Sound Energy enters gas sale deal over Tendrara second phase

Morocco-focussed upstream gas company Sound Energy has entered into a binding gas sale and purchase agreement over the phase two development of the Tendrara Production Concession, it announced on Tuesday.

The AIM-traded firm said the agreement with Morocco's state-owned power company ONEE was for the sale of natural gas from Tendrara in eastern Morocco, over a 10-year period.

It said the agreement was in addition to the conditional phase one micro-liquified natural gas TE-5 Horst development-related gas sales agreement entered into with Afriquia Gaz, as announced on 29 July, alongside its state-owned Tendrara Production Concession partner ONHYM.

Under the gas sales agreement, the Tendrara joint venture partners had conditionally committed to producing, processing and delivering gas from Tendrara in accordance with required ONEE gas specifications, to the Gas Maghreb-Europe pipeline connecting Algeria to Spain and crossing Morocco.

It would be for an annual contractual volume up to 350 million cubic metres of natural gas per year for 10 years, with an annual take-or-pay volume of 300 million cubic metres.

The company said the agreement included a fixed unitary price for the annual volume of 0.3 billion cubic metres per annum, which would result in annual gross revenues attributable to the Tendrara concession as envisaged in the original binding memorandum of understanding between the parties in October 2019.

Sound Energy said the gas sales agreement remained conditional upon all authorisations and permits being granted for the construction of the phase two gas installations, and the final investment decision, when taken by the Tendrara joint venture partners being approved by the Moroccan Ministries of Transition Energy and Sustainable Development and Economy and Finance.

It was also conditional on the entry by the Tendrara partners of an interconnection agreement with the operator of the GME pipeline, and the start of works for the connection of the Tendrara production concession to the pipeline.

The conditions to the gas sales agreement were required to be satisfied within 90 days of signature, although an extension would be allowed with the consent of all parties.

“The agreement of the GSA is an important and long-awaited step which will allow the company to progress development planning for the proposed TE-5 Horst Phase 2 development,” said executive chairman Graham Lyon.

“It also underpins the ongoing discussions with potential and identified funding partners.

“These potential partners have expressed strong interest in participation in the proposed regional infrastructure and asset development via vendor financing, equity participation and alternate lending solutions, in order to build the long-term domestic infrastructure and gas supply in and for Morocco.”

Lyon said satisfying the conditions precedent within a tight 90-day timetable would be “challenging”, but noted that all parties had expressed support to conclude with financiers.

“We are delighted with this confirmation that the UK-Morocco, ONHYM and Sound Energy partnership is working well, and such a business partnership can enhance, with the strong support of our shareholders and our local partners, the expected 5.7% economic growth of Morocco despite the Covid-19 pandemic.”

At 1508 GMT, shares in Sound Energy were up 7.69% at 1.4p.