Final Results

RNS Number : 8296F

Sound Energy PLC

24 March 2022

 

24 March 2022

SOUND ENERGY PLC

("Sound Energy", "Sound" or the "Company")

FINAL RESULTS

Sound Energy, the transition energy company, announces its audited final results for the year ended 31 December 2021.

HIGHLIGHTS

Development of the Moroccan Tendrara Production Concession

· Phase 1 Micro LNG project

o  10-year take or pay Gas Sales and Purchase agreement signed with Afriquia Gaz

o  Execution of $18.0 million loan facility from Afriquia Gaz (with 6% annual coupon and a 12-year term)

o  Post period end issue of notice to proceed to Italfluid, an EPC contractor providing lease, operate and maintain facilities

· Phase 2 Gas (pipeline) development

o  10-year take or pay Gas Sales and Purchase agreement signed with ONEE, a key milestone to monetise the gas resources at Tendrara

Exploration and growth

· Extension of Anoual exploration permit duration from 8 to 9 years

· Acquisition of Schlumberger Silk Route Services Limited

Corporate

· Successful restructuring of €28.8 million corporate loan notes

· Reduction in administrative expenses by approximately 42% compared with 2020

· Equity subscription by Afriquia Gaz of £2.0 million

· Receipt of circa €183,000 first payment for disposal of Badile in Italy

· Post period announcement of a possible offer for Angus Energy plc

Graham Lyon, Executive Chairman said:

"2021 was a year of delivery in pursuit of monetising our significant discovered gas for our Phase 1 mLNG project. This included the successful conclusion of a number of major agreements and the delivery of key project milestones that very clearly demonstrated our commitment to delivering against our promises. During 2022, we will continue to work tirelessly to deliver additional value for our shareholders through meaningful progression on both the Phase 1 mLNG project and the Phase 2 gas pipeline development in our energy transition strategy in order to deliver increased future Company growth. I look forward with confidence to delivering a similarly productive 2022 for Sound on behalf of all of its stakeholders.''

Enquiries:

Vigo Consulting - PR Adviser Patrick d'Ancona Finlay Thomson	Tel: [phone]
Sound Energy Graham Lyon, Executive Chairman	[e-mail]
Cenkos Securities - Nominated Adviser Ben Jeynes  Pete Lynch	Tel: [phone]
SP Angel Corporate Finance LLP Richard Hail	Tel:[phone]

Statement from the Executive Chairman

Introduction

Following 2020, our year of stabilisation, 2021 was a year of delivery for the Company. The team's relentless hard work resulted, in spite of the challenges raised by the global Covid pandemic, in the achievement of a number of key milestones for the business and the commencement of our strategic shift to a production focused energy transition business. This delivery has advanced the prospect of gas sales and revenues from our Phase 1 micro-LNG (mLNG) development in Morocco while, at the same time, establishing the large-scale Phase 2 development.

The Phase 1 project made significant strides forward in 2021 with a Gas Sales Agreement (GSA) announced earlier in the year and a financing package completed at year end. This financing will cover the cost of bringing this development to market. In parallel, we have materially advanced the Phase 2 development securing a binding GSA with Office National de l'Electricite et de l'Eau potable (ONEE), a vital step which provided certainty on gas sales pricing and offtake from the pipeline development to unlock the financing stage of the development process. The value of these strategically pivotal developments to Sound shareholders was further enhanced by our entry into a sale and purchase agreement with Schlumberger Holdings II Limited which resulted in Sound increasing its participating interests in the Tendrara Concession, along with the Anoual and Greater Tendrara exploration permits, from 47.5% to 75%. Finally, Sound secured an extension to the term of the Anoual Permit, which covers the Tendrara concession, from eight to nine years.

The Company was able to reschedule its longer-term bond holder debt and gain the support of these holders to the staged development of the business. This was completed with minimal dilution to equity holders and has put the Company in a stronger financial position.

In addition to the operational progress delivered in 2021, I am also very proud that we have redoubled our commitment to Environment, Social and Governance (ESG) best practice and, while we have always maintained the highest environmental standards in our operations, we now have a clear path to measuring and reporting our ESG metrics against the UN's Sustainable Development Goals. Furthermore, we are working with a University of Cambridge project which will assist with the measurement of our Carbon footprint.

Phase 1

In July 2021, we signed the Phase 1 Development LNG Sale & Purchase Agreement (LNG SPA) for the mLNG project for the TE-5 Horst. This is a ten year take or pay agreement between Afriquia Gaz (Morocco's leading fuel distributor) and Sound Energy Morocco East Limited (SEMEL) - a 100% subsidiary of Sound Energy plc. Under the LNG SPA, SEMEL will commit, for 360 days a year over 10 years from first gas, to provide a daily quantity of between 475 and 546 cubic metres of LNG and Afriquia will commit to offtake (or pay for if not offtaken) an annual minimum of 475 cubic metres per day.

Additionally, at the end of the year, we announced binding agreements in respect of a US$18 million loan from Afriquia Gaz for development of the Tendrara Concession.  Earlier in the year, Afriquia Gaz also invested in the Company by way of an equity placing of £2 million of Sound Energy plc shares, further cementing the strategic relationship between the two companies.

Post period, we were delighted to announce that we have entered into a binding contract with Italfluid Geoenergy srl for the leasing, operation and maintenance of gas processing and liquefaction facilities in respect of our Phase I development. This novel vendor financing arrangement provides the lion's share of the development capital required for Phase 1 thus providing the platform for attractive shareholder returns.

Subsequent to this, the Company has issued a notice to proceed to Italfluid, thus commencing the project execution stage and paving the way for first gas within 24 months. Whilst I do not underestimate the project challenges that lie ahead, particularly in a world post COVID experiencing inflation and supply chain issues, we are pleased that the Company is now on a pathway to becoming cash generative.

Phase 2

In November 2021, the Company announced the signature of the binding Gas Sales Agreement with offtaker, ONEE. The agreement means that the Tendrara JV Partners (Sound and Office National des Hydrocarbures et des Mines (ONHYM)- the Moroccan Government Department for Energy) have committed to delivering gas from the Tendrara Production Concession to the Gas Maghreb-Europe pipeline for an annual contractual volume of up to 350 million cubic metres of pipeline gas for a period of 10 years, with an annual take or pay volume of 300 million cubic meters at a market competitive price.

This binding Gas Sales Agreement for Phase 2 represents a major milestone for the Company, so I am extremely proud that it was completed in 2021.

Anoual

In September 2021, we announced an update to the Anoual Permits extending their duration from eight to nine years. While the team has worked relentlessly to deliver our operational goals, COVID has undoubtedly impacted progress on the ground and we have been unable to progress at the speed that we would have wished. As a result of this, Sound was granted an extension to the Permits resulting in an extension to the permits from eight to nine years, giving us further time to mature our plans for this important and potentially transformative exploration permit.

Schlumberger Holdings II Limited sale and purchase agreement

In June 2021, the Company entered into a sale and purchase agreement to acquire the entire issued share capital of Schlumberger Holdings II Limited in return for a minority profit share from the concession development plus a share in any cash disposal of the Anoual and Greater Tendrara exploration permits (should this occur prior to 28 February 2023). This agreement, at no upfront cash cost to the Company, materially increased our working interest in the Tendrara Concession together with the Anoual and Greater Tendrara exploration permits to 75% (from 47.5%), positioning the Company to benefit from enhanced returns, cashflows and value as it moves forward.

Corporate

In February 2021, we announced the appointment of SP Angel as our corporate broker whilst, in March 2021, we announced the receipt of the first payment (EUR 183k) in respect of the disposal of legacy Badile land in Italy.

In April 2021, we successfully concluded the restructuring of the Company's Luxembourg listed EUR 28.8 million 5.0% senior secured notes due 2021 extending the maturity to December 2027, converting part of the loan into equity, partially amortising and changing the structure of the interest due to minimise near term cash outflow.

We continue to constructively engage with the Moroccan Tax Administration in relation to a number of tax notifications.

The Company remains clear that the assessments by the Moroccan Tax Administration, as previously announced, arise from a fundamental misunderstanding of the historical licensing changes (relinquishing old licences and entering new licences covering revised acreage with revised terms - with no continuation or transfer of the original licence) and inter-group ownership outside of Morocco. We hope to bring this to a conclusion so that we can continue our very positive and productive relationship with a number of the Country's ministries.

We have continued to scrupulously and efficiently manage our expenditure and corporate overheads, to sustain cash balances whilst at the same time strengthening our team and our resourcing capability necessary for the Company's operations.

Whilst the pandemic has challenged our ability to engage face to face with shareholders and other key stakeholders, we undertook a variety of virtual stakeholder and investor events and I was delighted to welcome shareholders into our London office for our first face to face event since 2019. I look forward to more shareholder events through 2022, giving us the opportunity to share, in real time, our exciting plans for the growth of the Company.

Post period, the Company announced that it was considering a possible offer for Angus Energy plc (''Angus''). The possible offer would be an all-share offer whereby Angus shareholders would (subject to Sound Energy shareholder approval) receive the Company's ordinary shares in exchange for their holding in Angus at an agreed exchange ratio. The deadline by which the Company is required to announce a firm intention to make an offer for Angus or announce that it does not intend to make an offer expires on 8 April 2022.

Board Strengthening

We further strengthened our Board as we welcomed Christian Bukovics as Senior Independent Non-executive Director. Christian has over 40 years of experience across various international roles in the energy industry and he has already made a considerable contribution to the Company since his recent appointment.

Summary

As I have already outlined, 2021 was a year of delivery in pursuit of monetising our significant discovered gas for our Phase 1 mLNG project. This included the successful conclusion of a number of major agreements and the delivery of key project milestones that very clearly demonstrated our commitment to delivering against our promises. During 2022, we will continue to work tirelessly to deliver additional value for our shareholders through meaningful progression on both Phase 1 mLNG project and the Phase 2 gas pipeline development in our energy transition strategy in order to deliver increased future Company growth. I look forward with confidence to delivering a similarly productive 2022 for Sound on behalf of all of its stakeholders.

Graham Lyon

Executive Chairman

Portfolio Review

Tendrara Production Concession

Permit Area

Located proximate to Gazoduc Maghreb Europe ("GME") pipeline approximately 120 kilometers to the North. The 522 kilometres long Moroccan section is owned by the Moroccan State and operated by Metragaz. The pipeline connects Morocco to the Spanish/Portuguese gas grids as well as the Moroccan gas-firedpower stations.

Geology

Gas reservoir with flow rates significantly enhanced by application of proven mechanical stimulation techniques.

Ongoing and Planned Developments

Potential capacity to meet gas demand in a phased manner with Phase I being the implementation of a micro-LNG development scheme and Phase II being the development of a larger scale central processing facility ("CPF") and gas export pipeline.

Phase 1

Supply of LNG displacing higher carbon LPG

Phase 1 Micro LNG Development - Sound fully funded for pre first gas share of development costs

Deployment of field gas treatment, processing, liquefaction and storage facilities to deliver mobile LNG to buyer at site. The LNG buyer will distribute and sell on to its growing Moroccan industrial consumers within the domestic gas market.

Supplies of LNG are to be an annual contractual quantity of 100 million standard cubic metres of gas (approximately 3.5 billion standard cubic feet of gas per year) over a ten-year period in a liquid form.

Binding gas sales agreement and associated funding in place with Afriquia Gaz. A ten-year commitment from first gas to sell annual contractual quantity of 100 million standard cubic metres per annum with take or pay agreement priced at $6-$8.346 per mmBTU ex plant.

Development utilises the existing well stock of TE-6 and TE-7, with additionally the drilling of one new well as required to maintain the ten-year period of potential production plateau.

LNG Central Processing Facility and Environmental Impact Assessment permit approved and binding agreement with Italfluid

Micro LNG Plant to be designed, constructed, commissioned, operated and maintained by Italfluid with guarantees for plant operability and delivery.

Lease structure (with option to buy):

• Minimal two-step capital payments at FID and following successful completion of Micro LNG plant commissioning (including production build-up)

• Leasing solution substantially lowers capital investment requirements of Phase 1 development

• Daily rental payment paid to Italfluid on guaranteed daily volume only

• Performance guarantees on plant availability

Phase 2

Gas as a transition fuel flowing to the GME pipeline

Phase 2 Tendrara TE-5 Development

20'' inch, 120km Tendrara Gas Export Pipeline ("TGEP"):

• Tie-in to existing GME pipeline (Station M04): FEED completed by Metragaz (EMPL operator)

• Pipeline EIA permit approved

• 70 mmscf/d raw gas CPF processing capacity: FEED completed by Enagás Consortium

• CPF EIA permit approved

• GSA with ONEE (Office National de l'Electricite et de l'Eau potable) signed November 2021 for domestic power plants for gas-to-power generation (transit via GME line), minimum volume of 0.3 bcm/year (approximately 10.5 billion standard cubic feet of gas per year) at a fixed sale price over a 10-year term

• Six horizontal wells planned for First Gas (Phase 2)

Exploration

Greater Tendrara - two Triassic Trias Argilo-Gréseux Inférieur (TAGI) discoveries

Permit Area

Surrounds the Tendrara Production Concession.

Geology

Only eight wells drilled across the entire area, all encountered evidence of a petroleum system.

Two Triassic TAGI gas discoveries:

• SBK-1 tested by the previous licence holder at a peak rate of 4.41 mmscf/d in July 2000

• TE-10 flowed gas at non-commercial rates

Exploration potential in the Triassic TAGI reservoir of 7.97 Tcf gross/5.98 Tcf net (arithmetical sum of mid-case un-risked original gas in place, internal exploration potential estimates) identified in sub-salt concepts, leads and prospects.

Future Developments

A number of targets are available for near term drilling.

All work commitments completed for the current period. The next voluntary period commences mid-September 2022 with one well commitment to be drilled before September 2024.

Anoual

Permit Area

Adjacent to the Tendrara Production Concession.

Geology

Only one well drilled across the entire area.

Committed geophysical surveying completed with a single well commitment remaining.

Exploration potential in the Triassic TAGI1 reservoir of 11.48 Tcf gross/8.61 Tcf net (arithmetical sum of mid-case un-risked original gas in place, internal exploration potential estimates) identified in sub-salt concepts, leads and prospects.

Future Developments

"M5" prospect matured for drilling a TAGI target, operational planning progressing.

Sidi Mokhtar

Permit Area

The permit is located on the Atlantic seaboard of Morocco approximately 100 kms to the west of Marrakech.

In 2016, Sound Energy entered into binding agreements with Maghreb Petroleum Exploration S.A and PetroMaroc Corporation Plc to acquire a 75% operated position in the Sidi Mokhtar Petroleum Agreement. ONHYM retains the remaining 25% position under the Petroleum Agreement. In July 2017, the Company reported the results of a re-entry, completion, perforation and flow testing of the existing Koba-1 well, focused on previously producing relatively shallow gas reservoir.

Strategically, the Company has shifted its focus on the Sidi Mokhtar area towards what it believes to be the potentially more significant opportunity of the deeper Triassic TAGI and Palaeozoic gas plays in the region already demonstrated by the gas and condensate producing adjacent Meskala Field operated by our partner ONHYM. In June 2018, the Company was awarded a new eight-year Petroleum Agreement and is now actively seeking a farm-in partner to participate in a geophysical survey programme focused on these

deeper objectives.

In October 2020, the Company announced a two-year extension to the initial period of the Sidi Mokhtar licence and that the work programme for the initial period of the Sidi Mokhtar permit remained unchanged.

Geology

The Sidi Mokhtar permit hosts a variety of proven plays. Previous exploration has focused on the shallower post- salt plays. Sound Energy believes that the deeper, sub-salt Triassic and Palaeozoic plays, already proven by the Meskala Gas Field, may contain significant prospective resources, in excess of any discovered volumes in the shallower stratigraphy.

Un-risked exploration potential of up to 9 Tcf (internal exploration potential estimates, arithmetical sum of mid-case unrisked original gas in place) following interpretation of the historical 2D seismic. The Company believes the pre-salt plays have been overlooked in the region with limited drilling to specifically target these deeper successions.

The sub-salt plays are underexplored with more than 60 historical exploration wells focused on shallower objectives in the Jurassic post-salt carbonate successions. The few historical sub-salt tests were drilled on poor sub-salt seismic imaging. Recent improvements in seismic acquisition and processing technologies are expected to provide enhanced imaging of the sub-salt structure and geology.

Sound believes that all elements of petroleum system are present and commissioned integrated geological mapping, basin restoration and 3D petroleum system modelling to de-risk the Triassic and Palaeozoic plays in the basin, proven by the Meskala Field which produces gas and condensate from a Triassic reservoir. Note that the salt forms a critical and extensive seal retaining sub-salt overpressures and preserving this deeper petroleum system from the later Atlantic and Alpine tectonics.

Future Developments

Our next step is to mature the identified leads to drillable prospects with improved seismic imaging. We aim to acquire new, high-quality 2D seismic data, focused on improving the sub-salt imaging. This work is currently hoped to culminate in an exploration well targeting a high-impact gas prospect.

Financial Review

Income Statement

The profit for the year before tax from continuing operations was £2.4 million (2020: £18.8 million loss). Reversal of impairment of development assets of £4.0 million (2020: £9.8 million impairment loss) related to the TE-5 Horst production concession following revision to forecast assumptions, primarily higher forward Brent price and gas price assumption in line with long-term market price forecast as at 31 December 2021 compared to the position as at 31 December 2020. Administrative costs at £1.7 million were 42% lower than 2020 administration costs (£2.9 million) due to continued focus on cost reduction.

Foreign exchange gains primarily related to intra-Group loans and offset by exchange losses in euro denominated borrowings. Foreign exchange gains and losses arising from intercompany loans that originated on acquisition of Moroccan licences are recognised in the other comprehensive income section of the statement of comprehensive income.

Cash Flow/Financing

During 2021, equity issuances raised approximately £2.0 million (2020: £4.6 million) net of issue costs.

Financing costs were £2.3 million (2020: £3.3 million), primarily due to amortised costs of the notes, net of interest capitalised to the development and exploration licences of £0.1 million (2020: £0.1 million). The decline in finance costs arose due to restructuring of the Company's €28.8 million bond which inter alia extended the maturity of the loan notes to 21 December 2027, converted EUR 3,479,999 of the notes to 141,176,448 new ordinary shares in the Company and amended the coupon structure from a 5% cash coupon per annum to a 2% cash coupon per annum together with a deferred 3% per annum coupon, payable at maturity. Further details on the restructuring are provided in note 9.

As part of the 2018 Italy divestment agreement, the Company is entitled to receive the proceeds, upon the sale, of land associated with the former Badile onshore exploration permit (''Badile land'').

In March 2021 a partial sale of the Badile land for €250,000 occurred which, after deducting amounts then due from the Company for Badile land remediation, the Company received net proceeds of €183,000. The sale of remaining area of the Badile land is expected to complete during 2022 for gross proceeds of €350,000.

The Group spent £1.2 million (2020: £1.3 million) on investing activities during 2021 (net of £0.2 million receipt from interest in Badile land) which consisted of spend on the Group's Morocco licences and capitalised general and administrative expenses.

Balance Sheet

As at 31 December 2021, the carrying amount of property, plant and equipment was £139.7 million (2020: £133.4 million), primarily related to the development and production assets in Morocco with a carried value of £139.6 million (2020: £133.2 million) after taking account of impairment reversal, additions and foreign exchange movement.

Additions of £0.7 million intangible assets largely consisted of capitalised general and administrative expenses.

The Company has a carrying amount of approximately £0.7 million (2020: £1.0 million) as interest in Badile land. The Company expects the sale of Badile Area 2 to be completed before the end of 2022.

Other receivables amounting to £0.9 million (2020: £1.4 million), primarily related to receivables from our partners in Morocco licences and recoverable VAT in Morocco.

Trade and other payables amounting to £1.5 million (2020: £2.2 million), primarily related to payables and accruals for the operations in the Group's licences in Morocco, where the Group, as operator, recognises 100% of the liability and receives funds from partners to pay the partners' share. The Company has a carrying amount of £0.4 million (2020: £0.5 million) relating to the obligation for the Badile land remediation in line with the 2018 Italy divestment agreement.

During 2021 the Company issued 302,939,518 shares of which 159,731,651 were issued for cash and 143,207,867 were non-cash share issues. The primary non-cash share issue related to 141,176,448 shares issued to the Company's bondholders as part of corporate bond restructuring in April 2021.

Going Concern

As detailed in note 1, the Company's cash flow forecasts for the next twelve-month period to March 2023, indicated that additional funding will be required to enable the Company to meet its obligations. These conditions, along with other matters described in note 1, indicate existence of a material uncertainty on the Company's ability to continue as going concern.

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2021

	Notes	2021 £'000s	2020 £'000s
Continuing operations
Revenue		-	-
Other income	3	223
Reversal of impairment/(impairment loss) on development assets and exploration costs		4,024	(9,777)
Gross profit/(loss)		4,247	(9,777)
Administrative expenses		(1,695)	(2,904)
Group operating profit/(loss) from continuing operations		2,552	(12,681)
Finance revenue		4	46
Foreign exchange gain/(loss)		2,210	(2,877)
Finance expense	9	(2,306)	(3,304)
Profit/(loss) for the year before taxation		2,460	(18,816)
Tax expense	4	(42)	-
Profit/(loss) for the year after taxation		2,418	(18,816)
Other comprehensive income/(loss)
Items that may subsequently be reclassified to the profit and loss account
Foreign currency translation gain/(loss)		1,179	(4,010)
Total comprehensive profit/(loss) for the year		3,597	(22,826)
Profit/(loss) for the year attributable to:
Owners of the Company		3,597	(22,826)

	Notes	2021 Pence	2020 Pence
Basic and diluted profit/loss per share for the year attributable to the equity shareholders of the parent (pence)	5	0.16	(1.54)

Consolidated Balance Sheet

as at 31 December 2021

	Notes	2021 £'000s	2020 £'000s
Non-current assets
Property, plant and equipment	6	139,666	133,387
Intangible assets	7	31,598	30,657
Interest in Badile land		663	988
		171,927	165,032
Current assets
Inventories		871	912
Other receivables		852	1,371
Prepayments		31	23
Cash and short-term deposits		2,913	4,468
		4,667	6,774
Total assets		176,594	171,806
Current liabilities
Trade and other payables		1,500	2,206
Lease liabilities		-	30
Loans and borrowings	9	-	24,709
		1,500	26,945
Non-current liabilities
Loans and borrowings	9	20,039	-
		20,039	-
Total liabilities		21,539	26,945
Net assets		155,055	144,861
Capital and reserves
Share capital and share premium		34,573	29,540
Accumulated surplus		123,872	117,334
Warrant reserve		1,534	4,090
Foreign currency reserve		(4,924)	(6,103)
Total equity		155,055	144,861

Group Statements of Changes in Equity

for the year ended 31 December 2021

	Notes	Share capital £'000s	Share premium £'000s	Accumulated surplus £'000s	Warrant reserve £'000s	Foreign currency reserves £'000s	Total equity  '000s
At 1 January 2021		13,262	16,278	117,334	4,090	(6,103)	144,861
Total profit for the year		-	-	2,418	-	-	2,418
Other comprehensive income		-	-	-	-	1,179	1,179
Total comprehensive income		-	-	2,418	-	1,179	3,597
Issue of share capital	8	3,030	2,004	-	-	-	5,034
Share issue costs		-	(1)	-	-	-	(1)
Fair value of warrants issued during the year		-	-	-	1,534	-	1,534
Reclassification on expiry of warrants		-	-	4,090	(4,090)	-	-
Share-based payments		-	-	30	-	-	30
At 31 December 2021		16,292	18,281	123,872	1,534	(4,924)	155,055

	Notes	Share capital £'000s	Share premium £'000s	Accumulated surplus £'000s	Warrant reserve £'000s	Foreign currency reserves £'000s	Total equity  '000s
At 1 January 2020		10,796	14,039	135,481	4,090	(2,093)	162,313
Total loss for the year		-	-	(18,816)	-	-	(18,816)
Other comprehensive income		-	-	-	-	(4,010)	(4,010)
Total comprehensive loss		-	-	(18,816)	-	(4,010)	(22,826)
Issue of share capital	8	2,466	2,656	-	-	-	5,122
Share issue costs		-	(417)	-	-	-	(417)
Share-based payments		-	-	669	-	-	669
At 31 December 2020		13,262	16,278	117,334	4,090	(6,103)	144,861

Group Statement of Cash Flows

for the year ended 31 December 2021

	Notes	2021 £'000s	2020 £'000s
Cash flow from operating activities
Cash flow from operations		(1,513)	(1,873)
Interest received		4	46
Tax paid		(42)	-
Net cash flow from operating activities		(1,551)	(1,827)
Cash flow from investing activities
Capital expenditure		(959)	(461)
Exploration expenditure		(454)	(821)
Receipt from interest in Badile land		218	-
Net cash flow from investing activities		(1,195)	(1,282)
Cash flow from financing activities
Net proceeds from equity issue		2,000	4,589
Interest payments	9	(878)	(1,269)
Lease payments		(31)	(128)
Net cash flow from financing activities		1,091	3,192
Net (decrease)/increase in cash and cash equivalents		(1,655)	83
Net foreign exchange difference		100	(223)
Cash and cash equivalents at the beginning of the year		4,468	4,608
Cash and cash equivalents at the end of the year		2,913	4,468

Note to Statement of Cash Flows

for the year ended 31 December 2021

	Notes	2021 £'000s	2020 £'000s
Cash flow from operations reconciliation
Profit/(loss) for the year before tax		2,460	(18,816)
Finance revenue		(4)	(46)
Decrease in drilling inventories		41	102
Decrease in receivables and prepayments		511	139
Decrease in accruals and short-term payables		(841)	(315)
(Reversal of impairment)/impairment loss on development assets and exploration costs		(4,024)	9,777
Impairment of interest in Badile land		50	-
Depreciation		168	328
Share-based payments charge and remuneration paid in shares		30	777
Finance costs and exchange adjustments		96	6,181
Cash flow from operations		(1,513)	(1,873)

Non-cash transactions during the year included the issue of 141,176,448 ordinary shares at a price of 2.125 pence per share as part of restructuring of the Company's loan Notes. The Company issued 322,365 ordinary shares to former employees under the Company's RSU plan. 1,709,054 ordinary shares were issued at approximately 1.86 pence per share to a third party for services provided.

The Group has provided collateral of $1.75 million (2020: $1.75 million) to the Moroccan Ministry of Petroleum to guarantee the Group's minimum work programme obligations for the Anoual and Sidi Mokhtar licences. The cash is held in a bank account under the control of the Company and as the Group expects the funds to be released as soon as the commitment is fulfilled on this basis the amount remains included within cash and cash equivalents.

Notes to the Financial Statements

for the year ended 31 December 2021

1 Accounting Policies

Sound Energy plc is a public limited Company registered and domiciled in England and Wales under the Companies Act 2006. The Company's registered office is 20 St Dunstan's Hill, London, EC3R 8HL.

The consolidated financial information contained within this announcement does not constitute statutory accounts for the year ended 31 December 2021 within the meaning of Section 434 of the Companies Act 2006 but is derived from those audited accounts. The auditors reported on those accounts and their report was unqualified and did not contain any statement under section 498(2) or section 498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2021 will be delivered to the Registrar of Companies in due course. The annual report and statutory accounts will be sent to shareholders and will be made available to the public on the Company's website: www.soundenergyplc.com or, upon request, copies may be obtained from the Company Secretary at the registered office of Sound Energy plc 20 St Dunstan's Hill, London, EC3R 8HL .

(a) Basis of preparation

The financial statements of the Group and its parent Company have been prepared in accordance with UK-adopted International Financial Reporting Standards.

The consolidated financial statements have been prepared under the historical cost convention, except to the extent that the following policies require fair value adjustments. The Group and its parent Company's financial statements are presented in sterling (£) and all values are rounded to the nearest thousand (£'000) except when otherwise indicated.

The principal accounting policies set out below have been consistently applied to all financial reporting periods presented in these consolidated financial statements and by all Group entities, unless otherwise stated. All amounts classified as current are expected to be settled/recovered in less than 12 months unless otherwise stated in the notes to these financial statements.

The Group and its parent Company's financial statements for the year ended 31 December 2021 were authorised for issue by the Board of Directors on 23 March 2022.

Going concern

As at 28 February 2022, the Group's cash balance was £7.9 million (including approximately £1.3 million held as collateral for a

bank guarantee against licence commitments). The Directors have reviewed the Company's cash flow forecasts following the

taking of micro-LNG FID and reflecting expected costs. While the Company's funding obligation of the micro-LNG project is financed through associated commercial arrangements, the forecasts and projections indicate that to fulfil its other obligations the Company will require additional funding.

The COVID-19 pandemic has not had a material impact on the Company's operations. Following the sanctioning of the micro-

LNG project the Company will continue to monitor the situation as deterioration could impact the supply chain and affect the

project schedule and therefore could impact the Company's liquidity.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability

to continue as a going concern. These financial statements do not include adjustments that would be required if the Company

was unable to continue as a going concern. The Company continues to exercise cost control to conserve cash resources and

the Directors believe that there are several corporate funding options available to the Company, including a cash generative

acquisition. Furthermore, based upon the Company's proven success in raising capital in the London equity market and

based on feedback from advisors, the Directors have a reasonable expectation that the Company and the Group will be able

to secure the funding required to continue in operational existence for the foreseeable future and have made a judgement

that the Group will continue to realise its assets and discharge its liabilities in the normal course of business. Accordingly, the

Directors have adopted the going concern basis in preparing the consolidated financial statements.

Use of estimates and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the impairment of intangible exploration and evaluation ("E&E") assets, impairment of development and production assets, investments, warrants, taxation and the estimation of share-based payment costs.

E&E, development and production assets

When considering whether E&E assets are impaired the Group first considers the IFRS 6 indicators set out in note 7. The making of this assessment involves judgement concerning the Group's future plans and current technical and legal assessments. In considering whether development and production assets are impaired the Group considers various impairment indicators and whether any of these indicates an impairment. If those indicators are met a full impairment test is performed.

lmpairment test

When value in use calculations are undertaken, management estimates the expected future cash flows from the asset and chooses a suitable discount rate in order to calculate the present value of those cash flows. In undertaking these value in use calculations, management is required to make use of estimates and assumptions similar to those described in the treatment of E&E assets above. Further details are given in note 6.

At 31 December 2021, the Company's market capitalisation was £35.0 million, which is below the Group and Company's net asset value of £155.1 million and £145.2 million respectively. Management considers this to be a possible indication of impairment of the Group and Company's assets. A significant portion of the Group's net assets is the carrying value of the development and producing assets and disclosures relating to management's assessment of impairment for these assets and the investment in subsidiaries are included in note 6, on the basis that the recoverability of the investment in subsidiaries in the Company balance sheet is linked to the value of the development and producing assets as ultimately the cash flows these generate will determine the subsidiaries' ability to pay returns to the Company.

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm's length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a discounted cash flow model (''DCF model''). The cash flows are derived from latest budgets, expenditure and price data in signed gas sales agreement, project contract or agreed heads of terms and latest management plans on project phasing. The recoverable amount is sensitive to the discount rate as well as the Brent price assumption that impacts condensate sales pricing in the DCF model. The carrying amount of the development and production assets and parent Company investment in subsidiaries increased by approximately £4.0 million following a reversal of impairment during the year. The key assumptions used to determine the recoverable amount of the development and production assets are disclosed in note 6.

Share-based payment

The estimation of share-based payment costs requires the selection of an appropriate valuation model, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs for which arise from judgements relating to the continuing participation of key employees.

Fair value of warrants

Significant judgement and estimation is also required in the determination of the fair value of warrants.

Taxation

The Group seeks professional tax and legal advice to make a judgement on application of tax rules on underlying transactions within the Group or with third parties. Tax treatment adopted by the Group may be challenged by tax authorities. In 2020, Morocco tax authority informed the Group that it intended to claim taxes on historical acquisition of licences in Eastern Morocco by the Group. The Group believes that the Morocco tax authority has misunderstood or misinterpreted the underlying transactions and has appealed against the assessment. The matter is now pending in Court. In May 2021, the Group received notification from Morocco tax authority of intention to assess additional VAT and withholding taxes on historical transactions of the Company's subsidiary entity, Sound Energy Morocco SARL AU. The Group appealed the assessment. Accordingly, no liability has been recognised in the financial statements but the assessment is considered to be a contingent liability. A disclosure has been made in note 4.

Intercompany loans

The Company has funded its subsidiaries through non-interest bearing loans payable on demand. Given that the Company has no intention to call in the loans in the foreseeable future, the loans are classified as non-current investments. Other source of estimate concern IFRS 9 on intercompany loans at parent Company level but is not considered likely subject to material change in the coming 12 months.

(b) Investments in subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Such power, generally but not exclusively, accompanies a shareholding of more than one-half of the voting rights. The Group uses the purchase method of accounting for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Costs of acquisition are expensed during the period they are incurred.

(c) Foreign currency translation

The functional currency of the Company is GBP sterling. The Group also has subsidiaries whose functional currencies are US dollar.

Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.

On consolidation, the assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at weighted average exchange rates for the year, unless this is not a reasonable approximation of the rates on the transaction dates. The resulting exchange differences are recognised in other comprehensive income and held in a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that foreign operation is recognised in the income statement.

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 2021, the Group's exploration and appraisal activities were primarily carried out in 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 segments are included in the following tables.

Segment results for the year ended 31 December 2021:

	Corporate £'000s	Development and production £'000s	Exploration and appraisal £'000s	Total £'000s
Other income	-	-	223	223
Reversal of impairment of development assets and exploration costs	-	4,024	-	4,024
Administration expenses	(1,695)	-	-	(1,695)
Operating profit/(loss) segment result	(1,695)	4,024	223	2,552
Interest receivable	4	-	-	4
Finance costs and exchange adjustments	(96)	-	-	(96)
Profit/(loss) for the period before taxation from continuing operations	(1,787)	4,024	223	2,460

The segments assets and liabilities at 31 December 2021 were as follows:

	Corporate £'000s	Development and production £'000s	Exploration and appraisal £'000s	Total £'000s
Non-current assets	701	139,628	31,598	171,927
Current assets	3,097	244	1,326	4,667
Liabilities attributable to continuing operations	(20,669)	(94)	(776)	(21,539)

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

	Europe £'000s	Morocco £'000s
Development and production assets	-	139,628
Interest in Badile land	663	-
Fixtures, fittings and office equipment	5	33
Exploration and evaluation assets	-	31,598
Total	668	171,259

Segment results for the year ended 31 December 2020:

	Corporate £'000s	Development and production £'000s	Exploration and appraisal £'000s	Total £'000s
Impairment of development assets and exploration costs	-	(9,787)	10	(9,777)
Administration expenses	(2,904)	-	-	(2,904)
Operating loss segment result	(2,904)	(9,787)	10	(12,681)
Interest receivable	46	-	-	46
Finance costs and exchange adjustments	(6,181)	-	-	(6,181)
Loss for the period before taxation from continuing operations	(9,039)	(9,787)	10	(18,816)

The segments assets and liabilities at 31 December 2020 were as follows:

	Corporate £'000s	Development and production £'000s	Exploration and appraisal £'000s	Total £'000s
Non-current assets	1,192	133,243	30,597	165,032
Current assets	4,598	800	1,376	6,774
Liabilities attributable to continuing operations	(25,878)	(58)	(1,009)	(26,945)

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

	Europe £'000s	Morocco £'000s
Development and production assets	-	133,243
Interest in Badile land	988	-
Fixtures, fittings and office equipment	5	108
Right-of-use assets	31	-
Exploration and evaluation assets	-	30,597
Software	-	60
Total	1,024	164,008

3 Other Income

	2021 £'000s	2020 £'000s
Research and development expenditure credit	223	-

During the year the Company's subsidiaries received credit under the HMRC 's Research and Development Expenditure Credit (RDEC) scheme for qualifying activities undertaken during 2018 and 2019. The amount was not recognised when the expenditure was incurred due to uncertainty as to whether it would qualify for a credit under the RDEC scheme.

4 Taxation

a) Analysis of the tax charge for the year:

	2021 £'000s	2020 £'000s
Current tax
UK corporation tax	-	-
Adjustment to tax expense in respect of prior years	(42)	-
Overseas tax	-	-
Total current tax (charge)/credit	(42)	-
Deferred tax credit arising in the current year	-	-
Total tax (charge)/credit	(42)	-

(b) Reconciliation of tax charge

	2021 £'000s	2020 £'000s
Profit/(loss) before tax	2,460	(18,816)
Tax (charge)/credit charged at UK corporation tax rate of 19% (2020: 19%)	(467)	3,575
Tax effect of:
Expenses not deductible for tax purposes	(38)	(189)
Temporary differences not recognised	451	(3,409)
Differences in overseas tax rates	12	23
Total tax (charge)/credit	(42)	-

Deferred tax assets have not been recognised in respect of tax losses available due to uncertainty of utilisation of those assets. Unrecognised tax losses as at 31 December 2021 were estimated to be approximately £6.1 million (2020: £8.2 million).

In August 2020, the Group received a notification from the tax authority in Morocco of its intention to assess Sound Energy Morocco East Limited (''SEME'') for additional withholding taxes and VAT liabilities totalling approximately $14 million, and intention to consider a revision of the tax bases for previously submitted corporation tax returns, which could lead to additional corporate taxes being assessed. The Group believes that the assessment arises from a misunderstanding of the underlying transactions and appealed to the Local tax committee (''LTC''). According to the tax authority original assessment, the main assessment related to the historical licensing changes of the Tendrara Lakbir Exploration Permits and the transfer of Operatorship from Sound Energy Morocco SARL AU ("SARL AU") to SEME raised taxation claims against SEME. In August 2021 the Group received written notification that the LTC found the assessment on the transfer of intangible assets would be dropped. The LTC did not drop the assessment relating to the tax authority's claim that there was a disposal of assets by SEME to its partner, Schlumberger on entry to a brand-new petroleum agreement for exploration at Greater Tendrara.

The Group has appealed to the court to have the findings that were upheld by the LTC be dropped and the matter is pending at the court.  

In May 2021, the Group received from the tax authority an information request and a notification (1st notification) of its intention to assess SARL AU. The information request levied penalties (approximately $0.3 million) claiming late remittance of withholding taxes and the notification intended to assess additional VAT and withholding taxes of approximately $22.2 million. The Group believes that the assessment arises from a misunderstanding of the historical licence relinquishment and intercompany funding arrangements and in June 2021, appealed against the assessment. Following SARL AU appeal, in August 2021, the tax authority issued a notification (2nd notification) retaining the assessment included in the 1st notification. The Group has appealed to the LTC which has up to 12 months to make a decision.

No liability has been recognised in the financial statements but the assessments are considered to be a contingent liability.

5 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 year. The calculation of diluted profit/(loss) per share is based on profit/(loss) after tax on the weighted average number of ordinary shares in issue plus weighted average number of shares that would be issued if dilutive options, RSUs and warrants were converted into shares. Basic and diluted profit/(loss) per share is calculated as follows:

	2021 £'000s	2020 £'000s
Profit/(loss) for the year after taxation	2,418	(18,816)

	2021 Million	2020 Million
Basic weighted average shares in issue	1,494	1,225
Dilutive potential ordinary shares	1	-
Diluted weighted average number of shares	1,495	1,225

	2021 Pence	2020 Pence
Basic profit/(loss) per share	0.16	(1.54)
Diluted profit/(loss) per share	0.16	(1.54)

Dilutive potential ordinary shares included in the calculation of diluted weighted average number of shares relates to the Company's RSUs. Options and warrants totalling 105 million were all anti-dilutive and were not included in the calculation of diluted weighted average number of shares. In 2020, the effect of the potential dilutive shares on the earnings per share would have been anti-dilutive and therefore were not included in the calculation of diluted earnings per share.

6 Property, Plant and Equipment

	Development and production assets £'000s	Fixtures, fittings and office equipment £'000s	Right-of-use assets £'000s	2021 £'000s
Cost
At 1 January 2021	142,447	778	150	143,375
Additions	997	-	-	997
Disposal	-	(155)	(150)	(305)
Exchange adjustments	1,291	3	-	1,294
At 31 December 2021	144,735	626	-	145,361
Impairment and depreciation
At 1 January 2021	9,204	665	119	9,988
(Reversal)/charge for period	(4,024)	77	31	(3,916)
Disposal	-	(155)	(150)	(305)
Exchange adjustments	(73)	1	-	(72)
At 31 December 2021	5,107	588	-	5,695
Net book amount	139,628	38	-	139,666

	Development and production assets £'000s	Fixtures, fittings and office equipment £'000s	Right-of-use assets £'000s	2020 £'000s
Cost
At 1 January 2020	146,876	785	410	148,071
Additions	494	-	-	494
Derecognition on termination of lease	-	-	(262)	(262)
Exchange adjustments	(4,923)	(7)	2	(4,928)
At 31 December 2020	142,447	778	150	143,375
Impairment and depreciation
At 1 January 2020	-	544	185	729
Charge for period	9,787	128	133	10,048
Derecognition on termination of lease	-	-	(193)	(193)
Exchange adjustments	(583)	(7)	(6)	(596)
At 31 December 2020	9,204	665	119	9,988
Net book amount	133,243	113	31	133,387

During the year the Company acquired Schlumberger Silk Route Services Limited (''SSRSL''). The transaction was accounted for as an acquisition of a group of assets. SSRL held a 27.5% participating interest in the Anoual and Greater Tendrara exploration permits in Eastern Morocco (the ''Exploration Permits''), together with a 27.5% indirect interest in the Tendrara Concession (the ''Concession'') through its contractual relationship with the Group. Following the completion of the acquisition, the Company controls operated working interest of 75% in the Exploration Permits and in the Concession. The consideration for the acquisition was an initial payment of US$1 (one US dollar) and the Group will make future contingent payments for an amount equivalent to between 8% and 11% of total net profits (after costs, taxes, and other applicable deductions) (net profit interest or ''NPI'') arising from the Concession over a period of 12 years from first commercial production from the Concession. In addition, in the event of a disposal of the exploration permits prior to the end of February 2023, the Seller would be entitled to receive a share of any cash proceeds.

The additions in the table above of £0.5 million includes approximately £0.2 million transaction costs capitalised relating to the SSRSL acquisition. The NPI is expected to be recognised on first gas from the Concession as that is the event that would trigger the crystallisation of the liability.

The Company's market capitalisation was £35.0 million as at 31 December 2021, which is below the Group's net assets of £155.1 million and the Company's net assets of £145.2 million. An impairment indicator therefore exists. The Company is pursuing a micro-LNG development (phase 1) followed by full field development (phase 2) of its TE-5 Horst concession at the Group's Tendrara licence and an impairment test was undertaken on the carrying amount of the TE-5 Horst concession. The Company used a DCF model (''Model'') to calculate the recoverable amount for the Company's share of the TE-5 Horst concession. The Model has an NPV of $188.2 million (£139.3 million) (excluding interest acquired from SSRSL) which led to recognition of an impairment reversal of £4.0 million. The impairment reversal arose primarily due to higher Brent and gas price assumptions in the Model in line with market long-term price assumption at the end of 2021 compared to end of 2020.

The Model covers the period 2022 to 2045. The input to the Model included a discount rate of 10% and phase 1 gas price of $8.0 per mmbtu rising to the phase 1 gas price ceiling of 8.346 per mmbtu, indexed using a combination of the European Title Transfer Facility and United States Henry Hub benchmark indexes. Phase 2 gas price used is a fixed price for the first 10 years for annual volume of 0.3 bcm and the price for additional volume indexed to Brent. The model included Brent price range of $75 per bbl in 2022 to $79 per bbl in 2031 (2020: $50/bbl in 2021 to $67/bbl in 2030), increasing at 2% per annum thereafter consistent with published sources. The base gas prices used are consistent with LNG GSA for the phase 1 development and Phase 2 gas price is based on GSA signed with ONEE for the first 10 years and price for additional volume is per original binding memorandum of understanding with ONEE. The production volumes and production profile was based on the 2018 CPR for TE-5 Horst.

Well costs assumptions used were based on management's past experience, mLNG plant leasing costs were based on contract with the micro-LNG plant contractor and pipeline related costs were based on Head of Terms entered into with a consortium of partners that had offered to provide a build, own, operate and transfer (''BOOT'') solution for the phase 2 of the development. The Company's latest budgets covered the period to 2026 but the model extends to 2045, as that is the period required to produce the gas resources at TE-5 Horst concession and economic cut-off. A change in the discount rate by 1% has a $20 million (£14.8 million) impact on the NPV and change in the Brent price by $1/bbl has a $0.7 million (£0.5million) impact on the NPV.

7 Intangibles

	Software £'000s	Exploration & Evaluation Assets £'000s	2021 £'000s
Cost
At 1 January 2021	349	41,203	41,552
Additions	-	698	698
Exchange adjustments	3	303	306
At 31 December 2021	352	42,204	42,556
Impairment and depreciation
At start of the year	289	10,606	10,895
Charge for the year	60	-	60
Exchange adjustments	3	-	3
At 31 December 2021	352	10,606	10,958
Net book amount	-	31,598	31,598

	Software £'000s	Exploration & Evaluation Assets £'000s	2020 £'000s
Cost
At 1 January 2020	359	41,272	41,631
Additions	-	939	939
Exchange adjustments	(10)	(1,008)	(1,018)
At 31 December 2020	349	41,203	41,552
Impairment and depreciation
At start of the year	231	10,616	10,847
Charge/(release) for the year	67	(10)	57
Exchange adjustments	(9)	-	(9)
At end of the year	289	10,606	10,895
Net book amount at 31 December 2020	60	30,597	30,657

Exploration and evaluation assets

Details regarding the geography of the Group's E&E assets is contained in note 2. The Directors assess for impairment when facts and circumstances suggest that the carrying amount of an E&E 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 2021 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 and not be renewed;

b.  determined that further E&E expenditure is either budgeted or planned for all licences;

c.  not decided 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.

On the basis of the above assessment, the Directors are not aware of any facts or circumstances that would suggest the carrying amount of the E&E asset may exceed its recoverable amount. During the year, the Group had capitalised interest costs of approximately £0.1 million (2020: £0.1 million).

8 Capital and Reserves

	2021 Number of shares	£'000s	2020 Number of shares	£'000s
Ordinary shares - 1p	1,629,183,907	16,292	1,326,244,389	13,262
			2021 Number of shares	2020 Number of shares
At 1 January			1,326,244,389	1,079,612,264
Issued during the year for cash			159,731,651	238,537,888
Non-cash share issue			143,207,867	8,094,237
At 31 December			1,629,183,907	1,326,244,389

Non-cash transactions during the year included the issue of 141,176,448 ordinary shares at a price of 2.125 pence per share as part of restructuring of the Company's loan Notes. The Company issued 322,365 ordinary shares to former employees under the Company's RSU plan. 1,709,054 ordinary shares were issued at approximately 1.86 pence per share to a third party for services provided.

Share issues

In April 2021, the Company issued 141,176,448 shares at 2.125 pence per share as part of the restructuring of the Company's then existing €28.8 million bond.

In May 2021, the Company issued 322,365 shares following vesting of RSUs held by former employees of the Company.

In June 2021, the Company issued 808,095 shares at approximately 1.86 pence per share to a third party as payment for services provided to the Company.

In July 2021, the Company issued 159,731,651 shares at a price of 1.2521 pence per share following equity subscription by Afriquia Gaz S.A.

In September 2021, the Company issued 900,959 shares at approximately 1.86 pence per share to a third party as payment for services provided to the Company.

Reserves

In 2018, the Company sought and was granted a court order approving a capital reduction following the cancellation of the share premium account. This resulted in the transfer of £277.7 million to distributable reserves.

9 Loans and Borrowings

	2021 £'000s	2020 £'000s
Current liabilities
At 1 January	24,709	-
Amount converted into ordinary shares of the Company	(3,000)	-
Fair value of warrants issued	(1,534)	-
Amortised finance charges	1,564	1,731
Interest payments	(389)	(647)
Exchange adjustments	(919)	(220)
Reclassification (to)/from non-current liability	(20,431)	23,845
At 31 December	-	24,709
Non-current liabilities
Secured bonds
At 1 January	-	21,235
Reclassification from current liabilities	20,431	-
Amortised finance charges	810	1,637
Interest payments	(489)	(622)
Exchange adjustments	(713)	1,595
Reclassification to current liabilities	-	(23,845)
At 31 December	20,039	-

In April 2021, the Company successfully restructured its then outstanding €28.8 million secured bonds (the "Bonds"). Following the restructuring the revised terms of the Bonds are as below:

1.  The Maturity date of the Bonds was extended by six years from 21 June 2021 to 21 December 2027;

2.  The outstanding principal amount of the Bonds will be partially settled, at a rate of 5% every six months, commencing on 21 December 2023;

3.  Approximately €3.5 million of the Bonds were converted to a total of 141,176,448 new ordinary shares in the Company at a conversion price of 2.125 pence per share; 

4.  The Bonds bear until maturity 2% cash interest paid per annum and 3% deferred interest per annum to be paid at redemption for the period commencing on 21 June 2021;

5.  The Company issued to the Bondholders 99,999,936 warrants to subscribe for new ordinary shares in the Company at an exercise price of 2.75 pence per share. The warrants expire on 21 December 2027; and 

6.  The Company will have the right, at any time until 21 December 2024, to redeem the Bonds in full for 70% of the principal value then outstanding together with any unpaid interest at the date of redemption.

After taking account of the revised terms above, the effective interest rate on the Bonds is approximately 6.2%.

Reconciliation of liabilities arising from financing activities

			Non-cash changes
2021	1 January 2021 £'000s	Cash flows £'000s	Amortised finance charges £'000s	Exchange adjustments £'000s	Issue of equity and fair value of warrants	31 December 2021 £'000s
Long-term borrowings	24,709	(878)	2,374	(1,632)	(4,534)	20,039
Leases	30	(31)	1	-	-	-
Total liabilities from financing activities	24,739	(909)	2,375	(1,632)	(4,534)	20,039

			Non-cash changes
2020	1 January 2020 £'000s	Cash flows £'000s	Amortised finance charges £'000s	Exchange adjustments £'000s	Termination of lease	31 December 2020 £'000s
Long-term borrowings	21,235	(1,269)	3,368	1,375	-	24,709
Leases	225	(128)	10	2	(79)	30
Total liabilities from financing activities	21,460	(1,397)	3,378	1,377	(79)	24,739

Reconciliation of finance expense

	2021 £'000s	2020 £'000s
Amortised finance charges	2,375	3,378
Less capitalised interest	(69)	(74)
Total external interest for the year	2,306	3,304

10 Post Balance Sheet Events

In January 2022, the Company announced that it was considering a possible offer for Angus. The possible offer would be an all-share offer whereby Angus shareholders would receive the Company's ordinary shares in exchange for their holding in Angus at an agreed exchange ratio. The deadline by which the Company is required to announce a firm intention to make an offer for Angus or announce that it does not intend to make an offer expires on 8 April 2022.

In February 2022, the Company announced that its wholly owned subsidiary, Sound Energy Morocco East Limited had issued a Notice to Proceed to Italfluid Geoenergy S.r.l (the ''Contractor'') and following an initial payment of $5 million will obligate the Contractor to commence works for construction of a Micro-LNG plant for gas processing and liquification in relation to the Phase 1 development of the Company's Tendrara Production Concession (the ''Concession''), Onshore Morocco.

In March 2022, the Company announced a 90-day extension period by which conditions to its binding gas sale and purchase agreement (the ''GSA'') with ONEE in respect of Phase 2 development of the Concession for the sale of natural gas from the Concession over a 10 year period are required to be satisfied. Progress had been made in the preparation of pipeline entry agreements, term sheets for financing, approvals and FID and consequently all parties agreed to a 90 day extension period to the GSA.

In March 2022, the Company announced the entry of a pipeline tie-in agreement to the GME Pipeline with ONHYM in respect of the Phase 2 development of the Concession (the "Pipeline Tie-in Agreement"). The GME Pipeline, which was transferred to Moroccan state-owned entity ONHYM by the previous operator on 1 November 2021, is owned and operated by ONHYM. Pursuant to the Pipeline Tie-in Agreement, ONHYM has now approved the connection of the Concession via a gas export spur pipeline to the GME Pipeline. The entry of the Pipeline Tie-in Agreement fulfils one of the key remaining conditions for the GSA with ONEE.

 

END

 

 

FR EANDDALSAEFA