29 November 2022

Sound Energy plc

("Sound Energy" and its group company subsidiaries collectively the "Company") 

Micro LNG Development Progress and Amendment of Italfluid Project Contract

Sound Energy, the energy transition company, is pleased to provide a progress update on its Phase 1 micro LNG development and announce an amendment to the project contract (the "Project Contract") entered into between Italfluid Geoenergy S.r.l. (the "Contractor") and Sound Energy's wholly owned subsidiary, Sound Energy Morocco East Limited ("SEMEL" and together with the Contractor, the "Parties"), in respect of the design, procurement, construction, operation and maintenance of Tendrara Concession micro LNG facilities onshore Morocco. The Contractor was previously provided with 'Notice to Proceed' under the Project Contract, as confirmed by the Company on 16 February 2022.

Phase 1, Micro LNG Development: Progress Update

Good progress continues to be made on the Company's Phase 1 micro LNG development, with construction of the LNG storage tank ongoing and wellhead work undertaken. Work on the LNG storage tank has included site preparation, excavation for the tank foundation, laying 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 and each 4m high. Once complete, the tank will stand 24m high and be 22m 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 1, was also completed safely in September.

Project Contract Amendment

The amendment to the Project Contract effects a reduction of the operating day rate of the plant by US$3,000 to a revised US$38,000 per day over its 10-year term, an approximate 7% reduction. The reduction in the operating day rate represents savings of US$1.1 million per year to the project, and US$11 million over the 10-year term. Additionally, the Parties have agreed to exercise their best endeavours to execute an option agreement under which the Company will 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 a sum of c.US$9.15 million, a reduction of US$1.5 million from the previous "option to purchase" sum agreed in principle between the Parties.

In return for the Contractor agreeing a reduction in the operating day rate under the Project Contract, the Contractor will be paid by the Concession owners (Sound Energy, 75% working interest) additional staged payments of an aggregate of US$6.5 million during the construction phase, in doing so providing the Company with the right to own the permanent on-site LNG storage tank facility once the plant is commissioned and LNG production starts. These staged payments, which are intended to be borne pro rata by all of the Tendrara Production Concession JV partners, will be presented to the December Tendrara Concession Management Committee Meeting (the "TMCM"), with the initial payment likely to be advanced to the Contractor in full by the Company on behalf of the JV partners ahead of the TMCM from proceeds of the Company's existing project debt facility which is in place with Afriquia Gaz S.A. The LNG storage tank will remain part of the Operation and Maintenance responsibility of the Contractor over the life of the Project Contract.

Graham Lyon, Sound Energy's Executive Chairman, commented:

"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. 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 US$1.1 million 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."

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The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.