Sound Energy amends contract with Italfluid

The AIM-traded firm said good progress was continuing on the development, with construction of the LNG storage tank ongoing, and wellhead work undertaken.

Work on the storage tank included site preparation, excavation for the tank foundation, laying of the concrete base for the tank foundation, laying reinforcing bar, and installing the reinforced concrete columns on the base, of which there are 60 in total, each being four metres high.

Once complete, the tank would stand 24 metres high and be 22 metres in diameter.

Wellhead inspection and remedial well servicing work at TE-6, one of the first of two wells to be put on production in phase one, was also completed “safely” in September.

The amendment to the project contract, meanwhile, effected an approximately 7% reduction of the operating day rate of the plant by $3,000 to a revised $38,000 per day over its 10-year term.

Sound said the reduction in the operating day rate represented savings of $1.1m per year to the project, or $11m over the term.

Additionally, the parties agreed to exercise their best endeavours to execute an option agreement, under which Sound Energy would have the right, but not the obligation, to acquire the micro LNG facilities, or the entity owning and leasing the facilities, after five years of operation, for $9.15m - a reduction of $1.5m from the previous option-to-purchase sum agreed in principle.

In return for agreeing a reduced operating day rate, Sound said the contractor would be paid by the concession owners, being Sound Energy with a 75% working interest, additional staged payments of $6.5m in total during the construction phase.

That, Sound said, would provide it with the right to own the permanent on-site LNG storage tank facility once the plant was commissioned and LNG production started.

The staged payments, which would be intended to be borne pro rata by all of the Tendrara production concession joint venture partners, would be presented to the December Tendrara concession management committee meeting, with the initial payment likely to be advanced to the contractor in full by Sound Energy on behalf of its partners ahead of the meeting from proceeds of its existing project debt facility with Afriquia Gaz.

Sound Energy said the LNG storage tank would remain part of the operation and maintenance responsibility of the contractor over the life of the contract.

“We are working closely with the contractor to ensure the project remains on track to meet the joint venture's delivery obligations to Afriquia Gaz under the LNG sale and purchase agreement,” said executive chairman Graham Lyon.

“The restructuring of the payment structure under the project contract increases our alignment with Italfluid during the construction and commissioning phase whilst notably facilitating a valuable reduction in the operating day rate of the facility of some $1.1m per annum over the 10-year contract.

“Additionally, under the option-to-purchase agreement, which we expect to agree and execute in the coming weeks, the proposed reduction of the purchase price of the facility, or operating company, as the case may be, provides a valuable opportunity for Sound Energy to access additional value upside from the micro LNG development.”

At 1610 GMT, shares in Sound Energy were up 4.88% at 1.08p.

Reporting by Josh White for Sharecast.com.