Sound Energy shares slide as sale talks fall out of exclusivity

Morocco-focussed upstream gas company Sound Energy updated the market on the proposed sale of a “substantial portion” of its interest in the Eastern Morocco Portfolio on Monday.

The AIM-traded firm had entered into non-binding heads of terms with a privately-owned UK-registered company specialising in energy asset development and investment in relation to the proposed sale in November.

Under those heads of terms, the company granted the purchaser an exclusivity period expiring on 14 February to complete due diligence on the portfolio, and to finalise a binding sale and purchase agreement for the transaction.

It announced on Monday that, while the purchaser had confirmed the satisfactory conclusion of its technical and commercial due diligence, it had not yet demonstrated to Sound’s satisfaction the proof of funds required in order to advance the proposed transaction, and nor had a sale and purchase agreement been finalised.

As a result, discussions were continuing with the purchaser, but those discussions were no longer exclusive and the board said there could be no certainty that the proposed transaction would proceed or successfully conclude.

It said that, while the firm had continued to pursue the full field development plan underpinning the Tendrara Production Concession award, centred around a 120 kilometre pipeline infrastructure, as it announced on 6 September 2018, it now planned to prioritise early first cash flows from the concession.

As a result, it planned to pursue a micro liquified natural gas (LNG) production plan for the TE-5 Horst field within the concession, ahead of the full field development plan being implemented.

Sound said the implementation of the micro LNG production plan would require, among other things, the agreement of the firm’s joint venture partners in the concession.

The company would thus seek to advance development of the TE-5 Horst field through an “innovative, fast-track, cost efficient” micro LNG scheme targeting first gas delivery during 2021.

The proposed micro LNG production plan, which would be advanced alongside work streams related to the full field development plan, including ongoing negotiations with Morocco's Office National de l'Electricité et de l'Eau Potable in relation to a gas sales agreement and discussions in relation to full plan funding solutions, would involve the processing and liquification of the gas produced at the field, with the resulting LNG being transported to industrial customer sites in Morocco.

That micro LNG production plan for the TE-5 Horst was viewed by the board as an attractive route to generating early cash flows from the concession.

The directors said the larger full pipeline led development plan could then be added to that initial plan at a later date, given the “inherently longer” timescales involved in its implementation.

Sound Energy said it was in discussions with industrial customers and distributors in Morocco regarding the long-term offtake of LNG from the concession, and negotiations with equipment providers and potential funding partners for the micro LNG production plant were said to be in progress.

Subject to the company's joint venture partners in the concession agreeing to the micro LNG production plan, it said it expected that it would be in a position to take a final investment decision on this development solution during the second quarter of 2020, which would enable first LNG delivery during 2021.

As at 31 January, the firm had unaudited cash balances of around $7.3m, and the company said it expected that its existing cash resources were sufficient to meet its working capital requirements through to a micro LNG production plan final investment decision before the end of the second quarter.

“While discussions with the potential purchaser continue, the board has been active in considering and refining in parallel other options to monetise its asset at Tendrara,” said acting chief executive officer Mohammed Seghiri.

“We continue to believe that we have a valuable position in the Moroccan energy sector encompassing a significant discovery in Tendrara with exciting additional exploration upside potential.

“The micro LNG development plan has been identified as an initial and rapid development strategy to prioritise early monetisation of the existing gas discovery, which can in turn facilitate a larger ultimate development. I look forward to reporting further on our progress in due course.”

At 1540 GMT, shares in Sound Energy were down 22.03% at 1.71p.