Phase 2 Development Financing and Farm-Out Update
As announced on 23 June 2022, the Company mandated Attijariwafa bank, a Moroccan multinational bank and one of the leading banks in Morocco, to arrange a long-term project senior debt facility of up to c.US$250 million for the partial financing of the currently estimated approximately US$330 million Phase 2 development costs (gross, 100%) of the Tendrara Production Concession. Progress continues to be made with a number of external banking advisers and data review and, as previously announced, the parties are seeking to negotiate binding terms for the Phase 2 Senior Debt within 120 days under the 8 month exclusivity.
In addition, the Company is continuing to mature industry and alternative financing solutions for the remaining Phase 2 development costs of approximately US$60 million net to Sound’s 75% working interest in the Tendrara Production Concession. A number of industry counterparties capable of providing the required financing have expressed interest in pursuing discussions in respect of both of the Company’s Tendrara Production Concession and surrounding Greater Tendrara and Anoual exploration permits.
As a result, the Company announces that it has initiated a formal farm-out process for the Tendrara Production Concession and the surrounding Greater Tendrara and Anoual exploration permits and has appointed Gneiss Energy Limited, a leading energy corporate finance advisory firm, to manage the farm-out process.
The objective of the area-wide farm-out is to seek a co-investing partner in each licence to both fund the expected balance of Phase 2 development costs and also to progress an exploration and appraisal drilling programme in the Greater Tendrara and Anoual exploration permit areas.
Following the Company’s announcement on 14 April 2022, the Company has continued to re-evaluate the extensive exploration portfolio within the Greater Tendrara and Anoual exploration permits surrounding the Tendrara Production Concession. The Company had high graded several potential near term subsalt drilling opportunities within the Trias Argilo-Gréseux Inférieur (TAGI) gas reservoir, the proven reservoir of the TE-5 Horst gas accumulation within the Tendrara Production Concession.
These drilling opportunities include the exploration prospect ‘M5’ located on the Anoual exploration permit, together with the SBK-1 and TE-4 structures previously drilled on the Greater Tendrara exploration permit.
Both SBK-1 and TE-4, drilled in 2000 and 2006 respectively, 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 mechanical stimulation. TE-4 was tested in 2006 but did not flow gas to the surface. Mechanical stimulation has proven to be a key technology to commercially unlock the potential of the TAGI gas reservoir in the TE-5 Horst gas accumulation and, accordingly, the Company believes this offers potential to unlock commerciality elsewhere in the basin.
Commercial discoveries in the Greater Tendrara and Anoual exploration permits 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 projects.
Exploration potential in the three planned drilling targets
Graham Lyon, Sound Energy’s Executive Chairman, commented:
“We are making good progress on the senior debt facility for the Tendrara project, which is planned to fund the majority of the Phase 2 development costs.
In parallel, we have now commenced a farm-out process to secure partner participation in both the development of the Tendrara Production Concession and exploration and appraisal in the surrounding exploration permits.
Our re-evaluation of the potential of the Greater Tendrara and Anoual exploration permits has high-graded three drilling targets, two of which have previously encountered gas shows. We believe mechanical stimulation is the key to unlocking the potential of the TAGI gas reservoir, as we have done at the TE-5 Horst discovery. Importantly, future discoveries in this area have the potential to be commercialised through the planned infrastructure that will be built at the TE-5 Horst development.”