13 September 2018

Sound Energy plc

("Sound Energy" or the "Company")

HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2018

Sound Energy, the Morocco focused upstream gas company, announces its unaudited half year report for the six months ended 30 June 2018.

HALF YEAR HIGHLIGHTS

Morocco

·     Completion of 2,850 line kilometre seismic programme in Eastern Morocco, fully funded by Schlumberger

·     Application for Production Concession for Tendrara gas discovery (subsequently awarded post period end)

·     Approval of Environmental Impact Assessment for TE-9 and TE-10 wells at the Tendrara-Labkir permit, with ground works now underway at TE-9

·     Heads of terms with a consortium for the front end engineering and design, construction and financing of a 20 inch pipeline and associated facilities under a 'build-own-operate-transfer' (BOOT) structure.
 

Corporate

·     Continued strong safety record

·     Cash balance at 30 June 2018 of £14.7 million plus successful equity raise of US$15 million (£11.4 million) (before costs) in July 2018

·     Completion of Italy exit with consideration shares in Coro Energy plc distributed directly to Sound Energy shareholders

·     David Clarkson appointed as non-executive director; JJ Traynor appointed as executive director

For further information please contact:

Statement from the Chairman and Chief Executive Officer
 

"Our priority so far this year has been the de-risking in Eastern Morocco of both our existing discovery and our significant exploration potential. The Company is now ready for this next, potentially transformational, period of exploration drilling."

The Company continues to believe that the TAGI and Paleozoic plays across Tendrara, Anoual and Matarka have the potential to become a material hydrocarbon province transforming both the Company and the Moroccan gas industry. The first half of 2018 has been an incredibly busy period, albeit largely behind the scenes.

The Company has made progress in both developing the existing discovery and in de-risking the exploration potential, including:

·     the closing out of the Eastern Morocco seismic programme, where early results have already enabled the finalisation of the TE-9 and TE-10 well locations

·     securing of a new 8 year licence combining Tendrara and Matarka

·     formal submission of the production concession application for the existing discovery at Tendrara (subsequently awarded in September 2018)

·     award of FEED and signing of a Heads of Terms covering the infrastructure, including a 20 inch pipeline, with a consortium including Enagas

·     Commencement of the process to introduce Schlumberger directly onto the Eastern Morocco licences

·     award of a new Petroleum Agreement for Sidi Moktar

Eastern Morocco

We continue to deepen our knowledge of the Eastern Morocco basin through, in part, the recently completed US$27.2 million seismic programme fully funded by Schlumberger, one of our strategic partners. This work, completed in August 2018, has supported our new Eastern Morocco basin model and is critical to minimising the risk of our rapidly approaching drill programme. Preparations for the first well, TE-9, targeting the A1 structure at Tendrara are complete with the EIA approval secured, a successful CPR issued and ground works now well under way. The Company hopes that the A1 prospect will unlock significant value for the Company, reduce the risk on nearby leads and increase further our overall confidence in the broader TAGI structural play. Preparations also continue apace on the subsequent TE-10 and TE-11 wells.

Excellent progress has also been made on the development of our existing discovery. The Company submitted the production concession application in June 2018 and the production concession was subsequently awarded in September 2018. A Heads of Terms for front end engineering and design (FEED) for a 20 inch pipeline and production facilities was signed with the consortium of Enagas, Elecnor and Fomento who bring strong industry expertise and capabilities. Following this competitive process and negotiation an innovative 'build-own-operate-transfer' (BOOT) structure was agreed with the consortium which further underpins the financial robustness of the development. Positive discussions continue to agree the gas sales agreement (GSA) for offtake which forms a key building block to support project sanction.

The Company continues to maintain a strong focus on health, safety, environment and the community, and work has recently begun in partnership with a local charity on the renovation of the Matarka health care centre.

Sidi Moktar

The Company views our Sidi Moktar licences as an exciting opportunity to explore for high impact prospectivity, within the pre-salt Triassic and Palaeozoic plays in the underexplored Essaouira Basin. In June we were delighted to receive Ministerial approval of a new 8 year Sidi Moktar Onshore Petroleum Agreement. The Company continues to progress a potential farm down, whilst retaining operatorship of the permits, ahead of further exploration operations in 2019.

Italy

The sale of the Company's Italian assets was completed in April. Work continues with the new owners on the preparation of the Badile land, to which the Company retains its economic rights to receive the proceeds, for a future sale.

Corporate

The Company remains in a strong financial position for the second half of 2018 with 30 June 2018 cash balances of US$19.4 million and, following the period end, the Company successfully completing an equity placing of US$15 million before expenses.

The Company has significantly strengthened the Board during 2018 with Richard Liddell being appointed as Non-Executive Chairman, David Clarkson joining as a non-executive director and JJ Traynor, the Company's Chief Financial Officer, joining the Board.
 

Richard Liddell
Non-Executive Chairman

James Parsons
Chief Executive Officer

CONDENSED INTERIM CONSOLIDATED INCOME STATEMENT

CONDENSED INTERIM CONSOLIDATED BALANCE SHEET
As at 30 June 2018

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 

CONDENSED INTERIM CONSOLIDATED CASH FLOW STATEMENT
 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

The condensed interim consolidated financial statements do not represent statutory accounts within the meaning of section 435 of the Companies Act 2016. The financial information for the year ended 31 December 2017 is based on the statutory accounts for the year ended 31 December 2017. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The condensed interim financial information is unaudited and has been prepared on the basis of the accounting policies set out in the Group's 2017 statutory accounts, except for the adoption of IFRS 9, Financial instruments which did not have a material impact on the condensed interim financial information and in accordance with IAS 34 Interim Financial Reporting. IFRS 15, Revenue from contracts with customers and several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the condensed interim consolidated financial statements of the Group.

The seasonality or cyclicality of operations does not impact on the interim financial statements.

2. Segment information

The Group categorises its operations into three business segments based on Corporate, Exploration and Appraisal and Development and Production. The Group's Exploration and Appraisal activities are carried out in Morocco. The Group's reportable segments are based on internal reports about the components of the Group which are regularly reviewed by the Board of Directors, being the Chief Operating Decision Maker (''COMD''), for strategic decision making and resources allocation to the segment and to assess its performance. The segment results for the period ended 30 June 2018 are as follows:

Segment results for the period ended 30 June 2018

The segments assets and liabilities at 30 June 2018 are as follows:

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

Segment results for the period ended 30 June 2017

The segments assets and liabilities at 30 June 2017 were as follows:

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

The segmental results as at 30 June 2017 excludes the results of discontinued operations.

Segment results for the year ended 31 December 2017

The segments assets and liabilities at 31 December 2017 were as follows:

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

3. Profit/(loss) per share

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

Basic profit/(loss) per share

Diluted profit/(loss) per share

The effect of the potential dilutive shares noted above on the earnings per share from continuing operations would be anti-dilutive and therefore are not included in the above calculation of diluted earnings per share from continuing operations.

4. Intangibles

5. Other receivables

6. Loans and Borrowings

The Company has 5-year non-amortising secured bonds with an aggregate value of €28.8 million. The bonds are secured over the share capital of Sound Energy Morocco South Limited, have a 5% coupon and were issued at a 32% discount to par value. Alongside the bonds, the Company issued 70,312,500 warrants to subscribe for new ordinary shares in the Company at an exercise price of 30 pence per ordinary share and an exercise period of approximately five years, concurrent with the term of the bonds. The effective interest rate is approximately 16.3%. The 5-year secured bonds are due in June 2021.
 

7. Shares in issue and share based payments

As at 30 June 2017, the Company had 1,019,954,543 ordinary shares in issue. In the period to 30 June 2018, a total of 0.9 million warrants were exercised for total proceeds of £0.2 million.

During the period to 30 June 2018, the Company granted 2.8 million restricted stock units awards to staff under its long term incentive plan. Approximately 2.5 million share options were exercised and 2.2 million expired during the period.
 

8. Discontinued operations

On 5 October 2017, the Company announced that it had entered into non-binding conditional heads of terms with Saffron Energy plc (''Saffron'') and Po Valley Energy Limited under which it was proposed that the Company disposed of its portfolio of Italian interests and permits through the sale of Sound Energy Holdings Italy (''SEHIL'') and Apennine Energy SpA (''APN'') (the ''disposal'') for the consideration of 185,907,500 new ordinary shares in Saffron (subsequently renamed Coro Energy plc) issued directly to the Company's shareholders. On 23 January 2018, the Company announced that it had entered into a binding agreement with Saffron for the disposal and the transaction completed on 9 April 2018. The value of the 185, 907, 500 Coro Energy plc shares distributed to the Company's shareholders was £8.0 million using the completion date share price of 4.3 pence.

The results of the Italian operations for the period are presented below:

9. Post Balance Sheet events

On 2 July 2018, the Company announced that it had placed 30,829,308 new ordinary shares of 1p each at a placing price of 37p to raise approximately US$15 million before costs (approximately US$14.25 million after costs).

On 23 July 2018, the Company announced the initiation of the process of converting the existing 27.5% synthetic interests held by an affiliate of Schlumberger in the Tendrara Lakbir permits, the Anoual permits and the Matarka reconnaissance licence ("Eastern Morocco Portfolio") into 27.5% participating interests in the Eastern Morocco contract area. Sound Energy will remain the operator.

On 31 August 2018, the Company announced that it had signed a new 8 year petroleum agreement uniting the areas previously covered by the Tendrara petroleum agreement and the Matarka reconnaissance licence (''Greater Tendrara''). The agreement will become effective on approval of the Moroccan Energy and Finance Ministries. The Company will hold an operated 47.5% interest, Schlumberger 27.5% interest and the remaining 25% by L'Office National des Hydrocarbures et des Mines (''ONHYM''),the Moroccan state regulator for petroleum operations.

On 6 September 2018, the Company announced the award by the Moroccan Ministry of Energy of the production concession relating to the Tendrara gas discovery in Eastern Morocco. The production concession award covers an area of 133. 5 Km².

This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.