Final Results

Sound Energy PLC

24 April 2024

 

24 April 2024

SOUND ENERGY PLC

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

FINAL RESULTS

Sound Energy, the transition energy company, announces its audited final results for the year ended 31 December 2023.

HIGHLIGHTS

Substantial 2023 Project execution undertaken - positioned for significant operational and financial progress through development of pivotal Moroccan Tendrara Production Concession, with rig activities from June 2024 and plant commissioning planned by year end

·      Phase 1 Micro LNG (''mLNG'') project (''Phase 1''):

o  Completed mLNG tank foundations and manufacturing of the main components of the outer and inner LNG storage tank in 2023

o  Advanced construction of the access road, which is scheduled for completion summer 2024

o  Design, planning and procurement of equipment for workover of wells TE-6 and TE-7. Initial well works setting packers in each well successfully completed in Q4 2023 with rig activities scheduled for June 2024

o  Processed gas expected at plant by end 2024 with LNG sales thereafter

·      Phase 2 Gas (pipeline) development (''Phase 2'') - financing to be concluded in 2024

o  Receipt of binding conditioned term sheet in June 2023, for project financing from exclusive lead arranger, Attijariwafa Bank, Morocco's largest bank

Corporate - strengthening of financial position

·      In June 2023 the Company entered into a non-binding term sheet with Calvalley Petroleum (Cyprus) Limited for a partial divestment of a net 40% working interest in the Tendrara Production Concession and the Grand Tendrara exploration permit

·      In May 2023 the Company entered into a full and final settlement of its tax disputes with the Moroccan tax authorities and received court papers in June 2023 confirming the withdrawal of the cases between the Company and Moroccan tax authority

·      In June 2023 the Company made a drawdown of £2.5 million of up to £4.0 million senior unsecured convertible bond instrument.

·      In December 2023, restructured the Eurobond such that it will now not be fully redeemed until December 2027 rather than partially from December 2023

·      Phase 2 financing planned to be concluded in 2024 through Project debt and conclusion of partial asset divestment

Graham Lyon, Executive Chairman said:

''Whilst substantial progress had been made in advancing mLNG and the financial foundations for Phase 2, execution and closing of documentation experienced delays. However, timely conclusion of the proposed partnering arrangement and bank debt financing in 2024 will facilitate progress on the pipeline development at Tendrara, as well as funding for further exploration on Grand Tendrara.

The micro-LNG development at Tendrara construction has suffered from supplier delays and is now expected to be ready to receive gas into the plant by the end of 2024 with LNG sales thereafter. The Company continues to uphold strong ESG values and deliver our work in a manner commensurate with our principles. We are pleased to have settled our outstanding tax matters such that we can optimise our resources on field development. We have enjoyed a supportive working relationship with ONHYM, the Ministry and our various contractors in Morocco, and, most importantly, we continue to benefit from the hard work and dedication of our own staff. We will continue to work diligently to deliver value and progress for all our stakeholders during 2024 and beyond, as we focus on delivering material developments in transition energy.''

For further information, visit www.soundenergyplc.com or follow us on twitter @soundenergyplc

Enquiries:

Flagstaff Strategic and Investor Communications Tim Thompson Mark Edwards Alison Allfrey		Tel: [phone] [e-mail]
Sound Energy Graham Lyon, Executive Chairman	[e-mail]
Cavendish Capital Markets - Nominated Adviser Ben Jeynes  Peter Lynch		Tel: [phone]
Zeus - Broker Simon Johnson		Tel:[phone]
Gneiss Energy Limited - Financial Adviser Jon Fitzpatrick Paul Weidman Doug Rycroft		Tel:[phone]

STATEMENT FROM THE EXECUTIVE CHAIRMAN

Introduction

2023 was a year of continued progress, advancing the Tendrara concession development on all fronts: the Phase 1 mLNG development, the Phase 2 Pipeline development and funding, and the announcement of our potential asset partner, in Eastern Morocco.

Phase 1 of the development, the mLNG project, progressed with equipment fabrication, site preparation and construction works undertaken. Materials were purchased, contracts awarded and the two well recompletion preparation work commenced.

Fabrication of equipment and site preparation for the Phase 1 mLNG facility proceeded, delivery and installation work slowed in the second half of 2023 due to the main contractor (Italfluid Geoenergy S.r.l ("Italfluid")) experiencing cost increases and supply chain issues. Italfluid took steps to mitigate its financing obligations and phase its expenditures. The updated schedule shows that the LNG storage tank erection work remains on the critical path and that mechanical completion and commissioning of the processing equipment should occur in 2024 with first gas available for delivery to the gas plant in late 2024 and LNG sales thereafter. Sound Energy is evaluating temporary LNG storage facilities to facilitate LNG sales.

The Phase 2 pipeline gas project requires financing to be arranged and finalised prior to taking a Final Investment Decision (FID). In October 2023, the Company announced an extension to its approximately $235 million debt funding term sheet with Attijariwafa bank, Morocco's largest bank, subject to certain key conditions being concluded. At year end whilst project debt financing, a gas sales agreement and an equity partner had been identified and matured, the associated legal documentation and/or conditions precedent had not been completed or satisfied. 2024 requires that these key agreements are finalised and are unconditional such that financing of the pipeline project can be concluded. During 2024, the Company also plans to refresh the FEED (front end engineering design) that was completed in 2019 before tendering for Phase 2 engineering, procurement and construction (EPC) services in readiness for FID. The Company also announced an extension to the conditional gas sale and purchase agreement with ONEE (Office National de l'Electricité et de l'Eau potable).

As part of our wider efforts to bring funding into our plans for Phase 2, it was announced in June, that the Company had identified Calvalley as a partner for the Tendrara Production Concession and the surrounding Grand Tendrara exploration permits. As at year end, the definitive contractual documentation with Calvalley had not concluded although the process was advancing. The transaction would see Calvalley enter the Concession and Grand Tendrara exploration permits in exchange for development and exploration financing. Returning to exploration offers the near-term opportunity to expand the Company's resource base and unlock its significant basin potential.

It was agreed with ONHYM that all exploration permits were either extended or advanced into the first Complementary Period (at year end we are awaiting the various Authorities final approval of the agreed licences amendments).

We were pleased that the long-running dispute with the Moroccan authorities over tax was settled mid-year, with modest payments phased over a six-year period. The removal of this tax overhang helped unlock financing and partnering opportunities at Tendrara, smoothing the pathway towards Phase 2 FID and, hopefully, further exploration success.

Corporate

In June, we successfully raised £2.5 million through a convertible equity issue, which was priced at 2.25 pence per share (a premium to the prevailing share price at the time), with the funds earmarked for pre-FID activities on Phase 2, new ventures activities and corporate G&A.  In line with the terms of debt issue, the Company issued shares following the conversion of £2.25 million into shares during the second half of the year. In December, the Company successfully gained noteholders' support to modify the Euro bond amortisation obligation (in respect of its Company's Luxembourg listed EUR 28.8m 5.0% senior secured notes), such that the bond will now not be fully redeemed until December 2027 rather than partially from December 2023. This, in turn, improved the Company's working capital position as it moves towards first gas and first revenue, on its Phase 1 project.

Preparing key elements for Phase 2 documentation for the Final Investment Decision, has taken longer than expected, but we anticipate the final stages to be completed in 2024. We have appreciated the ongoing support of our stakeholders and investors throughout the process.

ESG and keeping our people safe sits at the heart of our business and, as operations continued, we have actively monitored and taken timely action on safety or environmental issues, reports or alerts, as they have arisen. The Company has a robust health and safety management system in place, and works hand in hand with our contractors and under the umbrella of our corporate environmental and safety standards. Thanks to strong monitoring and constant improvement of working practices, we have had no serious accidents over the year. Any environmental issues are also recorded and monitored. Finally, we engage proactively with our local communities and have taken steps not only to employ locals where we can, but to keep relevant stakeholders and communities in Morocco  informed about our activities. Good corporate governance is maintained at all levels in particular, we note the new amendments to the QCA governance code and will implement these in due course.

The Company continues to manage its financial resources prudently whilst making significant capital investments in pursuing its strategy. The bridge to fund the company until first revenues from Phase 1 is always under review and a variety of working capital sources evaluated.

Board

During 2023, the Board continued to meet regularly and oversee effective implementation of the Company's strategy. A review of the Board's effectiveness was conducted in 2022. Scope for improvement was identified with many resultant initiatives implemented in the Board's 2023 activities. For example, the Board undertook a focused strategy review session during 2023 reviewing all aspects of the Company business, reflecting on its position in the market, risk profile, asset opportunity, structuring, and scenario planning.

We welcomed Simon Ashby-Rudd as new independent director as Marco Fumagalli stepped down. Simon brings a wealth of knowledge, financial skills and deal-making experience to the Company. We thank Marco for his 9 years of valued service, advice, and support to the Company.

Conclusion

I am pleased that the Company is on a stronger footing both operationally and financially for 2024 and look forward to our delivering upon the compelling investment opportunity open to us in transition energy this year and beyond.

Graham Lyon

Chairman (Executive)

PORTFOLIO REVIEW

A blended portfolio of gas assets

Eastern Morocco

Tendrara Production Concession

Permit Area

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

Geology

The gas is trapped within the Triassic TAGI 1 reservoir within the structural fault block, termed the Tendrara TE-5 Horst, and sealed by the overlying salt. Reservoir characteristics are significantly enhanced by application of proven hydraulic stimulation techniques to increase gas flow rates.

Ongoing and Planned Developments

Planned development of our discovered TE-5 gas to address gas demand in a phased manner is progressing, with Phase I being the implementation of a micro-LNG development scheme (currently underway) and a future Phase 2 being the development of a larger scale central processing facility ("CPF") and gas export pipeline to GME.

Phase 1

Supply of LNG displacing higher carbon footprint energy (such as heavy fuel, petcoke or imported LPG).

Phase 1 Micro LNG Development - Funding arranged to meet Sound Energy's share of sanctioned pre first gas 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 equivalent to approximately 100 million Normal cubic metres of gas (approximately 3.5 billion standard cubic feet of gas per year) over a ten-year period.

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

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

LNG Central Processing Facility is under construction by 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 LNG tank construction capital payments at and from 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 - Tendrara TE-5 Development

Concept - Processed gas as a transition fuel flowing to the GME pipeline:

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

•     Tie-in to existing GME pipeline (Station M04), approved by the GME operator ONHYM

•     Pipeline EIA permit approved and pipeline corridor fully secured. Lease agreements signed with the landowners and the first lease payments have been paid.

•     CPF EIA permit approved

•     Gas Sales Agreement ("GSA") with ONEE (Office National de l'Electricité 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 ten-year term. Extended in 2023.

•     Up to six horizontal wells planned to achieve First Gas (Phase 2)

•     Exclusive partnership with Attijariwafa Bank (which is one of the top banks in Morocco and in Africa and which is part of the Moroccan King's holding, MADA) acting as Lead Debt Arranger in order to fund a substantial part of Phase 2 project. Technical and Legal Due Diligence completed.

Exploration

Grand Tendrara - two Triassic TAGI¹ discoveries

Permit Details
Area	14,411 km2
Status	Petroleum Agreement: Exploration
Effective date	1 October 2018
Term	8 years
Resource Potential	Exploration potential in the Triassic TAGI reservoir of 7.52 Tcf gross/5.64 Tcf net (arithmetical sum of mid-case un-risked GIIP) identified in sub-salt concepts, leads and prospects.

Permit Area

Surrounds the Tendrara Production Concession.

Located for access to Gazoduc Maghreb Europe ("GME") pipeline approximately 120 kilometres to the north. The 522 kilometres long Moroccan section is owned and operated by the Moroccan State. The pipeline connects Morocco to the Spanish/Portuguese gas grids as well as the Moroccan gas-fired-power stations.

Geology

Only eight wells drilled across the entire area, all encountered evidence of a petroleum system. The primary reservoir is the Triassic TAGI1 charged from Palaeozoic petroleum source rocks and sealed by the overlying Triassic salt, which is present across much of the basin. This petroleum play is regionally extensive and extends into Morocco from Algeria.

Two Triassic TAGI¹ gas discoveries exist within the permit area:

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

•     TE-10 flowed gas at non-commercial rates in May 2019

Exploration potential in the Triassic TAGI¹ reservoir of 7.52 Tcf gross/5.64 Tcf net (mid-case unrisked GIIP) identified in sub-salt concepts, leads and prospects.

Future Developments

A number of targets are available for near-term drilling with two features, the SBK structure and the TE-4 Horst, high-graded for drilling. Both these structures were drilled by SBK-1 and TE-4, in 2000 and 2006, respectively, and both encountered gas shows in the TAGI reservoir. SBK-1 flowed gas to surface during testing in 2000 at a peak rate of 4.41 mmscf/d post acidification but was not tested with hydraulic stimulation. TE-4 was tested in 2006 but did not flow gas to the surface. Hydraulic stimulation has proven to be a key technology to commercially unlock the potential of the TAGI gas reservoir in the Tendrara TE-5 Horst gas accumulation and, accordingly, the Company believes this offers potential to develop commercial operations elsewhere in the basin.

The gross exploration potential of these high-graded structures, expressed as GIIP², is as follows:

Target name	Unrisked Volume Potential Gas Initially in Place (Bcf)				Chance of Success
	Gross (100%) basis
	Low	Best	High	Mean
TE-4 Horst Structure	153	260	408	273	36%
SBK-1 Structure	71	130	225	140	50%

A discovery in either structure would have the potential to be commercialised through the proposed development infrastructure centred on the TE-5 Horst, with sufficient capacity in the planned Tendrara Export Pipeline or as standalone mLNG projects.

Subject to approval by the Ministry of Energy and Ministry of Finance, the Company has elected to enter the voluntary first Complementary period, which commenced mid-October 2022 with one well commitment to be drilled before October 2024. A well drilled on either the SBK structure or the TE-4 Horst would satisfy this commitment.

1.     Trias Argilo-Gréseux Inférieur ("TAGI") are sandstones deposited in a fluvial-alluvial environment and are significant oil and gas reservoirs

       across Algeria, extending into Morocco

2.     Internal exploration potential estimates, arithmetical sum of mid-case unrisked Gas Initially In Place ("GIIP")

Anoual

Permit Details
Area	8,873 km2
Status	Petroleum Agreement: Exploration
Effective date	8 September 2017
Term	10 years
Resource Potential	Exploration potential in the Triassic TAGI reservoir of 11.51 Tcf gross/8.63 Tcf net (mid-case un-risked GIIP2) identified in sub-salt concepts, leads and prospects

Permit Area

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

Geology

Only one well drilled across the entire area. The primary reservoir is the Triassic TAGI¹ charged from Palaeozoic petroleum source rocks and sealed by the overlying Triassic salt, which is present across much of the basin. This petroleum play is regionally extensive and extends into Morocco from Algeria. Committed geophysical surveying completed with a single well commitment remaining. Exploration potential in the Triassic TAGI reservoir of 11.51 Tcf gross/8.63 Tcf net (mid-case un-risked GIIP²) identified in sub-salt concepts, leads and prospects.

Future Developments

"M5" prospect high graded for drilling a TAGI¹ target, operational planning is progressing. The Company's estimation of the gross exploration potential of the M5 exploration prospect, a possible candidate for the exploration well, expressed in GIIP², is as follows:

Target name	Unrisked Volume Potential Gas Initially In Place (Bcf)				Chance of Success
	Gross (100%) basis
	Low	Best	High	Mean
M5 Exploration	332	800	1728	943	21%

^1.          Trias Argilo-Gréseux Inférieur ("TAGI") are sandstones deposited in a fluvial-alluvial environment and are significant oil and gas reservoirs across Algeria, extending into Morocco

^2.          Internal exploration potential estimates, arithmetical sum of mid-case unrisked Gas Initially In Place ("GIIP")

Sidi Mokhtar

Permit Details
Area	4,712 km2
Status	Petroleum Agreement: Exploration
Effective date	April 2018
Term	10 years
Resource Potential	Unrisked exploration potential of 8.9 Tcf mid-case unrisked GIIP2 following interpretation of the historical 2D seismic

Permit Area

The permit in which Sound Energy has a 75% interest is located onshore on the Atlantic seaboard of Morocco, approximately 100 kilometres to the west of Marrakech.

In July 2017, the Company reported the results of the re-entry, completion, perforation and flow testing of the existing Koba-1 well, with a focus on previously producing relatively shallow gas reservoir.

Strategically, the Company has shifted its focus on the Sidi Mokhtar area towards what it believes has the potential to be the most significant opportunity amongst the deeper Triassic TAGI¹ 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 partner to participate in a geophysical survey programme focused on these deeper objectives.

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

Geology

There is initial un-risked exploration potential of up to 8.9 Tcf gross gas 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.

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 hoped to lead to an exploration well targeting a high-impact gas prospect.

^1.          Trias Argilo-Gréseux Inférieur ("TAGI") are sandstones deposited in a fluvial-alluvial environment and are significant oil and gas reservoirs across Algeria, extending into Morocco

^2.          Internal exploration potential estimates, arithmetical sum of mid-case unrisked Gas Initially In Place ("GIIP")

Financial Review

Income Statement

The pre-tax loss for the year from continuing operations was £7.2 million (2022: £6.6 million, profit). Results of an impairment test on the Tendrara Production Concession carrying amount indicated that no impairment charge was required (2022: £5.7 million impairment reversal). The discount rate and forecast gas price are the significant estimates used by the Company to determine the recoverable amount when undertaking impairment testing of the Company's Tendrara Production Concession.

Administrative costs at £2.4 million were lower than 2022 administration costs (£3.2 million) as no nil cost options were issued to staff in 2023, as was the case in 2022.

Foreign exchange losses primarily related to intra-Group loans, which were partially offset by exchange gains in US dollar and Euro-denominated borrowings. Foreign exchange gains and losses arising from inter-company loans that originated on acquisition of Moroccan permits are recognised in the other comprehensive income section of the statement of comprehensive income.

Cash Flow/Financing

During 2023, proceeds from borrowings were approximately £4.4 million (2022: £7.2 million) net of issue costs. There were no proceeds from equity issues during the year (2022: £3.7 million).

Financing costs during the year were £2.0 million (2022: £1.4 million), primarily due to the amortised costs of the Company's Euro denominated loan notes, the US dollar Afriquia loan note facility and Convertible Bonds facility drawdowns, net of interest capitalised to the development and exploration permits of £0.3 million (2022: £0.1 million). The increase in finance costs arose due to a further $2.5 million drawdown from the Afriquia facility and £2.5 million drawdown from a convertible loan note facility that was entered into during the year. The convertible loan note facility has a term of five years with interest of 15% per annum, payable bi-annually in cash or capitalised to the principal, at the Company's election. The first tranche of the Convertible Notes comprised £2.5 million with a fixed conversion price of 2.25 pence per ordinary share, a premium of approximately 28% to the closing price of 1.76 pence per ordinary share on 12^th June 2023. In connection with the drawdown of the first tranche, the Company issued 33,333,333 warrants (to the investors) to subscribe for new ordinary shares in the Company at an exercise price of 2.25 pence per ordinary share with a term of three years. The Company successfully restructured its Euro denominated loan notes leading to removal of 5% semi-annual partial repayment of the principal amount that was due to commence in December 2023.

The Group spent £2.9 million (2022: £6.2 million) on investing activities during 2023 primarily related to the Group's Micro-LNG project with the balance relating to expenditure on the Group's exploration permits in Morocco and capitalised general and administrative expenses. As part of the 2018 Italy divestment agreement, the Company was entitled to receive the proceeds, upon sale, of land associated with the former Badile onshore Exploration Permit (''Badile land''). The sale of the remaining area of Badile land completed in Q2 2023 and the Company received net proceeds of approximately €153,000 (£134,000).

Balance Sheet

As at 31 December 2023, the carrying amount of property, plant and equipment was £157.9 million (2022: £163.4 million), primarily related to the development and production assets in Morocco with a carried value of £157.8 million (2022: £163.1 million) after taking account of impairment reversal, additions and foreign exchange movement.

Intangible assets, with a carrying amount of £35.0 million (2022: £36.0 million), primarily relates to the Group's investment in its exploration permits in Morocco. The addition of £0.7 million to intangible assets primarily consisted of capitalised general and administrative expenses and £1.8 million foreign exchange movement recognised.

Non-current prepayments of £5.1 million (2022: £4.3 million) relate to the Group's Phase 1 mLNG project. Other receivables, amounting to £0.9 million (2022: £2.8 million), primarily related to receivables from our partners in Morocco permits and recoverable VAT in Morocco.

Trade and other payables amounting to £2.5 million (2022: £1.9 million) primarily related to payables and accruals for the operations in the Group's permits in Morocco, where the Group, as operator, recognises 100% of the liability and receives funds from partners to pay the partners' share.

During 2023, the Company issued 114,420,005 ordinary shares which were all non-cash share issues. The primary non-cash share issues related to 99,9999,994 new shares issued following the conversion of £2.25 million of Convertible bonds into shares.

Going Concern

As detailed in note 1 to the financial statements, the Company's cash flow forecasts, for the next twelve-month period to April 2025, indicate that additional funding will be required to enable the Company to continue to meet its obligations. This condition indicates the existence of a material uncertainty regarding the Company's ability to continue as a going concern.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2023

	Notes	2023 £'000s	2022 £'000s
Continuing operations
Revenue		-	-
Other income		42	43
Reversal of impairment on development assets and exploration costs		-	5,678
Gross profit		42	5,721
Administrative expenses		(2,396)	(3,175)
Group operating (loss)/profit from continuing operations		(2,354)	2,546
Finance revenue		42	13
Foreign exchange (loss)/gain		(2,846)	5,462
Finance expense	11	(1,994)	(1,446)
(Loss)/profit for the year before taxation		(7,152)	6,575
Tax expense	4	(8)	(1,602)
(Loss)/profit for the year after taxation		(7,160)	4,973
Other comprehensive income
Items that may subsequently be reclassified to the profit and loss account
Foreign currency translation (loss)/gain		(6,555)	13,373
Total comprehensive (loss)/profit for the  year		(13,715)	18,346
(Loss)/profit for the year attributable to:
Owners of the Company		(13,715)	18,346

	Notes	2023 Pence	2022 Pence
Basic and diluted (loss)/profit per share for the year attributable to the equity shareholders of the parent (pence)	5	(0.38)	0.28

Consolidated Balance Sheet as at 31 December 2023

	Notes	2023 £'000s	2022 £'000s
Non-current assets
Property, plant and equipment	6	157,927	163,362
Intangible assets	7	35,002	36,007
Prepayments	8	5,092	4,272
Interest in Badile land		-	637
		198,021	204,278
Current assets
Inventories		915	963
Other receivables		924	2,815
Prepayments	8	1,342	139
Cash and short-term deposits		3,016	3,861
		6,197	7,778
Total assets		204,218	212,056
Current liabilities
Trade and other payables		2,495	1,868
Tax liabilities	4	199	126
Lease liabilities		121	162
Loans and borrowings	11	-	1,121
		2,815	3,277
Non-current liabilities
Lease liabilities		-	121
Tax liabilities	4	1,410	1,505
Loans and borrowings	11	33,285	29,068
		34,695	30,694
Total liabilities		37,510	33,971
Net assets		166,708	178,085
Capital and reserves
Share capital and share premium		39,898	38,621
Shares to be issued		374	404
Accumulated surplus		122,443	129,004
Warrant reserve		2,071	1,607
Convertible bond reserve		28	-
Foreign currency reserve		1,894	8,449
Total equity		166,708	178,085

Consolidated Statement of Changes in Equity

	Notes	Share capital £'000s	Share premium £'000s	Shares to be issued  £'000s	Accumulated surplus £'000s	Warrant reserve £'000s	Convertible Bond reserve £'000s	Foreign currency reserves £'000s	Total equity £'000s
At 1 January 2023		18,487	20,134	404	129,004	1,607	-	8,449	178,085
Total loss for the year		-	-	-	(7,160)	-	-	-	(7,160)
Other comprehensive loss		-	-	-	-	-	-	(6,555)	(6,555)
Total comprehensive loss		-	-	-	(7,160)	-	-	(6,555)	(13,715)
Issue of share capital on conversion of bond	11	1,000	46	-	-	-	-	-	1,046
Other share capital issues		114	87	-	-	-	-	-	201
Transfer to share capital on issue of shares		30	-	(30)	-	-	-	-	-
Fair value of warrants issued during the year		-	-	-	-	464	-	-	464
Equity component of convertible bond		-	-	-	-	-	562	-	562
Cost of issue allocated to equity component		-	-	-	-	-	(174)	-	(174)
Transfer to accumulated surplus on bond conversion to shares		-	-	-	360	-	(360)	-	-
Share-based payments	10	-	-	-	239	-	-	-	239
At 31 December 2023		19,631	20,267	374	122,443	2,071	28	1,894	166,708

	Notes	Share capital £'000s	Share  premium £'000s	Shares to be issued  £'000s	Accumulated surplus £'000s	Warrant reserve  £'000s	Foreign  currency reserves  £'000s	Total equity £'000s
At 1 January 2022		16,292	18,281	-	123,872	1,534	(4,924)	155,055
Total profit for the year		-	-	-	4,973	-	-	4,973
Other comprehensive income		-	-	-	-	-	13,373	13,373
Total comprehensive income		-	-	-	4,973	-	13,373	18,346
Issue of share capital		2,195	2,246	-	-	-	-	4,441
Share issue costs		-	(393)	-	-	-	-	(393)
Fair value of warrants issued during the year		-	-	-	-	73	-	73
Vested nil options bonus awards		-	-	404	-	-	-	404
Share-based payments	10	-	-	-	159	-	-	159
At 31 December 2022		18,487	20,134	404	129,004	1,607	8,449	178,085

Consolidated Statement of Cash Flows

For the year ended 31 December 2023

	Notes	2023 £'000s	2022 £'000s
Cash flow from operating activities
Cash flow from operations		(1,403)	(3,928)
Interest received		42	13
Tax paid		(134)	(7)
Net cash flow from operating activities		(1,495)	(3,922)
Cash flow from investing activities
Capital expenditure		(1,600)	(1,519)
Exploration expenditure		(660)	(399)
Prepayment for Phase 1 the mLNG project		(820)	(4,272)
Receipt from interest in Badile land		134	-
Net cash flow from investing activities		(2,946)	(6,190)
Cash flow from financing activities
Net proceeds from equity issue		-	3,680
Net proceeds from borrowings		4,442	7,233
Interest payments	11	(441)	(431)
Lease payments		(180)	(58)
Net cash flow from financing activities		3,821	10,424
Net (decrease)/increase in cash and cash equivalents		(620)	312
Net foreign exchange difference		(225)	636
Cash and cash equivalents at the beginning of the year		3,861	2,913
Cash and cash equivalents at the end of the year		3,016	3,861

Notes to Statement of Cash Flows

		2023 £'000s	2022 £'000s
Cash flow from operations reconciliation
(Loss)/profit for the year before tax		(7,152)	6,575
Finance revenue		(42)	(13)
Decrease/(increase) in drilling inventories		48	(92)
Decrease/(increase) in receivables and prepayments		688	(2,071)
(Decrease)/increase in accruals and short-term payables		(343)	190
Reversal of impairment on development assets and exploration costs		-	(5,678)
Impairment of interest in Badile land		125	107
Depreciation		194	101
Share-based payments charge and remuneration paid in shares		239	969
Finance expense and exchange adjustments		4,840	(4,016)
Cash flow from operations		(1,403)	(3,928)

Non-cash transactions during the period included the issue of 99,999,994 ordinary shares, following partial conversion of the convertible bond. 11,404,221 ordinary shares were issued to third parties in settlement of approximately £0.2 million due for services provided and 3,015,790 ordinary shares were issued following the exercise of nil cost options by a member of staff. The Group has provided collateral of $1.75 million (2022: $2.5 million) to the Moroccan Ministry of Petroleum to guarantee the Group's minimum work programme obligations for the Anoual, and Sidi Mokhtar permits. 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 2023

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 2023 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 2023 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 Accounting 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 2023 were authorised for issue by the Board of Directors on 23 April 2024.

Going concern

As at 31 March 2024, the Group's cash balance was £2.5 million (including approximately £0.8 million held as collateral for a bank guarantee against permit commitments). The Directors have reviewed the Company's cash flow forecasts for the next 12-month period to April 2025. The Company's forecasts and projections indicate that, to fulfil its other obligations, primarily the Company's exploration permits commitments, the Company will require additional funding. The Company commenced its Phase 1 of the Concession upon taking FID on the micro-LNG project, and has continued to actively monitor the project schedule, costs and financing. The Company is progressing towards a final investment decision for Phase 2, pipeline led development of the Concession and received a conditional offer for partial financing of the Phase 2 development and continue to work to satisfy the conditions precedents and other elements necessary for the taking of Phase 2 FID.

The need for additional financing indicates the existence of a material uncertainty, which may cast significant doubt about the Group and 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 rigorous cost control to conserve cash resources, and the Directors believe that there are several corporate funding options available to the Company, including a farm-down on some of the Company's permits, and various debt funding options. Furthermore, based upon the Company's proven track record in raising capital in the London equity market, and based on feedback from ongoing financing discussions, 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.

Estimation and assumptions

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, 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 existence of an impairment. If those indicators are met, a full impairment test is performed.

Impairment test

When value in use calculations are undertaken, management estimates the expected future cash flows from the asset and chooses a suitable discount rate 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 7.

At 31 December 2023, the Company's market capitalisation was £14.0 million, which is below the Group and Company's net asset value of £166.8 million and £156.8 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 fair value is estimated using a discounted cash flow model ('DCF model''). The cash flows are derived from the latest budgets, expenditure and price data in signed gas sales agreements (for contracted gas sales volumes), market based price data (for uncontracted gas sales volumes), project contract or agreed heads of terms, and the latest management plans on project phasing. The recoverable amount is sensitive to the discount rate and gas price assumption as well as the Brent price assumption that impacts condensate sales pricing in the DCF model. The impairment test indicated that there was sufficient headroom and therefore no impairment charge was recognized as at 31 December 2023. The key assumptions used to determine the recoverable amount of the development and production assets are disclosed in note 6.

Share-based payments

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 (note 10).

Fair value of warrants

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

Fair value of convertible bonds

The calculation of fair value on convertible bonds requires estimation of the discount rate to use when discounting outstanding principal and interest amounts at each reporting date. The discount rate is a significant input into the discounted cashflow model used by the Company to estimate the fair value of the convertible bonds.

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.  The Group had tax cases where Morocco Tax Authority had claimed taxes relating to the Group historical permits transfers and intragroup transactions. During 2023, a settlement on the tax cases was agreed upon as disclosed 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 sources of estimate concern IFRS 9 on intercompany loans at parent Company level.

(b)  Investment 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 2023, the Group's development, 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 2023:

	Corporate £'000s	Development and production £'000s	Exploration and appraisal £'000s	Total £'000s
Other income	-	-	42	42
Impairment of development assets and exploration costs	-	-	-	-
Administration expenses	(2,396)	-	-	(2,396)
Operating (loss)/profit segment result	(2,396)	-	42	(2,354)
Interest receivable	42	-	-	42
Finance expense and exchange adjustments	(4,840)	-	-	(4,840)
(Loss)/profit for the period before taxation from continuing operations	(7,194)	-	42	(7,152)

The segments assets and liabilities at 31 December 2023 is as follows:

	Corporate £'000s	Development and production £'000s	Exploration and appraisal £'000s	Total £'000s
Non-current assets	137	162,908	34,976	198,021
Current assets	1,959	2,897	1,341	6,197
Liabilities attributable to continuing operations	(23,551)	(11,368)	(2,591)	(37,510)

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

	UK £'000s	Morocco £'000s
Development and production assets	-	157,816
Fixtures, fittings and office equipment	4	6
Right of use assets	101	-
Software	18	8
Prepayments	-	5,092
Exploration and evaluation assets	-	34,976
Total	123	197,898

Segment results for the year ended 31 December 2022 were as follows:

	Corporate £'000s	Development and production £'000s	Exploration and appraisal £'000s	Total £'000s
Other income	-	-	43	43
Reversal of impairment of development assets and exploration costs	-	5,678	-	5,678
Administration expenses	(3,175)	-	-	(3,175)
Operating profit/(loss) segment result	(3,175)	5,678	43	2,546
Interest receivable	13	-	-	13
Finance costs and exchange adjustments	4,016	-	-	4,016
Profit/(loss) for the period before taxation from continuing operations	854	5,678	43	6,575

The segments assets and liabilities at 31 December 2022 were as follows:

	Corporate £'000s	Development and production £'000s	Exploration and appraisal £'000s	Total £'000s
Non-current assets	944	167,346	35,988	204,278
Current assets	4,224	2,141	1,413	7,778
Liabilities attributable to continuing operations	(23,024)	(8,301)	(2,646)	(33,971)

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

	Europe £'000s	Morocco £'000s
Development and production assets	-	163,074
Interest in Badile land	637	-
Fixtures, fittings and office equipment	5	9
Right of use assets	274	-
Software	-	19
Prepayments	-	4,272
Exploration and evaluation assets	-	35,988
Total	916	203,362

4. Taxation

(a) Analysis of the tax charge for the year:

	2023 £'000s	2022 £'000s
Current tax
UK corporation tax	-	-
Adjustment to tax expense in respect of prior years	(8)	(7)
Tax cases settlement (overseas tax)	-	(1,595)
Total current tax (charge)/credit	(8)	(1,602)
Deferred tax credit arising in the current year	-	-
Total tax (charge)/credit	(8)	(1,602)

(b) Reconciliation of tax charge

	2023 £'000s	2022 £'000s
(Loss)/profit before tax	(7,152)	6,575
Tax (charge)/credit charged at UK corporation tax rate of 23.5% (2022: 19%)	1,681	(1,249)
Tax effect of:
Expenses not deductible for tax purposes	(82)	(49)
Settlement of tax cases	-	(1,595)
Tax losses not recognised	(1,264)	1,276
Change in UK tax rate	(322)	-
Differences in overseas tax rates	(21)	15
Total tax (charge)/credit	(8)	(1,602)

Deferred tax assets have not been recognised in respect of tax losses available due to the uncertainty of the utilisation of those assets. Unrecognised tax losses as at 31 December 2023 were estimated to be approximately £14.8 million (2022: £8.8 million).

The Group had tax cases where Morocco Tax Authority had claimed taxes relating to the Group historical permits transfers and intragroup transactions. In May 2023, the Company entered into a settlement agreement with Morocco Tax Authority on a phased payment schedule back ended over 6 years. The amount paid on entry into the settlement agreement was approximately £126k (after taking account of exchange rate movements). The discounted non-current liability amounted to approximately £1.6 million as at 31 December 2023.

The table below sets out the current and non-current tax liability and the movement during the year.

	2023 £'000s	2022 £'000s
Amounts due within one year	199	126
Amounts due after more than one year	1,410	1,505
	1,609	1,631
The movement during the year is as below:
As at 1 January	1,631	-
Tax settlement	-	1,631
Unwinding of discount	101	-
Tax payment	(126)	-
Exchange adjustment	3	-
As at 31 December	1,609	1,631

5. (Loss)/profit 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 the weighted average number of shares that would be issued if dilutive options and warrants were converted into shares. Basic and diluted profit/(loss) per share is calculated as follows:

	2023 £'000s	2022 £'000s
Loss for the year after taxation	(7,160)	4,973

	2023 Million	2022 Million
Basic weighted average shares in issue	1,882	1,752
Dilutive potential ordinary shares	-	7
Diluted weighted average number of shares	1,882	1,759
	2023 Pence	2022 Pence
Basic (loss)/profit per share	(0.38)	0.28
Diluted (loss)/profit per share	(0.38)	0.28

Due to loss during the year, 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 the dilutive earnings per share. In 2022, LTIP options awards and warrants totalling 138.8 million were all anti-dilutive and were not included in the calculation of diluted weighted average number of shares.

6. Property, Plant and Equipment

	Development and production assets £'000s	Fixtures, fittings and office equipment £'000s	Right-of-use assets £'000s	2023 £'000s
Cost
At 1 January 2023	163,074	656	331	164,061
Additions	2,737	2	-	2,739
Exchange adjustments	(7,995)	(14)	-	(8,009)
At 31 December 2023	157,816	644	331	158,791
Impairment and depreciation
At 1 January 2023	-	642	57	699
(Reversal)/charge for period	-	4	173	177
Exchange adjustments	-	(12)	-	(12)
At 31 December 2023	-	634	230	864
Net book amount	157,816	10	101	157,927

	Development and production assets £'000s	Fixtures, fittings and office equipment £'000s	Right-of-use assets £'000s	2022 £'000s
Cost
At 1 January 2022	144,735	626	-	145,361
Additions	1,597	4	331	1,932
Disposal	-	(3)	-	(3)
Exchange adjustments	16,742	29	-	16,771
At 31 December 2022	163,074	656	331	164,061
Impairment and depreciation
At 1 January 2022	5,107	588	-	5,695
(Reversal)/charge for period	(5,678)	30	57	(5,591)
Disposal	-	(2)	-	(2)
Exchange adjustments	571	26	-	597
At 31 December 2022	-	642	57	699
Net book amount	163,074	14	274	163,362

Change in estimate

The discount rate and forecast gas price are significant estimates used by the Company to determine the recoverable amount when undertaking impairment testing of the Company's Tendrara Production Concession. The Company has taken account of changes in market conditions and certain corporate parameters during the period and accordingly revised the discount rate to 11.25% as at 31 December 2023 from 12.5% at 31 December 2022. The Company at 31 December 2022 used an average of forecast gas price referenced to the Title Transfer Facility (''TTF'') in the Netherlands and the UK National Balancing Point (''NBP'') for pricing the forecasted uncontracted gas sales volumes for impairment testing. At 31 December 2023 the Company has used average TTF prices only since future gas sales contracts the Company is likely to enter into are expected to be priced in reference to TTF and in addition, the Company received an indicative non-binding gas pricing term sheet referenced to TTF. For the impairment testing, the average TTF gas price projections, from leading independent industry consultants, used for the period to 2032 (and increasing at 2% inflationary rate thereafter) was 14.39 US$/MMBtu. The average TTF and NBP gas price projections for the period to 2032 was 14.45 US$/MMBtu.

The Company's market capitalisation was £14.0 million as at 31 December 2023, which is below the Group's net assets of £166.8 million and the Company's net assets of £156.8 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 permit and an impairment test was undertaken on the carrying amount of the Tendrara Production Concession. The Company used a DCF model ('Model'') to calculate the recoverable amount for the Company's share of the Tendrara Production Concession. The Model has an NPV of $214.3 million (£168.3 million) which when compared to the carrying amount of the development expenditure of £157.8 million indicated that no impairment was required.

The Model covers the period 2024 to 2049. The input to the Model included a discount rate of 11.25% 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 TTF 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 uncontracted volumes referenced to an average forecast price of TTF and NBP with price range of US$12.10 per mmBTU in 2024 and $14.68 per mmBTU in 2033, 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 ten years. The production volumes data was based on the 2018 CPR for Tendrara TE-5 Horst.

The well cost 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 forecast covered the period to 2027, but the model extends to 2049, as that is the period required to produce the gas resources at Tendrara Production Concession and the economic cut-off. A change in the discount rate by 1% has a $23.2 million (£18.3 million) impact on the NPV and change in average TTF and NBP forecast gas price by $1/bbl has a $11.4 million (£9.0 million) impact on the NPV.

7. Intangibles

	Software £'000s		Exploration & Evaluation Assets £'000s		2023 £'000s
Cost
At 1 January 2023	375		46,594		46,969
Additions	22		729		751
Exchange adjustments	(15)		(1,741)		(1,756)
At 31 December 2023	382		45,582		45,964
Impairment and depreciation
At the start of the year	356		10,606		10,962
Charge for the year	17		-		17
Exchange adjustments	(17)		-		(17)
At 31 December 2023	356		10,606		10,962
Net book amount	26		34,976		35,002
		Software £'000s		Exploration & Evaluation Assets £'000s		2022 £'000s
Cost
At 1 January 2022		352		42,204		42,556
Additions		23		813		836
Exchange adjustments		-		3,577		3,577
At 31 December 2022		375		46,594		46,969
Impairment and depreciation
At the start of the year		352		10,606		10,958
Charge for the year		14		-		14
Exchange adjustments		(10)		-		(10)
At 31 December 2022		356		10,606		10,962
Net book amount		19		35,988		36,007

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 2023, 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 permits 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 permits;

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 permits 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 £0.3 million (2022: £0.1 million).

8. Prepayments

 Non-current prepayment of £5.1 million (2022: £4.3 million) and current prepayment of £1.3 million (2022; nil) relates to activities of the Company's Phase 1 mLNG Project in the Concession. Non-current prepayment of £5.1 million (2022: £4.3 million) and current prepayment of £1.3 million (2022; nil) relates to activities of the Company's Phase 1 mLNG Project in the Concession.

9. Capital and Reserves

	2023 Number of shares	£'000s	2022 Number of shares	£'000s
Ordinary shares - 1p	1,963,122,679	19,631	1,848,702,674	18,487

	2023 Number of shares	2022 Number of shares
At 1 January	1,848,702,674	1,629,183,907
Issued during the year for cash	-	200,000,000
Non-cash share issue	114,420,005	19,518,767
At 31 December	1,963,122,679	1,848,702,674

The share issues described below were all non-cash transactions.

Share issues

In June 2023, the Company issued 11,404,221 shares to third parties in settlement of services provided to the Company amounting to approximately £0.2 million.

In July 2023, the Company issued 3,015,790 shares following the exercise of nil cost options by a member of staff.

In August 2023, the Company issued 22,222,221 shares following a partial conversion amounting to £500,000 by the holders of the Company's £2.5 million convertible bonds (''the convertible bonds'').

In September 2023, the Company issued 22,222,221 shares following a partial conversion amounting to £500,000 by the holders of the convertible bonds.

In October 2023, the Company issued 22,222,221 shares following a partial conversion amounting to £500,000 by the holders of the convertible bonds.

In November 2023, the Company issued 22,222,221 shares following a partial conversion amounting to £500,000 by the holders of the convertible bonds.

In December 2023, the Company issued 11,111,110 shares following a partial conversion amounting to £250,000 by the holders of the convertible bonds.

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.

10. Share based payments

	2023 £'000s	2022 £'000s
Expense arising from equity settled LTIP	239	159
Bonuses paid in shares and nil cost options	-	810
	239	969

LTIP Awards

In 2022, the Company adopted a new long term incentive plan (the ''LTIP''), designed to reward, incentivise and retain the Company's Executives and senior management to deliver sustainable growth for shareholders.

The maximum number of awards that may be issued under the LTIP from time to time will be limited to 3% of the Company's issued share capital on the date of grant of awards, and, together, with all other options issued by the Company under any employee share scheme from time to time, will not exceed an aggregate of 15% of the Company's issued ordinary share capital in a rolling ten year period. Awards granted under the LTIP will, generally, be subject to a three-year vesting period from the date of grant, the number of awards, ultimately, vesting dependent on the grantee's continued service and on additional performance conditions set by the Remuneration Committee.

The Company issued 48,875,515 options to subscribe for new ordinary shares under the LTIP, out of which 31,769,085 options were allocated to qualifying Executives and senior management and the balance of 17,106,430 was retained for future allocations. The LTIP awards are exercisable at 2.4 pence per share and expire ten years after the grant.

The fair value of LTIP awards granted was estimated at the date of grant using a Black-Scholes model, taking account of the terms and conditions upon which, the awards were granted.

The expected life of the LTIP award is based on the maximum award period and is not necessarily indicative of exercise patterns that may occur. Expected volatility was determined by reference to the historical volatility of the Company's share price over a five-year period. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The valuation assumed an expected life of ten years and used the following additional assumptions for the LTIP awards granted during the year:

(i) Share price on grant date: n/a (2022: 2.53 pence)

(ii) Average risk free interest rate: n/a (2022: 1.79%)

(iii) Expected volatility: n/a (2022: 99.11%)

(iv) Assumed forfeitures: n/a (2022: 0%)

(v) Expected dividends: n/a (2022: nil)

No other features of the LTIP awards were incorporated into the measurement of fair value. The fair value of the LTIP award granted was n/a (2022:  2.26 pence). The remaining contractual life of the LTIP awards outstanding at 31 December 2023 is 8.3 years. If all the 31,769,085 LTIP awards were exercisable immediately, new ordinary shares equal to approximately 1.6% (2022: 1.7%) of the shares currently in issue, would be created.

Share options

All previously outstanding share options expired in 2022.

	2023 Number	Weighted average exercise price Pence	2022 Number	Weighted average exercise price Pence
Share options outstanding at the start of the year	-	-	5,450,000	66.47
Share options granted	-	-	-	-
Share options expired	-	-	(5,450,000)	22.29
Share options exercised	-	-	-	-
Share options outstanding at the end of the year	-	-	-	-

All RSU awards vested or expired in 2022.

	2023 Number	2022 Number
RSU awards outstanding at the start of the year	-	1,165,400
Granted during the year	-	-
Expired during the year	-	(108,189)
Vested during the year	-	(1,057,211)
RSU awards outstanding at the end of the year	-	-

The weighted average share price at the date of vesting of the RSU awards was n/a (2022: 2.5 pence).

Warrants

As at 31 December 2023, the Company had the following outstanding warrants to subscribe to the Company's ordinary shares.

2023	Exercise price Pence	Expiry date	Number at 1 January	Granted /(exercised)	Expired	Number at 31 December
2023 Warrants	2.25	13 June 2026	-	40,476,190	-	40,476,190
2022 Warrants	2.75	13 June 2025	7,056,875	-	-	7,056,875
2021 Warrants	2.75	21 December 2027	99,999,936	-	-	99,999,936
			107,056,811	40,476,190	-	147,533,001

2022	Exercise price Pence	Expiry date	Number at 1 January	Granted /(exercised)	Expired	Number at 31 December
2022 Warrants	2.75	13 June 2025	-	7,056,875	-	7,056,875
2021 Warrants	2.75	21 December 2027	99,999,936	-	-	99,999,936
			99,999,936	7,056,875	-	107,056,811

11. Loans and borrowings

	Secured Bonds £'000s	Loan note- Afriquia £'000s	Convertible Bonds £'000s	2023 Total £'000s
Current liabilities
At 1 January	1,121	-	-	1,121
Reclassification to non-current liability	(1,121)	-	-	(1,121)
At 31 December	-	-	-	-

Non-current liabilities
At 1 January	20,855	8,213	-	29,068
Gross amount of loan drawdown during the year	-	2,017	2,500	4,517
Amortised finance charges	890	532	-	1,422
Unwinding of discount	-	-	137	137
Interest payments	(441)	-	-	(441)
Gross equity component at date of issue	-	-	(562)	(562)
Debt conversion to equity	-	-	(1,046)	(1,046)
Exchange adjustments	(445)	(486)	-	(931)
Reclassification from current liabilities	1,121	-	-	1,121
At 31 December	21,980	10,276	1,029	33,285

	Secured bonds £'000s	Loan note- Afriquia £'000s	Total 2022 £'000s
Current liabilities
At 1 January	-	-	-
Amount converted into ordinary shares of the Company	-	-	-
Fair value of warrants issued	-	-	-
Amortised finance charges	-	-	-
Interest payments	-	-	-
Exchange adjustments	-	-	-
Reclassification from/(to) non-current liability	1,121	-	1,121
At 31 December	1,121	-	1,121
Non-current liabilities
At 1 January	20,039	-	20,039
Drawdown during the year	-	7,233	7,233
Amortised finance charges	1,245	324	1,569
Interest payments	(431)	-	(431)
Exchange adjustments	1,123	656	1,779
Reclassification (to)/from current liabilities	(1,121)	-	(1,121)
At 31 December	20,855	8,213	29,068

The Company has €25.32 million secured bonds (the "Bonds"). The Bonds mature on 21 December 2027. The outstanding principal amount of the Bonds was initially expected to partially repaid at a rate of 5% every six months, commencing on 21 December 2023, but this requirement was removed in early December 2023. Until maturity, the Bonds bear 2% cash interest paid per annum and a 3% deferred interest per annum to be paid at redemption. The Company has 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. 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. The Bonds are secured on the issued share capital of Sound Energy Morocco South Limited. After taking account of the terms of the Bonds, the effective interest is approximately 6.5%.

The Company has drawn down $12.0 million from the Company's $18.0 million 6% secured loan note facility with Afriquia Gaz maturing in December 2033 (the ''Loan''). The drawn down principal bears 6% interest per annum payable quarterly, but deferred and capitalised semi-annually, until the second anniversary of the issue of Notice to Proceed. Thereafter, principal and deferred interest will be repayable, annually, in equal installments commencing December 2028. The Loan is secured on the issued share capital of Sound Energy Meridja Limited. The weighted effective interest on the drawdowns made is approximately 6.2%.

In June 2023, the Company issued £2.5 million convertible bonds from a senior unsecured convertible bond facility of up to £4.0 million. The £2.5 million Convertible bonds have a fixed conversion price of 2.25 pence per ordinary share. The term of the Convertible bonds is 5 years from drawdown date, with interest of 15% per annum payable bi-annually in cash or capitalised to the principal, at the Company's election.

Other key terms of the Convertible bonds (''Bonds'') are:

1)     Issue price and redemption price on maturity is 100% of par value;

2)   Early redemption/change of control: callable in cash by the Company at any time after drawdown or in the event of a change of control of the Company at 110% of par value together with all unpaid interest. If the Bonds are redeemed by the Company, the maximum amount of future interest payable by the Company in respect of any early redemption occurring on or prior to the second anniversary will be 15% of the Bonds and after second anniversary, 10% of the Bonds;

3)   Convertible into the Company's ordinary shares at the fixed conversion price. Upon conversion, interest shall be rolled up and paid as if the Bonds were held to the redemption date, with such interest convertible at the lower of the applicable fixed conversion price and the average of the 5 daily value weighted average price calculations selected by the holder out of the 15 trading days prior to the conversion date;

4)   The Company issued to Bonds holders 33,333,333 warrants to subscribe for new ordinary shares in the Company at an exercise price of 2.25 pence per ordinary share with a term of 3 years.

During the year, the Company issued 99,999,994 new shares following the conversion of £2,250,000 of the Bonds.  The carrying amount of the Bonds is stated at fair value and is measured using the discounted cashflow method. A discount rate of 17.7% was used to discount the outstanding principal and capitalised interest over the outstanding term of the bonds.

Reconciliation of liabilities arising from financing activities

			Non-cash changes
2023	1 January 2023 £'000s	Cash flows £'000s	Finance charges £'000s	Exchange adjustments £'000s	Convertible Bonds non-cash movements £'000s	31 December 2023 £'000s
Long-term borrowings	30,189	4,001	1,559	(931)	(1,533)	33,285
Leases	283	(180)	18	-	-	121
Total liabilities from financing activities	30,472	3,821	1,577	(931)	(1,533)	33,406

			Non-cash changes
2022	1 January 2022 £'000s	Cash flows £'000s	Amortised finance charges £'000s	Exchange adjustments £'000s	Office lease entry £'000s	31 December 2022 £'000s
Long-term borrowings	20,039	6,802	1,569	1,779	-	30,189
Leases	-	(58)	10	-	331	283
Total liabilities from financing activities	20,039	6,744	1,579	1,779	331	30,472

Reconciliation of finance expense

	2023 £'000s	2022 £'000s
Amortised finance charges	1,422	1,569
Unwinding of discount	256	10
Bond issue costs expensed	601	-
Less capitalised interest	(285)	(133)
Total finance expense for the year	1,994	1,446

12. Post Balance Sheet events

In March 2014, the Company announced that receipt of conversion notices to issue 30 million new ordinary shares (''Conversion Shares'') at a conversion price of 1 pence per share under the terms of an existing Convertible Loan Note Agreement (the ''Convertible Loan Note''). The Convertible Loan Note has a remaining principal outstanding of £250,000 and the issue of the Conversion Shares reduces the interest owing on the converted portion of the Convertible Loan Notes by £300,000 to £1,387,500. The Conversion Shares were admitted to trading on AIM in April 2024.

 

END