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Sound Energy to proceed with micro LNG project

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LNG Industry,

Sound Energy – a Moroccan focused upstream gas company – has announced that it will focus on pursuing a micro LNG production plan for the TE-5 Horst field within the Tendrara production concession.

On 6 November last year, the company entered into non-binding heads of terms agreement (HOA) with a company specialising in energy asset development and investment (the ‘purchaser’) in relation to a proposed sale of a substantial proportion of the company’s interest in the Eastern Morocco Portfolio.

Under the terms of the HOA, Sound Energy claims it had granted the purchaser an exclusivity period expiring on 14 February 2020 to complete due diligence on the Eastern Morocco Portfolio and to finalise a binding sale and purchase agreement (SPA) for the proposed transaction.

In this latest statement, Sound Energy claims that, although the purchaser has confirmed the satisfactory conclusion of its technical and commercial due diligence, it has not yet demonstrated proof of funds required in order to advance the proposed transaction and nor has an SPA been finalised. As a result, Sound Energy claims that talks are continuing with the purchaser, but these discussions are no longer exclusive, and there can be no guarantee that the proposed transaction will proceed, or if it will be successfully concluded.

Whilst Sound Energy claims that it has continued to pursue the full field development plan underpinning the Tendrara production concession award centered around a 120 km pipeline infrastructure (as announced on 6 September 2018), the company claims that it now plans to prioritise early first cash flows from the concession. As a result, the company now plans to pursue a micro LNG production plan for the TE-5 Horst field within the concession ahead of the full field development plan being implemented. The implementation of the micro LNG production plan will require, amongst other things, the agreement of the company’s joint venture (JV) partners in the concession.

According to the statement, Sound Energy will, therefore, seek to advance the development of the TE-5 Horst field through a fast-track, cost-efficient, micro LNG project, with first LNG delivery targeted for next year. The proposed micro LNG production plan will be advanced alongside workstreams 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 field development plan funding solutions). It will involve gas being processed and liquefied, with the resulting LNG transported to industrial customer sites in Morocco.

In the statement, Sound Energy claims that it views this micro LNG production plan for the TE-5 Horst as an attractive route to generating early cash flows from the concession. The larger full pipeline led development plan can then be added to this initial plan at a later date, given the longer timescales involved in its implementation.

The company is currently holding talks with industrial customers and distributors in Morocco regarding the long-term offtake of LNG from the concession. In addition to this, negotiations with equipment providers and potential funding partners for the micro LNG production plant are also being carried out. Subject to Sound Energy’s JV partners in the concession agreeing to proceed with the micro LNG production plan, the company expects that it will be in a position to take a final investment decision (FID) on this development solution in 2Q20, which would enable first LNG delivery during 2021.

Mohammed Seghiri, Sound Energy’s Acting Chief Executive Officer, said: “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. 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.”

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