exploration area) and in Anoual permits (ex Meridja reconnaissance licence converted in permits). These agreements were approved by Sound Energy shareholders at a general meeting in March 2017

-- In April 2017, Sound Energy and Schlumberger expanded their partnership to the Matarka reconnaissance licence and Anoual permits

-- In September 2017, after the completion of all the conditions precedent-related to February 2017's binding agreements, OGIF became a substantial shareholder of the Company.

Main Results

-- TE-8 proved, 12km to the Northeast of TE-7, the presence of a TAGI sand sequence, commencing at a measured depth of 2,643 metres. It penetrated 114 metres of TAGI I (approximately twice the thickness of the TAGI I reservoir encountered in wells on the TE-5 Horst) with gas shows. The TAGI sands encountered by TE-8 are also interpreted to be at the same reservoir pressure as the previous wells on the TE-5 Horst (TE-5, TE-6 and TE-7)

-- TE-8 was drilled some 359 metres into the Paleozoic and identified the full series of Westphalian stratigraphy including sandstones (between 2,762 metres through to 3,120 metres), which are one of the producing horizons in neighbouring Algeria. The sandstones are interpreted to lie in a separate pressure regime to the overlying TAGI play beneath the TE-5 Horst and the Lakbir High. Gas shows were encountered over this interval and subsequent petrophysical analysis suggests that these sandstones may be permeable and likely to be producible with mechanical stimulation

-- Sound Energy completed the first phase of the 2D seismic and magneto-telluric acquisition in Eastern Morocco during 2017.

Future Focus

-- The second phase of the 2D seismic acquisition campaign is underway and should be completed during summer 2018

-- Further wells targeting the Paleozoic on the Tendrara permit are being planned in 2018. The 'A' Structure is expected to be the first target at TAGI level

SOUTHERN MOROCCO

Sidi Moktar

The Geology and Activity History

There are four Exploration plays within the Sidi Moktar permit:

-- PS1 Argovian (sandy dolomite) which has given rise to five discoveries (Jeer, Kechoula, Sidi Rhalem, Toukimt and N'Dark);

   --     PS2 Low Liassic (sandstone) which has given rise to two discoveries (Zelten and Kechoula); 
   --     PS3 Triassic (TAGI equivalent) which has given rise to one discovery (Meskala); and

-- PS4 Paleozoic Devonian carbonates which remain frontier exploration, gas shows present in penetrations beneath the Meskala field with one well testing gas.

Essaouira Basin history

-- Historically, 84 wells have been drilled in the Essaouira Basin with discoveries in the lower Liassic and Triassic having the highest discovery ratio. Additionally, 7,000 km of seismic have been acquired since the late 1950s.

1950s and 1960s

-- Exploration in the basin began in the 1950s resulting in the discovery of two small gas fields (Kechoula in 1957 and Jeer in 1958) and one oilfield (Sidi Rhalem in 1961).

1970s

-- By 1970, 35 onshore wells and one offshore well had been drilled, of which 12 were classed as appraisal/development. From 1974 to 1980, a further 13 wells were drilled with the aid of multi-fold 2D seismic resulting in three further discoveries at Toukimt (1976), N'Dark (1976) and Meskala (1977).

1980s

-- The development of the Meskala field gave rise to the discovery of gas-condensate in Triassic clastics at 3,500m and a DST yielded a flow rate of 12 MMscf/d. Between 1980 and 1987 a further 28 wells were drilled including nine development wells at Meskala, two of which were the deepest stratigraphic tests in the basin (4.3km), proving the possibility of Ordovician sands as a second potential Paleozoic target.

Most recent history

-- In 2009, Magreb Petroleum Exploration (MPE) signed a Petroleum Agreement with ONHYM to secure a 75% interest in the Sidi Moktar North, South and West licences, the remaining 25% being held by ONHYM (the Moroccan NOC). MPE subsequently farmed out a 50% working interest operated position to Petromaroc (formerly Longreach) in exchange for a full carry to first commercial gas. During the course of 2013 and 2014, Petromaroc drilled two wells which both had gas shows but which were never completed and tested. In January 2016, Sound Energy secured and retained MPE's 25% carried interest in the licence and in March 2016 secured Petromaroc's 50%.

Italy

Badile

Moirago-1

The exploration well Moirago-1 was located 20 km south of Milan and was spudded on the 7(th) March 2017, by the drilling contractor Pergemine S.p.A. The project was successfully executed with no Lost Time Incidents (LTIs) and no recordable injuries.

The objective of the well was to target the Badile prospect. The prognosed reservoir in Badile was the Lower Jurassic aged Conchodon Dolomite formation. The Conchodon dolomite reservoir was successfully reached, was proven to be permeable and displayed significant gas shows during drilling. Subsequent data, however, proved that any potential gas accumulation was sub-commercial, and as such the well was plugged and abandoned on the 26(th) July 2017. The well reached a final TD of 4473m MD (4406m TVD).

Saffron Deal

Sound Energy plc entered on 5 October into non-binding conditional heads of terms with Saffron Energy PLC, based on which Sound Energy plc proposes to dispose its portfolio of Italian interests and permits through the sale of Apennine Energy SpA ("APN") and its Holding Company, Sound Energy Holding Italy Limited to Saffron Energy PLC. The SPA was signed on 22 January 2018 and the deal is expected to complete in April 2018.

FINANCIAL review

Our commitment to unlocking Moroccan gas was demonstrated by the issue of 272 million shares valued at GBP138.8 million for the acquisition of OGIF's interests in Tendrara, Anoual and Matarka licences, increasing our investment in Morocco.

Income Statement

The Group's operations in Italy were classified as discontinued operations following the entering of an agreement between the Company and Saffron Energy Plc for the divestment of the Company's Italian licences. The loss from discontinued operations increased to GBP21.8 million (2016: GBP8.7 million) primarily due to an impairment charge of approximately GBP19.0 million attributable to the Badile licence following sub-commercial well results.

The loss for the year before tax from continuing operations was GBP12.3 million (2016: GBP4.7 million). Administrative costs increased by GBP4.3 million to GBP8.5 million (2016: GBP4.2 million) reflecting the growth of the business with increased activities

in Morocco.

Foreign exchange gains and losses primarily related to intra-Group loans and Euro denominated borrowings.

As part of the acquisition of the Sidi Moktar licences, onshore Morocco, an agreement was entered with PetroMaroc and provides that, if the shares of the Company which were issued as part of the consideration for the acquisition, are sold, the realised proceeds for any share price achieved above 50 pence to be shared equally between the Company and PetroMaroc. The loss on the derivative financial instruments of GBP1.9 million (2016: GBP0.6 million gain) arose from this arrangement and reflects the change in the share price during the year.

Cash Flow/Financing

During 2017, warrants and share options exercises raised approximately GBP11.6 million (2016: GBP15.9 million). Net proceeds from equity issued in 2016 also included GBP24.3 million that had been raised through an underwritten offer.

The financing costs were GBP1.1 million (2016: GBP3.7 million) primarily due to amortised costs of the bonds, net of interest capitalised to the exploration licences of GBP1.6 million (2016: GBP1.5 million). Financing costs in 2016 included accelerated amortisation of issue costs on refinancing of the debt.

The Group spent GBP24.0 million (2016: GBP11.8 million) on investing activities during 2017, which largely consisted of the Badile licence's Moirago-1 well, Tendrara TE-8 exploration well and re-entry of Koba-1 well at the Sidi Moktar licence in Morocco. 2016 capital expenditure was primarily for TE-6 and TE-7 wells in the Tendrara licence.

Balance Sheet

Additions to the intangible assets included consideration paid for the acquisition of OGIF's interests in Tendrara, Anoual and Matraka licences in Morocco. The consideration included the issue of 272.0 million shares valued at GBP138.8 million at the time of the acquisition. Additions also included expenditure on drilling Moirago-1 well at Badile, TE-8 well at Tendrara licence and re-entry of Koba-1 well at Sidi Moktar licence.

Other receivables amounting to GBP3.5 million (2015: GBP8.8 million) primarily related to receivables from our partners in the Tendrara licence.

Assets of the Disposal Group held for sale related to the Italian operations and primarily included intangible assets, Badile land and VAT receivable.

Trade and other payables amounting to GBP6.6 million (2016: GBP12.6 million) primarily related to payables and accruals for the operations in the Group's licences in Morocco, where the Group, as operator, recognises 100% of the liability and receives funds from partners to pay the partners' share.

Liabilities of Disposal Group held for sale related to the Italian operations and primarily included trade and other payables and provision for decommissioning of licences.

Accounting Standards

The Group has reported its 2017 and 2016 full year accounts under International Financial Reporting Standards (IFRS), as adopted by the European Union.

Going Concern

The Directors have reviewed the forward cash flow projections for the Group for the foreseeable future, being at least the next 12 months from the date of this report, which show that the Group has sufficient financial resources to undertake its committed work programme, and thus the Directors have concluded that the Group is a going concern.

Consolidated Statement Of Comprehensive Income