Preliminary Results

RNS Number : 6819A
Sound Energy PLC
28 March 2017
 

28 March 2017

 

SOUND ENERGY PLC

("Sound Energy" or the "Company")

 

 

Unaudited Preliminary Results for the year ended 31 December 2016

 

 

Sound Energy, the European and African focused upstream oil and gas company, announces its unaudited preliminary results for the year ended 31 December 2016.

 

2016 Highlights

 

·     Recent low-cost multi-Tcf potential Moroccan discovery

·     Two successful wells drilled on Tendrara with flow rates significantly exceeding expectations

·     Preparations for drilling Badile exploration prospect in Italy completed - drilling now underway post period end

·     Consolidation of Moroccan position with acquisition of Sidi Moktar and Meridja option

·     Successful £26.9 million institutional and retail placing

·     Cash balance at 31 December 2016 of £46.8 million

·     Broadening of Executive Team, including the appointment of Brian Mitchener as Executive Vice President Exploration

 

 

For further information please contact:

 

Vigo Communications - PR Adviser

Patrick d'Ancona

Chris McMahon

Alexandra Roper

 

Tel: +44 (0)20 7830 9700

Sound Energy

James Parsons, Chief Executive Officer 

 

j.parsons@soundenergyplc.com

 

Smith & Williamson - Nominated Adviser

Azhic Basirov

David Jones

Ben Jeynes 

 

Tel: +44 (0)20 7131 4000

RBC - Broker

Matthew Coakes

Martin Copeland

Laura White

Tel: +44 (0)20 7653 4000

 

Statement from the Chairman and Chief Executive Officer

 

Despite being another turbulent period for the energy sector, 2016 has been truly transformational for Sound Energy.  We have continued to build an exploration focused onshore Mediterranean gas business hinged on strong European gas fundamentals, a strategic partnership with Schlumberger and a low cost multi Tcf potential development asset in Morocco. 

 

Our focus during 2016 has been to pursue a high impact exploration campaign in Eastern Morocco (drilling TE-6 and TE-7) whilst finalising preparations to drill Badile in Northern Italy.  Alongside this, we have continued to develop our high quality partnerships, maintain a strong balance sheet and ensure our operations are safe and sustainable. 

 

Morocco

 

The Eastern Morocco TAGI and Paleozoic plays across Tendrara / Meridja have the potential to become a material hydrocarbon province on a regional scale and therefore transform both Sound Energy and the Moroccan gas industry. 

 

Tendrara

 

The results from Tendrara have been pivotal to the Company's success during 2016.

 

Following the introduction of Schlumberger as a strategic partner in late 2015, Sound commenced drilling at its first well, TE-6, in April 2016.  This well was completed, stimulated and tested over the summer with petrophysical analysis confirming the presence of a number of gas bearing levels, a total net pay of 28 metres in the TAGI reservoir and a flow rate of 17 MMscf/d - a rate that was significantly above expectations and highly commercial.

 

After the resounding success of the first well, the Company commenced drilling at its second well, TE-7, in August 2016.  In November, TE-7 achieved a gas flow rate post-stimulation of 32 MMscf/d, which again significantly exceeded expectations and confirmed the benefits of sub-horizontal drilling.  Following the period end, the well was put on an extended well test to confirm production sustainability and to aid field development planning with just under 1.0 Bcf flowing from TE-7 over 56 days, with rates between 15 MMscf/d to 28 MMscf/d achieved.  The well is now in a final pressure build-up phase.

 

From the results to date, Sound has been able to estimate that the TE-5 Horst area contains around 300-500 Bcf gas, is commercial and intends to apply for a concession to develop and produce from this field.

 

Following these results, the Company took the decision to drill a bold step-out well, TE-8, 12km to the north-east of TE-6 and TE-7.  Logging at TE-8 has recently confirmed the extension of the TAGI reservoir and successfully identified and penetrated the full sequence of Westphalian sands in the Paleozoic.  Despite lower quality TAGI sands than in the previous wells, this is the first well to establish the Westward extension of the primary hydrocarbon system proven in Algeria into Morocco.

 

The Company will now take sidewall core samples and then suspend TE-8 in preparation for future operations, which may include mechanical  stimulation of this well or a sidetrack.  The Company will also update its static geological models and volumetric evaluation.  This is likely to include an immediate re-entry of the TE-1 well, in the south of the Tendrara licence area, drilled by Agip in 1966.

 

Meridja

During 2016, the Company secured, subject to regulatory and other approvals, a 55% interest in the Meridja exploration permit, which is adjacent to Tendrara and shares the same fundamental geology. Following the period end this interest was successfully increased, subject to regulatory approvals, to 75% following a successful partnership transaction with OGIF in early 2017, when a further 20% of Tendrara was also conditionally acquired. The remaining 25% interest continues to be held by Morocco's Office National des Hydrocarbures et des Mines (ONHYM). The potential of this area will begin to be unlocked through 2017 and 2018, with the acquisition of seismic and an aerial gradiometry survey.

 

Sidi Moktar

In early 2016, Sound acquired a 75% interest in the Sidi Moktar licences area in the Essaouira basin, central Morocco.  These licences contain an existing gas discovery in the Lower Liassic (Kechoula) with two wells drilled on structure. Sound plans to work-over these existing wells and test. We have also agreed Heads of Terms to farmout a portion of the licence, de-risking the asset financially. The deeper exploration potential of the licences in the Triassic also holds considerable interest.

 

Italy

 

Badile

Much progress was made during the year on the Badile licence in Italy, the second of our strategic plays, with the "Conferenza dei Servizi", the central and final approval meeting, successfully concluding in late April 2016 and the final permission to drill received from the Italian Ministry of Economic Development (UNMIG) in May 2016. Civil works commenced in September 2016 and the Company was pleased to report following the period end that the Moirago-1 Badile exploration well was spud in March 2017. The first two casing points have been successfully reached and the Company looks forward to communicating results during 2017.

 

During July 2016, the relationship with Schlumberger was also further strengthened with Schlumberger agreeing to fund €7.5 million of services (30% of the estimated well cost) in exchange for an option to acquire a 20% net profit interest. Badile remains a strategic asset in our portfolio.

 

Remaining Italian Portfolio

The Company has a broad portfolio in Italy which includes existing production and Laura, a high quality existing discovery where the Company plans to drill the appraisal well, 4km offshore, from onshore with a long reach deviated well.

 

Corporate

 

The Company is in a strong financial position as it enters 2017, with a cash balance of £46.8 million as at 31 December 2016. We continue to operate with a low cost but high quality philosophy, working with strategic partners to technically and financially de-risk assets and continuing to benefit from the support of our cornerstone investors. We successfully refinanced the significant majority of the Company's debt during 2016, extending the timeframe, and raised £26.3 million (gross) of equity funding in an innovative capital raise, where private investors were invited to invest alongside institutions.

 

During 2016, Simon Davies stepped down as Chairman of the Company to pursue other interests, with Stephen Whyte taking on the mantle of the Chairmanship in early July. The executive management team has been expanded to enable us to deliver our exploration and acquisition plans, with the introduction of Brian Mitchener (Executive Vice President  Exploration).  Sound Energy was also, during 2016, awarded AIM Company of the Year and included in the MSCI UK Small Cap Index.

 

The momentous progress achieved by Sound Energy during 2016 would not have been possible without the efforts of Sound Energy's executive team, our supportive shareholders and other stakeholders including our host governments. We would like to take this opportunity to thank all of them as we continue delivering our strategy.

Stephen Whyte                                         James Parsons

Chairman                                                  CEO 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2016

 

Notes

(Unaudited)

2016

£'000s

(Audited)

2015

£'000s

Revenue

 

833

859

Other income

2

715

-

Operating costs

 

(1,110)

(538)

Impairment of producing assets

5

(5,455)

(6,347)

Impairment of goodwill

6

(1,704)

-

Exploration costs

6

(2,334)

(5,838)

Gross loss

 

(9,055)

(11,864)

Administrative expenses

 

(6,241)

(3,181)

Group operating loss from continuing operations

 

(15,296)

(15,045)

Finance revenue

3

1,364

52

Foreign exchange gain/(loss)

 

 1,935

   (1,389)

Other gains and (losses)

 

 

 

   -derivative financial instruments

9

583

-

External interest costs

 

(3,769)

(1,905)

Loss for the year before taxation

 

(15,183)

(18,287)

Tax credit/(expense)

 

1,744

-

Loss for the year after taxation

 

(13,439)

(18,287)

Foreign currency translation

 

375

(320)

Total comprehensive loss for the year

 

(13,064)

(18,607)

Loss for the year attributable to:

 

 

 

Owners of the company

 

(13,064)

(18,607)

Non-controlling interests

-

-

 

 

Notes

(Unaudited)

2016

Pence

(Audited)

2015

Pence

Loss per share and diluted for the year

4

(2.52)

(3.90)

Attributable to the equity shareholders of the parent (pence)

4

(2.52)

(3.90)

 

 

 

 

Consolidated Balance Sheet

as at 31 December 2016

 

Notes

(Unaudited)

2016

£'000s

(Audited)

2015

£'000s

Non-current assets

 

 

 

Property, plant and equipment

5

1,729

5,558

Intangible assets

6

28,060

9,564

Land and buildings

 

1,535

1,327

 

 

31,324

16,449

Current assets

 

 

 

Inventories

 

331

-

Other receivables

 

8,777

2,506

Prepayments

 

320

99

Derivative financial instruments

9

2,545

-

Cash and short term deposits

 

46,809

15,240

 

 

58,782

17,845

Total assets

 

90,106

34,294

Current liabilities

 

 

 

Trade and other payables

 

12,604

2,097

Loans repayable in under one year

8

986

5,751

 

 

13,590

7,848

Non-current liabilities

 

 

 

Deferred tax liabilities

 

433

1,992

Loans due in over one year

8

16,455

7,157

Provisions

 

2,049

1,138

 

 

18,937

10,287

Total liabilities

 

32,527

18,135

Net assets

 

57,579

16,159

Capital and reserves

 

 

 

Share capital and share premium

 

135,667

86,315

Shares to be issued

 

223

-

Warrant reserve

 

4,459

369

Foreign currency reserve

 

1,443

1,068

Accumulated deficit

 

(84,213)

(71,593)

Total equity

 

57,579

16,159

 

 

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2016

 

 

Notes

Share

capital

£'000s

Share

premium

£'000s

 

Shares

to be issued

£'000s

Accumulated

deficit

£'000s

Warrant

reserve

£'000s

Foreign

currency

reserves

£'000s

Total

equity
£'000s

At 1 January 2016

 

5,039

81,276

-

(71,593)

369

1,068

16,159

Total loss for the year

 

-

-

-

(13,439)

-

-

(13,439)

Other comprehensive income

 

-

-

-

-

-

375

375

Total comprehensive loss

 

-

-

-

(13,439)

-

375

(13,064)

Issue of share capital

 

1,612

50,425

-

-

-

-

52,037

Share issue costs

 

-

(2,685)

-

-

-

-

(2,685)

Shares to be issued

 

-

-

223

-

-

-

223

Fair value of warrants issued with bonds

 

 

-

 

-

 

-

 

-

 

4,090

 

-

 

4,090

Share based payments

 

-

-

-

819

-

-

819

At 31 December 2016 (unaudited)

 

6,651

129,016

223

(84,213)

4,459

1,443

57,579

 

 

Notes

Share

capital

£'000s

Share

premium

£'000s

Accumulated

deficit

£'000s

Warrant

reserve

£'000s

Foreign

currency

reserves

£'000s

Total

equity
£'000s

At 1 January 2015

 

4,153

67,145

(53,621)

369

1,388

19,434

Total loss for the year

 

-

-

(18,287)

-

-

(18,287)

Other comprehensive income

 

-

-

-

-

(320)

(320)

Total comprehensive loss

 

-

-

(18,287)

-

(320)

(18,607)

Issue of share capital

 

886

15,342

-

-

-

16,228

Share issue costs

 

-

(1,211)

-

-

-

(1,211)

Share based payments

 

-

-

315

-

-

315

At 31 December 2015 (audited)

 

5,039

81,276

(71,593)

369

1,068

16,159

 

 

 

 

Consolidated Cash Flow Statement

for the year ended 31 December 2016

 

Notes

(Unaudited)

2016

£'000s

(Audited)

2015

£'000s

Cash flow from operating activities

 

 

 

Cash flow from operations

 

(2,826)

(3,487)

Interest received

 

96

52

Net cash flow from operating activities

 

(2,730)

(3,435)

Cash flow from investing activities

 

 

 

Capital expenditure and disposals

 

(945)

(1,156)

Exploration and development expenditure

 

(10,882)

(6,545)

Net cash flow from investing activities

 

(11,827)

(7,701)

CSTI funding contract

 

(14)

(117)

Net proceeds from debt

 

10,248

-

Net proceeds from equity issue

 

40,247

15,017

Repayment of debt

 

(5,435)

-

Interest payments

 

(1,108)

(1,051)

Net cash flow from financing activities

 

43,938

13,849

Net increase in cash and cash equivalents

 

29,381

2,713

Net foreign exchange difference

 

2,188

(81)

Cash and cash equivalents at the beginning of the year

 

15,240

12,608

Cash and cash equivalents at the end of the year

 

46,809

15,240

 

Notes to Cash Flow

for the year ended 31 December 2016

 

Notes

(Unaudited)

2016

£'000s

(Audited)

2015

£'000s

Cash flow from operations reconciliation

 

 

 

Loss before tax

 

(15,183)

(18,287)

Finance revenue

3

(1,364)

(52)

Goodwill impairment

 

1,704

-

Exploration expenditure written off and impairment of producing assets

 

7,789

12,185

Increase/(decrease) in accruals and short term payables

 

9,035

(97)

Depreciation

5

272

136

Share based payments charge

 

819

315

Purchase of drilling inventories

 

(331)

-

Gain on derivative financial instruments

 

(583)

-

Finance costs and exchange adjustments

 

1,508

2,588

Increase in receivables

 

(6,492)

(275)

Cash flow from operations

 

(2,826)

(3,487)

 

Non-cash transactions during the year included the issue of shares worth £7.4 million as the consideration for the Sidi Moktar licences acquisition. The Company settled £4.3 million of the previously outstanding £7.0 million debt with Continental Investment Partners in lieu of the receipt of new issue bond proceeds of an equivalent amount.

During the year, the Company provided a bank guarantee of $2.5 million (2015: $2.75 million) to the Moroccan Ministry of Petroleum to guarantee the Company's minimum work programme obligations. As the Company expects to satisfy these commitments within 2017, this amount remains included as a liquid cash equivalent. A guarantee of €0.8 million was provided for the first well at the Badile licence in Italy and is included in cash and cash equivalents as it  is expected to be released as soon as the work commitment is fulfilled.

 

Notes to the Financial Statements

 

1 Basis of preparation

 

The financial information contained in this unaudited preliminary announcement does not constitute accounts as defined by section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2015 is derived from the statutory accounts for that period which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2016 will be finalised based on the information in this unaudited preliminary announcement and will be delivered to the Registrar of Companies in due course. The Group has prepared its consolidated financial statements for the year ended 31 December 2016 in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The accounting policies applied are consistent with those included in the financial statements of the Group for the year ended 31 December 2015.

 

2 Segment information

 

The Group categorises its operations into three business segments based on corporate, exploration and appraisal and development and production.

In the year ended 31 December 2016 the Group's exploration and appraisal activities were carried out in Italy and Morocco.

The Group's reportable segments are based on internal reports about components of the Group which are regularly reviewed and used by the Board of Directors, being the Chief Operating Decision Maker ("CODM"), for strategic decision making and resource allocation, in order to allocate resources to the segment and to assess its performance.

Details regarding each of the operations of each reportable segment is included in the following tables.

 

Segment results for the year ended 31 December 2016:

 

Corporate

£'000s

Development

& Production

£'000s

Exploration

& Appraisal

£'000s

Total

£'000s

Sales and other operating revenues

-

833

-

833

Other income

-

715

-

715

Operating costs

-

(1,110)

-

(1,110)

Exploration costs

-

-

(2,334)

(2,334)

Impairment of producing assets

-

(5,455)

-

(5,455)

Goodwill impairment

-

(524)

(1,180)

(1,704)

Administration expenses

(6,241)

-

-

(6,241)

Operating loss segment result

(6,241)

(5,541)

(3,514)

(15,296)

Interest receivable

2,152

-

-

2,152

Gain on derivative financial instruments

583

-

-

583

Finance costs and exchange gains

(2,622)

-

-

(2,622)

Loss for the period before taxation

(6,128)

(5,541)

(3,514)

(15,183)

 

Other income represents receipt during the year of $1.1 million Indonesian contingent consideration, triggered by the achievement of various operational targets of the Bangkanai licence which was previously owned by the Group. A contingent asset was not recognised when the licence was disposed of due to the uncertainty around the achievement of the conditions leading to the payment.

Segment revenue reported above represents revenue generated from external customers. All the revenue arose from operations in Italy.

 

The segments assets and liabilities at 31 December 2016 were as follows:

 

 

 

Corporate

£'000s

Development

& Production

£'000s

Exploration

& Appraisal

£'000s

Total

£'000s

Non-current assets

513

1,216

29,595

31,324

Current assets

52,526

22

6,234

58,782

Total liabilities

(3,161)

(2,049)

(27,317)

(32,527)

 

The geographical split of non-current assets is as follows:

 

UK

£'000s

Italy

£'000s

Morocco

£'000s

Development and production assets

-

1,216

-

Land and buildings

-

1,535

-

Fixtures, fittings and office equipment

194

171

148

Goodwill

-

433

-

Exploration and evaluation assets

-

8,511

18,876

Software

89

6

145

Total

283

11,872

19,169

 

Segment results for the year ended 31 December 2015 were as follows:

 

Corporate

£'000s

Development

& Production

£'000s

Exploration

& Appraisal

£'000s

Total

£'000s

Sales and other operating revenues

-

859

-

859

Operating costs

-

(538)

-

(538)

Exploration costs

-

-

(5,838)

(5,838)

Impairment of producing assets

-

(6,347)

-

(6,347)

Administration expenses

(3,181)

-

-

(3,181)

Operating loss segment result

(3,181)

(6,026)

(5,838)

(15,045)

Interest receivable

52

-

-

52

Finance costs

(3,294)

-

-

(3,294)

Loss for the period before taxation

(6,423)

(6,026)

(5,838)

(18,287)

 

 

 

The segments assets and liabilities at 31 December 2015 are as follows:

 

Corporate

£'000s

Development

& Production

£'000s

Exploration

& Appraisal

£'000s

Total

£'000s

Non-current assets

137

5,391

10,921

16,449

Current assets

17,845

-

-

17,845

Total liabilities

(7,743)

(1,498)

(8,894)

(18,135)

 

The geographical split of non-current assets is as follows:

 

UK

£'000s

Italy

£'000s

Morocco

£'000s

Development and production assets

-

5,391

-

Land and buildings

-

1,327

-

Fixtures, fittings and office equipment

37

101

29

Goodwill

-

1,992

-

Exploration and evaluation assets

-

6,960

512

Software

100

-

-

Total

137

15,771

541

 

 

3 Finance Revenue

 

2016

£'000s

2015

£'000s

 

 

 

CSTI obligation released

1,268

-

Interest on cash at bank and short term deposits

96

52

 

1,364

52

 

 

4 Profit/(loss) per share

 

The calculation of basic profit/(loss) per Ordinary Share is based on the profit/(loss) after tax and on the weighted average number of Ordinary Shares in issue during the period. Basic profit/(loss) per share is calculated as follows:

 

2016

£'000s

2015

£'000s

Loss after tax from continuing operations

(13,439)

(18,287)

 

 

2016

million

2015

million

Weighted average shares in issue

534

467

 

 

2016

pence

2015

pence

Loss per share (basic) from continuing operations

(2.52)

(3.90)

 

 

 

 

5 Property, plant and equipment

 

2016

£'000s

2015

£'000s

Development and production assets

 

 

Cost

 

 

At start of the year

14,297

15,566

Exchange adjustments

785

(957)

Additions

886

234

Reversal of capitalised interest

-

(546)

At end of the year

15,968

14,297

Depreciation

 

 

At start of the year

8,906

2,454

Exchange adjustments

187

-

Impairment of assets

5,455

6,347

Charge for the year

204

105

At end of the year

14,752

8,906

Net book amount

1,216

5,391

Fixtures, fittings and office equipment

 

 

Cost

 

 

At start of the year

377

273

Exchange adjustments

33

(10)

Additions

405

120

Disposal

 

(6)

At end of the year

815

377

Depreciation

 

 

At start of the year

210

185

Exchange adjustments

24

(4)

Charge for the year

68

31

Disposals

-

(2)

At end of the year

302

210

Net book amount

513

167

Total net book amount

1,729

5,558

 

The Group reviewed the carrying value of the Casa Tonetto licence in view of the reservoir performance being below expectations upon commencement of production at the beginning of 2016 and recognised an impairment charge of £5.4 million (2015: £6.3 million) to write-off the carrying value to the recoverable amount of £0.5 million, being the fair value less costs to sell of the plant and equipment. The valuation was considered a Level 3 valuation.

 

 

 

2016

£'000s

2015

£'000s

Italy - impairment

5,455

6,347

Total

5,455

6,347

 

 

 

 

6 Intangibles

 

Goodwill

£'000s

 Software

£'000s

 Exploration & Evaluation Assets

 £'000s

 2016

£'000s

Cost

 

 

 

 

At 1 January 2016

1,992

106

18,100

20,198

Additions

-

176

21,176

21,352

Exchange adjustments

210

-

626

836

At 31 December 2016

2,202

282

39,902

42,386

Impairment

 

 

 

 

At start of the year

-

6

10,628

10,634

Charge for the year

1,704

36

1,819

3,559

Exchange adjustments

65

-

68

133

At end of the year

1,769

42

12,515

14,326

Net book amount at 31 December 2016

433

240

27,387

28,060

 

 

Goodwill

£'000s

 Software

£'000s

 Exploration  & Evaluation Assets

 £'000s

 2015

£'000s

Cost

 

 

 

 

At 1 January 2015

2,099

91

11,758

13,948

Additions

-

15

6,545

6,560

Transfers

-

-

-

-

Exchange adjustments

(107)

-

(203)

(310)

At 31 December 2015

1,992

106

18,100

20,198

Impairment

 

 

 

 

At start of the year

-

-

5,060

5,060

Charge for the year

-

6

5,568

5,574

At end of the year

-

6

10,628

10,634

Net book amount at 31 December 2015

1,992

100

7,472

9,564

 

The impairment charge of £1.8 million recognised during the year for the exploration and evaluation assets related to the Strombone licence. The 2015 impairment charge of £5.6 million primarily related to the Carita licence. Impairment charges associated with exploration and evaluation assets are included within Exploration costs in the Consolidated Statement of Comprehensive Income.

 

Goodwill arises on acquisitions accounted for at fair value and consists largely of the synergies expected from combining acquired operations with those of the Group. In accordance with IFRS, goodwill is assessed annually for impairment. The carrying value of the goodwill is linked to the development and exploration and evaluation assets. During the year, impairment charges were recognised for the Casa Tonetto and Strombone licences, which has led to £1.7 million of goodwill (2015: £nil) that is linked to these licences being impaired. The Company has no goodwill.

 

  

Exploration and Evaluation Assets

Details regarding the Geography of the Group's Exploration and Evaluation assets is contained in note 2.  The Directors assess for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. In making this assessment the Directors have regard to the facts and circumstances noted in IFRS 6 paragraph 20. In performing their assessment of each of these factors at 31 December 2016 the Directors have:

a)   reviewed the time period that the Group has the right to explore the area and noted no instances of expiration, or licences that are expected to expire in the near future;

b)   determined that further exploration or evaluation expenditure is either budgeted or planned for all licences (with the exception of the licence noted below);

c)   not decided (with the exception of the licence noted below), to discontinue exploration activity due to there being a lack of quantifiable mineral resource; and

d)   not identified any instances where sufficient data exists to indicate that there are licences where the E&E spend is unlikely to be recovered from successful development or sale.

One licence, in Italy, was identified where current and forecast operational spend has significantly decreased due to an application for a time extension on the licence being rejected. As a result, an impairment charge of £1.8 million has been recognised, being the carrying value of the asset at the date of impairment.

 

During the year, the Group had capitalised interest costs of approximately £1.5 million (2015: £0.5 million).

 

 

7 Capital and Reserves

 

 

2016
Number

of shares

£'000s

2015
Number

of shares

£'000s

Ordinary shares - 1p

665,069,037

6,651

503,898,868

5,039

 

 

 

 

Number of shares

2016

 

 

Number of shares

2015

 

At 1 January

 

503,898,868

 

415,300,815

Issued during the year for cash

 

118,147,455

 

88,598,053

Non-cash share issue

 

43,022,714

 

-

At 31 December

 

665,069,037

 

503,898,868

The non-cash share issue is the consideration paid for the acquisition of 75% interest in Sidi Moktar licences, onshore Morocco.

Share option schemes

Options to subscribe for the Company's shares were granted to executives and certain employees in 2016 and 2015.

Share Issues

During the year ended 31 December 2016, the Company issued 81,063,916 shares following warrant exercises at exercise prices in the range of 10.4p to 30p per share.                    

On 29 July 2016, the Company announced the issue of 300,000 shares following the exercise of share options by a former employee at a price of 16.5p per share.                                            

On 8 August 2016, the Company announced the issue of 1,780,000 shares following the exercise of expiring share options by a director of the Company at prices in the range of 16.5p to 25p per share.      

On 13 October 2016, the Company announced the issue of 1,288,888 shares following the exercise of share options by a non-board member of the Company at a price of 12.15p per share.

On 25 November 2016, the Company announced the issue of 33,239,323 shares to satisfy the applications received for its underwritten offer. The shares were issued at a price of 81p per share.

On 12 December 2016, the Company announced that it would issue 43,022,714 shares as consideration for the acquisition of 75% interest in Sidi Moktar licences, onshore Morocco.

During December 2016, the Company issued 475,328 shares to partly satisfy the exercise of 2,279,998 share options by a non-board member of the Company. The remaining shares were reported as shares to be issued within equity as at 31 December 2016 and were issued subsequent to the year end. The options were exercised at prices in the range of 16.5p to 25p per share.           

 

8 Loans and Borrowings

 

 

 

 

 

 2016

 

 2015

 

 

 

 

 £'000

 

 £'000

Current Liabilities

 

 

 

 

 

Other loans

 

 

                     986

 

       5,751

 

 

 

 

 

 

 

Non-Current Liabilities

 

 

 

 

5 year secured bonds

 

                16,455

 

             -  

Other loans

 

 

                        -  

 

       7,157

 

 

 

 

                16,455

 

       7,157

 

 

 

 

 

 

 

On 21 June 2016 the Company announced that Greenberry S.A (''Greenberry'') had subscribed for 5-year non-amortising secured bonds with an aggregate issue value of €28.8 million (the "Bonds"). Alongside the Bonds, the Company issued 70,312,500 warrants to subscribe for new ordinary shares in the Company at an exercise price of 30 pence per ordinary share and an exercise period of approximately five years, concurrent with the term of the Bonds, to Greenberry (the "Warrants"). The Bonds are secured over the share capital of Sound Energy Holdings Italy Limited. The Bonds have a 5% coupon and were issued at a 32% discount to par value. A total cash fee of €1.1 million was payable by the Company.           

The Warrants were recorded within equity at fair value on the date of issuance and the proceeds of the notes net of issue costs were recorded as a non-current liability. Part of the Bonds proceeds were used to settle an existing Reserve Based Lending facility with Greenberry of €7.0 million at a discount of 50%. The Company also settled £7.0 million debt that had been issued to Continental Investment Partners in 2014 as part of the re-financing. The coupon rate of 5% for the Bonds ensures that the Company's on-going cash out-flow on interest payments remains low, conserving the Company's cash resources. The effective interest rate is approximately 16.3%. The 5-year secured Bonds are due in June 2021.

The £7.0 million settled was the debt issued to Continental Investment Partners with an annual coupon of 8% on 28 July 2014, which was issued alongside £1.0 million of debt to Simon Davies, with an annual coupon of 10%. The total issue of £8.0 million, with a three year term, was combined with equity, and warrants which also had a three year term. Each warrant was convertible into equity at a price of 10.4p per share during that three year term. The fair value of the warrants at issue is included within warrant reserve.

 

 

 

 

 

 2016

 

 2015

 

 

 

 

 £'000

 

 £'000

 

 

 

 

 

 

 

Liability component at 1 January

7,118

 

6,588

Interest and amortised issue costs

1,413

 

1,190

Interest paid

 

 

(545)

 

(660)

Debt paid

 

 

 

(7,000)

 

             -  

 

 

 

 

986

 

7,118

 

 

9 Derivative financial instruments

 

2016

£'000s

2015

£'000s

 

Derivative on shares issued on acquisition of Sidi Moktar licence

 

2,545

 

-

 

In March 2016, the Company signed a binding agreement to acquire PetroMaroc's 50% working interest in, and operatorship of, the Sidi Moktar licences. The terms of the acquisition included the issue by the Company of 21,258,008 ordinary shares to PetroMaroc as consideration. In September 2016, the agreement with PetroMaroc was amended such that should PetroMaroc dispose of the shares issued, the proceeds of the share price above 50 pence would be shared equally between the Company and PetroMaroc. The value of this derivative financial instrument was £2.5 million as at 31 December 2016 using the Company's closing share price of 74 pence.

 

During the year the Company recognised a gain of £583k in the income statements as a result change in share price from the date of initial recognition to 31 December 2016.        

 

10 Post Balance Sheet Events

 

On 19 January 2017, the Company announced that it had entered into a non-binding Heads of Agreement for the acquisition of all of Oil & Gas Investment Fund's (OGIF) assets in Eastern Morocco. The Company would purchase from OGIF a 20% interest in Tendrara, a 75% interest in Meridja (including the 55% interest in Meridja over which the Company had previously exercised an option) and an application for a 75% position in the relinquished area close to Tendrara. The consideration for the acquisition was 272 million new ordinary shares in the Company, with the issue of the new ordinary shares subject to shareholder approval.

On 19 January 2017, the Company announced that the extended well test of TE-7 on the Tendrara licence had been successful and the results were consistent with the Company's estimates. The Company also announced the commencement of civil works at TE-8 appraisal well site on the Tendrara licence.

On 7 February 2017, the Company announced that ground works at the Tendrara TE-8 well site, onshore Morocco, were complete and that the National 110 UE (1500 HP) traditional rig, owned by Saipem SpA and used by the Company in the drilling of Sound Energy's TE-7 well, had been mobilised. Drilling of TE-8 well was expected to commence during February 2017.

On 7 February 2017, the Company announced that as per the terms of the drilling rig contract for the Badile well, the Company had issued 830,565 new ordinary shares to Pergemine S.p.A (Pergemine) with a market value of approximately €790,000. The contract with Pergemine provided that 23% of the service charges due to Pergemine would be settled through the issue of new ordinary shares in the Company with a value of approximately €1 million. In the event of the Badile exploration well proving successful, further new ordinary shares will be issued to Pergemine to bring the total market value of the new ordinary shares issued to Pergemine up to approximately €1 million.

On 13 February 2017, the Company announced that it had entered into an agreement for the early redemption of the existing £1 million loan originally provided to the Company by Simon Davies, a former director, together with the simultaneous exercise of 9,615,384 warrants held by Simon Davies to subscribe for new ordinary shares in the Company at a price of 10.4 pence per share. The loan had a maturity date of 28 July 2017 but will be redeemed and cancelled on 1 April 2017 and the warrants will be exercised on the same date. The payment of the aggregate subscription price of £1 million for the exercise of the warrants will be deemed satisfied on the redemption and cancellation of the loan.

On 20 February 2017, the Company announced that further to the announcement made on 19 January 2017, it had entered into binding agreements with OGIF. The terms remained as announced on 19 January 2017. Shareholders approved the new issue of shares for this transaction on 15 March 2017.

On 15 March 2017, the Company provided an update on the drilling operations and noted that the third well (TE-8) at the Tendrara licence, onshore Morocco, had been successfully drilled to the planned coring point in the TAGI reservoir at a measured depth of 2,696 metres and the Company was completing coring operations. Gas shows had been encountered and the Company was continuing to complete the drilling operations and undertake wireline logging and analysis. The Badile exploration well, onshore, Italy, had been drilled to the first casing point and was now drilling towards the second casing point at 1,400 metres.

On 23 March 2017, the Company announced that TE-8 had been drilled to the final target depth and the Company would progress with data acquisition and analysis after which the results of the well would be announced. Drilling at the Badile well, onshore Italy, had reached the second casing point at 1,407 metres and would progress towards the third casing point at approximately 2,600 metres.

On 28 March 2017, the Company announced the completion of logging at the TE-8 well and that it had successfully identified and penetrated the full sequence of Westphalian sands in the Paleozoic (between 2,762 metres through to 3,120 metres) and confirmed the identification of the full sequence of thick TAGI reservoir sands (between 2,642 metres through to 2,762 metres) some 12 km to the north-east of the Company's previous two wells at Tendrara.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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