Tendrara: Phase 1 Development Update

23 December 2020

Sound Energy plc

("Sound Energy" or the "Company" and together with its subsidiaries the "Group")

Phase 1 Development - Letter of Exclusivity and Extension of LNG Heads of Terms

Sound Energy, the Moroccan focused upstream gas company, is pleased to provide the following update in relation to the Company's proposed micro liquefied natural gas ("mLNG") phase 1 development project for the TE-5 Horst (the "Phase 1 Development") at the Tendrara Production Concession (the "Concession").

Letter of Exclusivity

The Company is delighted to announce that Sound Energy Morocco East Limited ("SEMEL"), the Company's wholly owned subsidiary, has entered into a letter of exclusivity (the "LoE") with Italfluid Geoenergy S.r.l. ("Italfluid") pursuant to which the parties have agreed to use their reasonable endeavours to negotiate and enter into a binding project contract (the "Project Contract") which will on entry commit Italfluid to design, construct, commission, operate, maintain and let to SEMEL a mLNG Plant (the "mLNG Plant") which can produce LNG. The mLNG Plant, which will also treat and process raw gas from the Phase 1 Development prior to liquefaction, is a substantial part of the surface facilities required to be built and operated as part of the Phase 1 Development.

Under the LoE, the Group has granted a period of exclusivity to Italfluid until 31 March 2021 during which time the parties have agreed to use their reasonable endeavours to seek to conclude and enter into the Project Contract on the basis of key commercial terms set out under the LoE ("Proposed Transaction") and as summarised below:

a.    The mLNG Plant shall be designed, constructed, commissioned, operated and maintained by Italfluid for SEMEL in consideration for the Initial Payments and the Daily Rental Payments.

b.    The term of the Project Contract shall be five (5) years (the "Initial Period").

c.    An initial Payment of five million US Dollars (US$5,000,000) due from SEMEL to Italfluid within 30 days of issuance of the notice to proceed with the Phase 1 Development and two million US Dollars (US$2,000,000) due from SEMEL to Italfluid within 30 days of notification from the SEMEL to Italfluid of the successful commissioning (including production build-up) of the mLNG Plant.

d.    During each day of each contract year in which Italfluid has evidenced to the satisfaction of SEMEL, that the mLNG Plant can deliver a guaranteed daily volume, a daily rental payment of thirty-six thousand US Dollars (US$36,000) per day shall be payable to Italfluid from SEMEL.

The Company cautions that whilst the LoE is binding during its term in the grant of Exclusivity and in its recording of the commitment by SEMEL and Italfluid to use reasonable endeavours to conclude and enter into a Project Contract based on the key commercial terms set out in the LoE, the Proposed Transaction remains subject to, inter alia, the negotiation of and entry into a binding agreement, to the approval of the Concession joint venture partners and to an FID on the Phase 1 Development being taken.

Italfluid is an integrated service company which provides certain upstream petroleum services, including the design, construction, commissioning and maintenance of process plants and hydrocarbon processing, including gas liquefaction to produce liquified natural gas.

LNG Heads of Terms with Leading Moroccan Energy Group

The Company announced on 29 June 2020 that it had entered into a heads of terms (the "HOT") with a Moroccan conglomerate (the "Gas Offtaker") pursuant to which the Company had agreed to commence exclusive discussions with the Gas Offtaker in order to enter into agreements for both the purchase of LNG to be produced from the Phase 1 Development, as well as the partial financing thereof ("Exclusivity"). Under the HOT, Exclusivity was granted to the Gas Offtaker until 31 December 2020.

The Company is pleased to announce that negotiation of the definitive agreements with the Gas Offtaker pursuant to the HOT has progressed well over recent months however given the inherent linkage between Project Contract envisaged to be entered into with Italflluid and the suite of definitive agreements planned to be entered into with the Gas Offtaker, the Company has agreed to extend the period of Exclusivity with the Gas Offtaker under the HOT to 31 March 2021, coincident with the period of exclusivity now granted to Italfluid. Synchronising the timing of these respective negotiations provides a clearer and de-risked pathway to taking a final investment decision together with the Concession joint venture partners on or before 31 March 2021.

Further announcements will be made, as appropriate, in due course.

Mohammed Seghiri, Sound Energy's Chief Operating Officer, commented:

"We are very pleased to announce the signature of this Letter of Exclusivity with Italfluid for the proposed provision and leasing of the mLNG Plant. The Company has worked with Italfluid in Morocco in the past and I am pleased to continue developing our partnership with such a technically assured contractor in support of the Phase 1 Development of the TE-5 Horst.

The mLNG Plant is the most complex element and most significant capital requirement of the proposed Phase 1 Development therefore today's announcement of a proposed leasing structure, which when combined with the financing proposed to be provided by the Gas Offtaker, would secure the balance of funding required by Sound Energy for the Phase 1 Development, is a key milestone for the Company as we move towards FID."

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