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Annual Report & Accounts
for the year ended 31 December 2015
stock code: SOU
BUilDing A RegiOnAl
Oil AnD gAS BUSineSS
in the eye Of the StORm
24754.02 25 May 2016 7:43 PM Proof 4
About us
Sound Energy plc is a well-funded Mediterranean upstream company,
listed on AIM (LSE:SOU), with production, a cornerstone investor and
a strategic partnership with Schlumberger, one of the largest companies
in the sector. 2016 promises to be a potentially transformational year
for the Company, with three strategic plays spanning onshore appraisal
and exploration drilling in both Morocco and Italy.
Welcome to our 2015 Annual Report: The story so far and the journey ahead
Our Investment Proposition
A bold growth agenda with strong thematic positioning
Outstanding people and partnerships
´ Strong European and North African gas price fundamentals
´ A team with skills on board to originate and execute
underpinning our business
transformational transactions
´ Producing and exploring for clean gas in an increasingly
´ Supportive cornerstone investor
carbon conscious world
´ An ambitious and talented team driving Sound’s
growth agenda
Read the Sector Overview on page 09 for more detail
Creating value through the drill bit
´ Multiple near-term strategic plays with the potential
to transform the resource base of the Company: Tendrara,
Sidi Moktar and Badile
Read 2015/16 at a Glance on pages 02 to 05
for more detail
A balanced and evolving portfolio
´ Assets across the life cycle
´ Pursuing selective, accretive M&A opportunities
to complement our portfolio and diversify our risk
´ Focused on world class assets
Read about our Strategy on pages 10 to 11
for more detail
´ Strategic partnership with one of the largest companies
in our sector to technically de-risk and fund our drilling
Read more about our Key Partners
on pages 12 and 13
See details on The Team on pages 24 and 25
Strong funding position
´ Maintaining a strong balance sheet in a turbulent sector
environment
´ Able to leverage off partner’s balance sheets
´ A low cost and high quality operator
See the Operational and Financial Review
on page 14 to 19
Change of Name
Corporate Website
On 1 October 2015, Sound Oil plc became Sound Energy plc,
thereby aligning the Company’s branding with its strategy
and portfolio.
Visit: www.soundenergyplc.com for the latest news, reports,
presentations and video.
Navigation key
Read more content within the report
View more content online
@soundenergyplc
#deliveringdreamsinthedesert
Sound Energy plc
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Stock Code: SOU
www.soundenergyplc.com
Positioned for
success with . . .
the right portfolio
Badile
Zibido
Nervesa
Rapagnano
SMG
Dora / Dalla
I
T
A
L
Y
Laura
Meridja
Tendrara I
Tendrara II
Tendrara
O
C
C
O
Sidi Moktar
Exploration
R
O
M
Read 2015/16 at a Glance on pages 02 to 05 and our
Operational and Financial Review on pages 14 to 19
the right partners
Read about our Key Partners on pages 12 and 13
the right people
Contents
Strategic Report
2015/16 at a Glance
Statement from the Chairman
and Chief Executive Officer
The Journey
Sector Overview
Strategy
Key Partners
Operational and Financial Review
Corporate Social Responsibility
Managing Risk
Our Governance
The Team
Corporate Governance Report
Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Financial Statements
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
List of Licences and Interests
Shareholder Information
See details on The Team on pages 24 and 25
24754.02 25 May 2016 7:43 PM Proof 4
02
06
08
09
10
12
14
20
21
24
26
28
30
32
33
34
35
36
37
38
39
40
61
62
01
2015/16 at a Glance
We operate a well balanced portfolio of 22 onshore gas licences and permits across both italy
and morocco. the portfolio contains a healthy blend of exploration and production potential.
morocco
italy
´ Currently drilling the first well at Tendrara, following the
acquisition of the interest in the Tendrara licence (as our
first asset in our Moroccan portfolio)
´ Entry into the Tendrara Field Management Agreement
with Schlumberger – our first project in this strategic
partnership
´ Broadening of the Moroccan portfolio with the acquisition
of Sidi Moktar bringing scale and diversification to our
Moroccan portfolio
´ Option to acquire Meridja Area, neighbouring Tendrara
´ Receipt of the final Badile drilling permission from the
Italian Ministry of Economic Development (UNMIG)
´ Continued production from our onshore gas fields, partially
covering our cost base
´ Memorandum of Understanding (“MOU”) signed for the rig
for the forthcoming Badile exploration well
the introduction of a cornerstone investor (Continental investment Partners S.A.) and a
strategic partner (Schlumberger, a multibillion company specialist in oil and gas) now
positions us with a funded 2016 drill programme and an accelerated journey to a mid cap
status without material equity dilution.
Assets
Production
Low risk discoveries
High upside exploration
Badile
Zibido
Nervesa
Rapagnano
SMG
Dora / Dalla
I
T
A
L
Y
Laura
Meridja
Tendrara I
Tendrara II
Tendrara
O
C
C
O
Sidi Moktar
Exploration
R
O
M
02
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Assets
Cost covering production
Low risk discoveries
Focus on . . . Morocco: Strategic Plays
High upside exploration
Permit
Power station project
Online power station
Gas Maghreb– Europe Pipeline
Gas pipeline project
Meridja
Strategic Play
See our Strategy on page 10 and 11
for more detail
Tendrara
Area:
Status:
14,500 km2
Permit
Tahaddart Power
2 x 400 MW
Dhar Doum
4 x 400 MW
C
I
T
N
A
L
T
A
Rabat
Casablanca
M E D I T E R R A N E A N
Oued
El Makhazine
2 x 400 MW
Al Wahda
4 x 400 MW
Meridja
Oujda
Tendrara
Sidi Moktar
Marrakech
O
C
C
O
R
O
M
Sidi Moktar
Area:
Status:
A
I
R
E
G
L
A
4,500 km2
Permit
Effective date:
23 April 2013
Effective date:
1 July 2009
Term:
8 years
Term:
8 years
Resource potential:
Interest:
Prospective resource with
multiple Tcf potential (gross)
Sound Energy Phase I 37.5%,
increasing to 55% Phase II
Net effective interest of 27.5%
following Field Management
Agreement with Schlumberger
Read more about Tendrara on page 14
Resource potential:
Prospective resource
Interest:
25%
Read more about Sidi Moktar on page 16
Meridja
Area:
Status:
9,000 km2
Reconnaissance area with
prospective resource analogous
to Tendrara
Read more about Meridja on page 15
24754.02 25 May 2016 7:43 PM Proof 4
03
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements 2015/16 at a Glance
Focus on . . . Italy: Strategic Plays
Assets
Production
Low risk discoveries
High upside exploration
Strategic Play
See our Strategy on page 10 and 11
for more detail
A full list of the Group’s Licences
and Interests can be found on page 61
Badile
Zibido
Nervesa
Rapagnano
SMG
Dora / Dalla
I
T
A
L
Y
Laura
Badile
Area:
Status:
154.5 km2
Exploration asset
Laura
Area:
Status:
Effective date:
23 March 2010
Resource potential:
63.1 km2
Appraisal of existing discoveries
Up to 25.6 Bscf (Best estimate
17.1 Bscf)
Term:
6 years*
Resource potential:
178 Bscf
Interest:
100%
* Extended to the end of 2016; expected to be extended further.
See more about Badile on page 17
Interest:
100%
Pictured: Rapagnano field
04
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Pictured: Sound Energy’s first well site in Morocco
24754.02 25 May 2016 7:43 PM Proof 4
05
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements Statement from the Chairman
and Chief Executive Officer
Simon Davies
Chairman
James Parsons
CEO
Sound energy is a european/mediterranean
focused upstream gas company, listed
on Aim, with a strategic partnership with
Schlumberger (one of the largest companies
in our sector), a cornerstone investor and an
active and potentially transformational drill
programme.
Sound Energy’s portfolio includes a blend of high upside
exploration assets, low risk appraisal/development assets and
production, which is diversified across Italy and Morocco.
2015 was a turbulent year for the energy sector, with continued
low oil prices and increasing global carbon consciousness.
In response to the challenging environment faced by the
industry at large, Sound Energy has been steadfastly pursuing
an onshore regional gas strategy, underpinned by solid
European gas fundamentals and a trend of global transition to
gas, as a cleaner alternative to coal and oil.
Whilst acknowledging the recent disappointments of
the Nervesa discovery, the Company with its high quality
partnerships, strong cash position and strong management
team is positioned well for continued counter-cyclical growth
whilst sector valuations are low and competition is limited.
The key highlights of 2015 include:
• The acquisition of an operated 55% position in the Tendrara
licence, onshore Morocco. Morocco is a stable, growing,
gas-hungry country with strong gas prices and competitive
fiscal terms. Tendrara benefits from a compelling risk/
reward balance with both a large scale gas discovery and
multiple Tcf exploration potential.
• Introduction of Schlumberger as a strategic partner for
existing and new assets across Europe and Africa.
• Entry of a Field Management Agreement with Schlumberger
in respect of the Tendrara licence with a view to de-risking
the asset technically and funding the majority of the first
three wells.
• Securing of the approval of the Environmental Impact
Assessment for the significant Badile prospect, onshore
Italy, which enabled the Company to secure the final
permission to drill in May 2016.
“ Sound Energy’s high quality
partnerships, strong cash position and
strong management team position the
Company well for continued counter-
cyclical growth.”
06
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Following the period end, Sound Energy entered into binding
agreements to acquire a 75% operated position in the Sidi
Moktar licences, onshore Morocco, where the Kechoula
discovery represents an opportunity for material near term
production. The wider Sidi Moktar licence area also provides
significant exploration potential. As announced by the Company
on 10 March 2016, the Company has entered into heads of
terms in respect of a farmout of the Sidi Moktar licences
which, if completed, would provide a carry on all future capital
whilst only reducing the Company’s position to a 25% operated
interest. As a result of this progress, Sound Energy’s current
immediate focus is now on three strategic plays across
Morocco and Italy:
• Tendrara, onshore Morocco
• Sidi Moktar, onshore Morocco
• Badile, onshore Italy
The outcome of the first well on the Company’s strategic
Tendrara play, which is currently drilling, is expected to
be known shortly.
The Company is in a strong financial position as it enters 2016
and a period of high activity, with a cash balance of £15.2 million
at 31 December 2015. We continue to operate with a low cost
but high quality philosophy, keeping costs under control and
leveraging partners’ balance sheets.
The significant progress achieved by Sound Energy during
2015 would not have been possible without the efforts of
Sound Energy’s executive team and supportive shareholders.
We would like to take this opportunity to thank all of them
as we continue to develop into a large-scale regional
upstream company.
“Despite the challenging sector backdrop,
Sound Energy is positioned in a sweetspot
– analogous to being in the peaceful eye
of a violent storm – with an opportunity to
grow boldly whilst valuations are low and
competition is limited.”
Pictured: CEO visit to TE-6
24754.02 25 May 2016 7:43 PM Proof 4
07
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements The Journey
2016
January – further Sidi Moktar acquisition
February – first gas from Nervesa
February – secured option to acquire Meridja reconnaissance area
March – introduction of partner to Sidi Moktar
April – receipt of $1 million of Indonesian Contingent Consideration
April – spudding of TE-6, the first well at Tendrara and in Morocco
2015
April – secured further funding from the institutional cornerstone
investor
May – Morocco country entry through the onshore gas licences at
Tendrara
June – Memorandum of Understanding (“MOU”) with strategic partner
October – acquisition of Sidi Moktar licences consolidating our
position in Morocco
December – introduction of Schlumberger to Tendrara
2014
April – introduction of a new Institutional Investor, Continental
July – first gas on the Casa Tiberi field, located in the Marche
Region of Italy
September – purchase of the land required for the world-class
Badile exploration prospect
2013
Achieved first gas from the onshore Rapagnano field in
central Italy, delivering free cash flow of c.€900,000 per annum
Drilled and tested the Nervesa gas discovery in the Po Valley
(Northern Italy)
2012
Strategic decision to focus on Mediterranean gas,
leveraging off a strong onshore portfolio in Italy
Disposal of participating interest in Indonesian assets
s
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08
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015
Sector Overview
The Energy Sector in Transition
Italy
In 2015, the energy sector underwent a structural transition.
With falling oil prices and general uncertainty surrounding
the supply and demand balance, many upstream companies,
including household names, have been brought to their knees
on the back of an unsustainable debt burden and the inability to
fund capital commitments. The market is littered with strategic
reviews, forced asset sales, debt re-determinations, requisitions
from activist shareholders and companies defaulting on
licence commitments. The AIM oil and gas index has dropped
dramatically over the last year and the general consensus is
that the inevitable recovery is still some time away.
In this new order, Sound Energy believes the market rewards
companies with quality assets, cash in the bank, sustainable
debt, and strong, growth-focused management. 2015 was
transformational for Sound Energy, with key achievements in
the Italian and Moroccan portfolios including:
– entry into Morocco on the Tendrara licence
– partnership with Schlumberger
– the acquisition of the Sidi Moktar licence.
Sound Energy has made great strides securing quality assets
from distressed players. Sound Energy continues to grow
counter-cyclically, in the peaceful eye of an industry-wide
storm. The Company’s portfolio remains focused onshore
in the Mediterranean region with acreage across Italy and
Morocco, sheltered from low oil prices and underpinned by
strong gas fundamentals.
Morocco
Over 90% of Morocco’s energy supply is imported. Demand
grows at a steady rate to meet the needs of economic
development, industrialisation, and the growing power grid.
Gas is an important commodity in the country: the government
encourages production from domestic resources, with gas-
fired plants playing an important role in power supply and the
phosphate industry. Morocco holds more than two-thirds of the
world’s phosphate reserves and needs natural gas in the in the
extraction and fertilizer production processes. In the medium
to long term, Morocco expects to increase the share of natural
gas in the energy mix. Morocco is also pushing for an increase
in the utilisation of renewable sources for electricity generation
which calls for gas-generated electricity to meet intermittent
supply from solar and wind power. The decision in favour
of the large-scale use of natural gas in the energy mix, and
particularly in electricity generation, is essentially based on
the need to introduce independence in the energy supply and
additional flexibility into the Moroccan power system.
Morocco provides one of the most attractive fiscal regimes,
blend of hydrocarbon potential (both low-risk and rank
exploration) and strong gas-market fundamentals. The
stable economic and political environment makes it an ideal
country in which Sound Energy can operate and unlock value
organically.
Italy’s production of both oil and natural gas has been
progressively declining over the last decade. In 2015, domestic
gas production met only 10% of its domestic demand, whilst
Italy sits amongst Europe’s largest energy consumers and
importers.
The fuel supply mix remains dominated by hydrocarbons,
with demand for natural gas growing rapidly over the last
decades, notably as part of a national programme to mitigate
the country’s dependence on oil imports. Gas demand is
concentrated in three main sectors: residential, power
generation and industrial, experiencing a steady growth at
a rate of 9% approximately each year. This growth is almost
entirely attributable to the increase in demand for power
generation, which accounts for almost a third of the total gas
demand in Italy.
On the supply side, Italy is highly dependent on natural gas
imports, standing at c.90% in 2015 with no decrease expected.
With a developed network of infrastructure and pipelines
across the country, Italy therefore offers strong gas-market
fundamentals which make it a continuous area of interest for
Sound Energy with a diverse range of asset classes including
production, appraisal and high-impact exploration.
Pictured: Sound Energy drills for gas
“ Morocco provides one of the most
attractive fiscal regimes for oil and
gas companies worldwide.”
24754.02 25 May 2016 7:43 PM Proof 4
09
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements Strategy
We are pursuing an onshore gas strategy, within the mediterranean area, which is proving very
robust to the current oil price environment, security situation and to an increasingly carbon
conscious world. the markets are rewarding companies with sustainable debt levels, strong
management, cash on the balance sheet and a bias for gas.
Sidi Moktar
Exploration
Tendrara
Exploration
K
S
I
R
Nervesa
Rapagnano
Tendrara
Appraisal
Zibido
SMG
Sidi Moktar
Appraisal
Badile
Laura
Dora/Dalla
Strategic Play
REWARD
Cost Covering Production
low Risk existing Discoveries
high Upside exploration
Sound Energy maintains a low
cost base with revenues from
the Italian asset production
contributing to costs. We are
working to build a balanced
portfolio with assets across
the life cycle, generating
free cash flow.
By focusing on previously
drilled discoveries in areas
where hydrocarbons have
been identified, Sound Energy
is able to minimise risk.
We are leveraging the
technical knowledge
of our partners to increase
our chances of success.
Three upcoming strategic
plays spanning onshore
appraisal and exploration
drilling in Morocco and Italy
will potentially transform the
reserve base of the Company:
Tendrara, Sidi Moktar and
Badile. Sound Energy is
focused on world class assets
and opportunities.
Sound Energy’s strategy strikes a balance betweeen risk and reward, and between high upside exploration, low risk appraisal/
development assets and production with the target of covering our cost base, while pursuing transformational opportunities
and generating significant returns for the Company and its shareholders. During 2015, the addition of the Moroccan portfolio
(Tendrara and Sidi Moktar) has increased Sound’s exposure to high upside exploration potential and increased the level of
potential reward within the portfolio. The exisiting discoveries of hydrocarbons in the licence area we have acquired, together
with a strong technical partner, reduce risk, helping us maintain the balance within our portfolio.
10
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015
Overview
Despite the challenging sector backdrop, Sound Energy is
positioned in a sweetspot – analogous to being in the peaceful
eye of a violent storm – with an opportunity to grow boldly and
counter-cyclically whilst valuations are low and competition
is limited.
Our current portfolio includes a well balanced portfolio of
onshore gas licences across both Italy and Morocco. This
portfolio is a healthy blend of high upside exploration, low risk
appraisal/development assets and some solid, cost covering,
production.
The Journey To Date
Our journey began back in 2011/12 with the acquisition of our
onshore Italian gas portfolio. Since then we have drilled the
Nervesa gas discovery and secured first gas at both Nervesa
and the onshore Rapagnano gas field. These two assets
provided a solid base of cost covering production for the period
under review. During 2015/16 we broadened the portfolio
with the acquisition of an onshore gas portfolio in Morocco,
including the Tendrara and Sidi Moktar licences. These
licences bring scale and diversification with Tendrara forming
the backbone of our 2016 drill programme.
The introduction of a cornerstone investor (Continental
Investment Partners) and a strategic partner (Schlumberger,
a multibillion company specialist in oil and gas) now positions
us with a funded 2016 drill programme and an accelerated
journey to a mid cap status without material equity dilution.
Our Future Focus
In 2016 we expect results from three strategic plays, each one
of which could be transformational to the Company: Tendrara,
Sidi Moktar and Badile.
We are focusing both our financial and human resources on
our game-changing assets, including Tendrara where two
wells are planned for 2016 and our largest gas prospect, Badile
with a gross best estimate NPV10 of €486 million. It is our
intention to farm out and then drill Badile in 2016 with a view
to capturing the upside NPV, which exceeds US$2 billion. Sidi
Moktar offers the possibility of near term cash flows from the
production of two existing wells on the Kechoula structure.
Kechoula is close to existing infrastructure and has been
estimated to have an unrisked mid case GOIP of 293 Bscf
on a 100% working interest basis.
The final step in the journey involves continued expansion
into the greater Mediterranean area, likely to be onshore or in
shallow water and probably achieved through acquisition. This
will be combined with consolidation within Italy and Morocco
where possible. We have the skills onboard to originate and
execute transformational transactions.
In summary Sound Energy is a focused team dedicated to
delivering “shaping moves” and working to build a mid cap
regional oil and gas company.
How We Measure Progress
The Company’s strategy to date has been to develop low risk,
previously drilled assets in order to minimise risk whilst
accelerating revenue generation in order to cover its cost
base. 2016 represents a step out from our comfort zone as we
move towards realising the potential of our game-changing
assets, with the first adventure being the drilling of TE-6 on
the Tendrara structure. This well was spudded on 20 April 2016
and drill bit success will be mirrored in the increase to the net
asset value of the Company. We will see our progress by our
discoveries, alongside our ability to identify and exploit accretive
M&A opportunities. Like our investors, we will measure our
success in stewarding the business by its share price.
Key Performance Indicators
Management is held accountable to a variety of KPIs through
the development of an individualised scorecard, comprising
both company-wide and personal objectives. Remuneration
is directly linked to meeting these targets and, as recently
announced, share price growth is a key performance criterion
of the Company’s long term incentive plan.
The health and safety of our employees and contractors is our
primary concern. We are, again, proud to confirm that, in 2015,
we had no lost time incidents.
Pictured: Casing cleaning and TE-6 rig site
11
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www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements Key Partners
“ Our partners
and our people
play a vital
role in creating
value for our
shareholders.”
12
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Schlumberger is the world’s leading provider of technology
for reservoir characterisation, drilling, production, and
processing to the oil and gas industry. It supplies the industry’s
most comprehensive range of products and services, from
exploration through production and integrated pore-to-
pipeline solutions for hydrocarbon recovery that optimise
reservoir performance, working in more than 85 countries and
employing approximately 113,000 people who represent over
140 nationalities.
The strategic partnership between Sound and Schlumberger
allows the Company to benefit from Sclumberger’s wealth of
experience and vast resource within the sector, in addition to
sharing of the risks of the Tendrara project, with Schlumberger
earning its net profit interest through funding a significant
portion of the initial capital expenditure.
Other Joint Venture Partners
Our ability to build and maintain relationships is a key
part of our success, enabling us to identify accretive M&A
opportunities, share the risks and rewards of oil and gas
exploration and production with our partners and, in return,
increase our knowledge and fund our work programmes. We
have high quality relationships with our partners in our assets.
Our hosts
The way in which we conduct ourselves with our host
communities and governments, and our record on health, safety
and the environment, is the bedrock for all our operations and
is crucial to our success as a business. In close partnership
with our host government we work to grow and strengthen
our social and economic relationship within the countries and
regions we operate in, through the community support we
provide, employment opportunities we offer and the willingness
of our local communities to work with us to create wealth.
Our partners and our people play a vital role in creating value
for our shareholders.
Continental Investment Partners
Continental Investment Partners S.A. (“Continental”) were
introduced to Sound Energy in 2014 when they invested £14
million in the Company through a mixture of debt (£7 million)
and equity (£7 million).
They have continued to support Sound Energy throughout
2015 and, during April 2015, brought a further £12 million
investment into the Company, when they subscribed for a total
of 63 million shares, through an affiliate, Metano Capital S.A.
These shares were subsequently placed with various pre-
identified institutional investors. Continental have played a key
role in enabling the Company’s drill programme and expansion
and are a critical cornerstone of the Company. As at 9 May
2016, Continental had an interest in 12.98% of Sound Energy’s
share capital.
Schlumberger
In October 2015, Sound Energy announced that it had signed a
Memorandum of Understanding (“MOU”) with Schlumberger
Oilfield Holdings Limited (“Schlumberger”) defining a strategic
relationship between Sound Energy and Schlumberger across
Europe and Africa. Associated with this, a Term Sheet was
signed with Schlumberger Production Management (“SPM”),
the production management arm of Schlumberger, regarding
the Tendrara licence, onshore Morocco.
The Company subsequently entered into a Field Management
Agreement (“FMA”) with SPM in December 2015 where, under
the FMA:
• Schlumberger provide integrated technical services,
equipment and personnel to Sound Energy, Operator of the
Tendrara Licence;
• Schlumberger will fund a significant proportion of the
capital expenditure on the first three Tendrara appraisal
wells (80-75%), and of the development of the licence area
thereafter (27.5%); and
• Schlumberger have been granted a synthetic net profit
interest of half of the Company’s interest (which equates to
18.75% initially increasing to 27.5% after the first well).
See the Sector Overview on page 9
Read about our Strategy on page 10 and 11
Pictured: TE-6
24754.02 25 May 2016 7:43 PM Proof 4
13
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements Operational and
Financial Review
Strategic Play - Tendrara
M O R O C C O
M E R I D J A
R E C O N N A I S S A N C E
Z O N E
Tendrara I
Tendrara II
A
L
G
E
R
I
A
Licence Details
Area:
Status:
14,500 km2
Permit
Effective date:
23 April 2013
Term:
8 years
Resource potential:
Interest:
Prospective resource with
multiple Tcf potential (gross)
Sound Energy Phase I 37.5%,
increasing to 55% Phase II
Net effective interest of 27.5%
following Field Management
Agreement with Schlumberger
Permit Area
The Tendrara permit is located in the Figuig Province, North-
East Morocco, 120 km from the GME pipeline, connecting
Algeria and Morocco to the Spanish/Portuguese gas grids. The
permit area, which is sub-divided into eight blocks, covers a
combined area of 14,500 km2.
Geology
The Tendrara structure represents a continuity of the Algerian
Triassic Province and Saharan Hercynian platform with the
same basin shows as the tectono-sedimentary evolution in the
Algeria Basins.
Activity History
AGIP first explored the Tendrara structure in 1966/67 drilling
two wells, both proved gas bearing but were not fully tested.
In 1983 the Moroccan National Oil Company (NOC), ONHYM
(Office National de HydroCarbures et des Mines) further
appraised the structure drilling a third gas bearing well.
In 2000, MPE drilled SBK-1 in the adjacent Sidi Belkacem
structure to further assess the Trias Argilo-Gréseux Inférieur
(“TAGI”) reservoir, which proved to be gas bearing and tested
successfully.
In total seven wells have been drilled in the permit, five have
been gas bearing and two have tested successfully. Of the two
successful test wells SBK-1 had a peak rate of 5.5 MMscf/d
and TE-5 had flow rates of 1.5 MMscf/d.
Sound Energy farmed in to the Tendrara licence in June
2015, taking a 55% working interest in the licence, partnering
ONHYM (25% interest) and Oil & Gas Investment Fund (“OGIF”)
(20% interest) and assuming the Operatorship. Sound’s 55%
working interest will be secured in two tranches, with tranche
one (37.5%) awarded on completion of the transaction and the
second tranche (17.5%) secured once Sound Energy commits
to the second exploration phase (which would include a second
well). Under the terms of the farm-in to the licence Sound will
pay 100% of the cost of three wells, of which only the first well
would be a firm commitment.
In December 2015, Sound entered into a Field Management
Agreement (FMA) with Schlumberger. Under the terms of the
FMA Schlumberger agreed to fund a significant portion of
the capital expenditure on the first three Tendrara wells and
provide technical services, equipment and personnel to Sound
as Operator in exchange for an upside linked to production
performance.
The first well is to appraise the larger of two existing
discoveries in the Tendrara licence with a view to addressing
the residual reservoir uncertainties (well deliverability and
areal continuity) and proving up sufficient reserves to properly
size the design of the infrastructure required to commercialise
the gas.
The licence already has 4,400 km of 2D seismic and 500 km2 of
3D seismic.
Preliminary internal estimates of existing discovery volumes
suggest significant volumes in place with potential recoverable
resources of multiple Tcf across multiple prospects/leads.
14
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Meridja
Tahaddart Power
2 x 400 MW
Dhar Doum
4 x 400 MW
C
I
T
N
A
L
T
A
Rabat
Casablanca
Sidi Moktar
Marrakech
O
C
C
O
R
O
M
M E D I T E R R A N E A N
Oujda
Oued
El Makhazine
2 x 400 MW
Al Wahda
4 x 400 MW
Meridja
Licence Details
Area:
Status:
9,000 km2
Reconnaissance
Effective date:
TBC
Tendrara
Term:
Resource potential:
A
I
R
E
G
L
A
Interest:
Reconnaissance permit expires
1 Aug 2016
Prospective resource analogous
and adjacent to Tendrara
Option to acquire a 55% interest
in the exploration permit
Permit Area
Sound has secured an option to acquire a 55% interest in the
Meridja permit, located next to its Tendrara licence.
The Meridja reconnaissance permit is currently held 75% by
OGIF and 25% by ONHYM.
Both Meridja and Tendrara have a pericratonic position and
are located between three geologic domains: the inverted High
Atlas, the Folded Hercynian Basement and the Non Deformed
Saraha Platform.
In Meridja, two main targets have been identified: the Paleozoic
formations, which belong to the Hercynian Saharan Platform,
and the Triassic Sandstones (TAGI) which belong to the Triassic
province. Currently, 15 leads have been identified with reserves
potentially similar in scale to those in Tendrara.
Pictured: Drilling TE-6
24754.02 25 May 2016 7:43 PM Proof 4
15
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements Operational and
Financial Review
Strategic Play - Sidi Moktar
Jorf Lasfar Power Plant
Safi Chemicals Plant
State owned
Phosphate
Plant (OCP)
Licence Details
Area:
Status:
4,500 km2
Permit
Effective date:
1 July 2009
Term:
8 years
Sidi Moktar II
Chichaoua
Resource potential:
CPR to be commissioned
Meskala
Plant
Planned
New
Phosphate
Plant
Sidi Moktar I
Interest:
25%
The development of the Meskala Field gave rise to the
discovery of gas-condensate in Triassic clastics at 3,500m
and a DST yielded a flow rate of 12 MMscf/d. Between 1980
and 1987 a further 28 wells were drilled including nine
development wells at Meskala, two of which were the deepest
stratigraphic tests in the basin (4.3km), proving the possibility
of Ordovician sands as a second potential Palaeozoic target.
Additionally, 7,000 km of seismic have been acquired since the
late 1950s.
In 2009, Magreb Petroleum Exploration (MPE) signed a
Petroleum Agreement with ONHYM to secure a 75% interest
in the Sidi Moktar North, South and West licences, the
remaining 25% being held by ONHYM. MPE subsequently
farmed out a 50% working interest operated position to
Petromaroc (formerly Longreach) in exchange for a full carry
to first commercial gas. During the course of 2013 and 2014,
Petromaroc drilled two wells which both had gas shows but
which were never completed and tested.
In January 2016, Sound secured a 75% interest in the licences
through two transactions. The Company is now working on
finalising a farmout of the asset.
Permit Area
The Sidi Moktar permit is located in the Essaouira Basin in
central Morocco (Western sea border) and is sub-divided into
three blocks (North, South and West) with a combined area
of 4,500 km2. Adjacent to and surrounding the permit is the
Meskala Field, a gas/condensate discovery, which has been
producing since the late 1980s and represents one of the most
significant discoveries in Morocco to date. The Sidi Moktar
permit itself hosts some 40 wells, a pipeline and production
facilities for gas and condensate.
The Geology
There are four petroleum systems (PS) within the Sidi Moktar
permit:
• PS1 Argovian (sandy dolomite) which has given rise to five
discoveries (Jeer, Kechoula, Sidi Rhalem, Toukimt and
N’Dark);
• PS2 Low Liasssic (sandstone) which has given rise to two
discoveries (Zelten and Kechoula);
• PS3 Triassic (TAGI equivalent) which has given rise to one
discovery (Meskala); and
• PS4 Paleozoic Devonian carbonates which remains frontier
exploration.
Activity History
Historically, 84 wells have been drilled in the Essaouira
basin with PS2 and PS3 having the highest discovery ratio.
Exploration in the basin began in the 1950s resulting in the
discovery of two small gas fields (Kechoula in 1957 and Jeer
in 1958) and one oil field (Sidi Rhalem in 1961). By 1970, 35
onshore wells and one offshore well had been drilled, of which
12 were classed as appraisal/development. From 1974 to 1980,
a further 13 wells were drilled with the aid of multi-fold 2D
seismic resulting in three further discoveries at Toukimt (1976),
at N’Dark (1976) and at Meskala (1977).
16
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Area:
Status:
154.5 km2
Exploration asset
Effective date:
23 March 2010
Term:
6 years*
Resource potential:
178 Bscf
Interest:
100%
* Extended to the end of 2016; expected to be extended further.
In October 2014, Sound Energy purchased a 59,140 m2 plot of
industrial land in the Lombardy region of Italy, which will host
the drill site for the initial Badile exploration well and for all
other production wells required to exploit the discovery. The
approval of the Environment Impact Assessment (“EIA”) for
the Badile exploration well was received from the Lombardy
regional government in March 2015. Since then, the Company
has been advised by UNMIG (the Italian Ministry of Economic
Development) that the Badile permit will be extended until
the earlier of 31 December 2016 or 12 months from the date
of the award of the final authorisation to drill the forthcoming
well. This marks an important step in the local permitting
process and enables Sound to continue preparations for the
forthcoming exploration well. Final authorisation was achieved
in May 2016.
In January 2016 Sound Energy, with independent external
support, completed the acquisition of additional well
stratigraphic information from the area. As a result of the
work, Sound updated its assessment of the prospect resulting
in an increase in the estimated chance of success to 34%.
Strategic Play - Badile
3D
Seismic
Coverage
Milano
Licence Details
SNAM
Gas
Pipeline
Lacchiarella
Badile
Zibido
Pavia
Badile
Permit
Permit Area
The Badile Permit is situated in the Piedmont Lombard
Basin in northern Italy where the principal play is oil, gas
and condensate in deep Triassic dolomites and limestones.
The permit is adjacent to ENI’s Gaggiano oil field and a short
distance from the giant Villafortuna-Trecate and Malossa
oil fields with total proven recoverable reserves of over 400
MMboe.
The permit area was initially held by ENI in the exclusive zone
until 2004. A total of 460-line km 2D and 238 km2 3D seismic
was acquired between 1974 and 1990. Two dry wells were
drilled within the permit area between 1978 and 1982.
Activity History
Sound Energy filed an application in January 2006 and the
permit was awarded in March 2010. To date G&G data studies,
drilling application (Moirago-1 dir. well) and Environmental
Impact Assessment have been completed on this permit.
ERC Equipoise Limited completed a full independent
Competent Person’s Report of this prospect in 2013, confirming
a Best Case estimate of gross prospective resources of 178bscf
equivalent (106 Bscf of gas plus 12 MMbbl of condensate) with
a High Case estimate of 673bscfe (397 Bscf of gas plus 46
MMbbl of condensate) and a Low Case estimate of 46 Bscfe (28
Bscf of gas plus 3 MMbbl of condensate). The study confirmed
a 22% geological chance of success for the prospect.
24754.02 25 May 2016 7:43 PM Proof 4
17
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements Operational and
Financial Review
Producing Assets
Rapagnano Gas Field
Licence Details
Area:
Status:
8.49 km2
Concession
Effective date:
28 November 2012
Term:
Reserves:
Interest:
10 years
1.3 Bscf
100%
Nervesa Gas Discovery
Licence Details
Area:
Status:
529.75 km2
Concession
Effective date:
14 November 2015
Term:
Reserves:
Interest:
20 years
TBD
100%
Casa Tiberi Gas Discovery
Licence Details
Area:
Status:
49.4 km2
Concession
Effective date:
24 February 2012
Term:
Interest:
20 years
100%
The concession is located in Fermo Province, Marche Region.
Geologically the area is within the Ancona-Pescara Basin
associated with the Central Apennine foredeep. First gas was
delivered from the onshore Rapagnano field to the local gas
distributor on 15 May 2013. The asset successfully produced
125.6 MMscf in 2015 at a rate of 0.34 MMscf/d. During
the period, Sound also entered into a 12-month gas sales
agreement with Steca Energia Srl, until September 2016 based
on a variable market price.
The permit is located in northeast Italy, within the Alpine
foredeep province. The Nervesa structure was first drilled by
ENI in 1985 with two wells (Nervesa-1 and Nervesa-1dir. A)
and proved gas-bearing in at least 13 sand intervals within the
Tortonian. Sound drilled its first well in July 2013 encountering
46 metres of net pay across 13 zones. A second well, Cascina
Daga-1 was drilled on the southern structure during 2015,
which did not encounter commercial hydrocarbons. Sound
received a Production Concession for the first well (the
concession is named Casa Tonetto), in late 2015, achieved first
gas in February 2016 and has a GSA with Royal Dutch Shell.
The permit is located in Ancona, Marche in central Italy, within
the foredeep trough of the Central Apennines. First gas was
delivered from the onshore Casa Tiberi field, to the local gas
distributor on 28 July 2014, with initial production from the
Lower Pliocene Cellino formation. Sound Energy signed a gas
sales agreement with Prometeo Spa in summer 2014.
Selected Exploration and Appraisal Prospects
Zibido Prospect (Sound Oil 100%) – Exploration
The Zibido prospect is adjacent to the Badile prospect in the Po Valley. It is a downthrown fault terrace play in the Mesozoic
with a total depth of 5,600 metres.
Laura Discovery (Sound Oil 100%) – Appraisal
Laura (DR74-AP) is located in the Ionian Sea Zone D within the Sibari Basin, Gulf of Taranto, 4 km offshore, where the
average water is 200 m deep. In 1980, commercial gas was discovered in two sand intervals in Laura-1. The Company was
awarded the permit in June 2014 and intends to drill the discovery from an onshore location with a long reach deviated well.
Dora/Dalla (Sound Oil 100%) – Appraisal
The Dora gas discovery, which lies 21 km offshore in the Adriatic Sea, was previously drilled in 1972 and achieved flow rates
of 200 MMScf/d. The play is a faulted anticline, gas-condensate in the Scaglia Formation (1,400 m depth). The Dalla project,
held within the Dora permit, provides additional exploration potential.
A full list of the Group’s Licences and Interests can be found on page 61.
18
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Income Statement
In 2015, production continued from the Rapagnano and Casa
Tiberi fields, generating revenues of £0.9 million consistent
with 2014, which was the first full year of Rapagnano
production.
The loss before finance costs and tax from continuing
operations increased in 2015 to £18.3 million from £4.9
million, due to a write-off of exploration costs associated with
the Cascina Daga-1 well of £5.6 million, impairment of Casa
Tonetto £6.3 million and an increase in foreign exchange losses
primarily related to intra-group loans denominated in euros.
Administrative costs increased by £0.4 million to £3.2 million
(2014: £2.8 million) reflecting the increased corporate activity
and expansion into a second country.
Cash Flow/Financing
During 2015, £13.9 million of net cash proceeds were raised
from financing activities (2014: £19.1 million), primarily from a
private placement arranged by Continental Investment Partners
in April 2015, and a subsequent Open Offer in June 2015. These
placements demonstrate Continental’s continued confidence,
and the wider shareholder base’s confidence, in the Company’s
strategy against a difficult market backdrop. In 2014, financing
activities were split between the issue of debt (£11.4 million
gross) and the issue of equity (£8.2 million gross).
The Group spent £7.7 million on investing activities during
2015, which largely consisted of the Cascina Daga exploration
well as well as the facilities additions to the Casa Tonetto site
in preparation for commercial production.
Balance Sheet
In the year, non-current assets decreased by £7.0 million due
to exchange adjustments and impairments offset by capital
additions. The functional currency of the Group’s Italian
subsidiary, which holds most of the Group’s assets as at
31 December 2015, is the euro, which weakened significantly
against sterling during the year to 31 December 2015 causing
the exchange adjustments.
The Group’s closing cash balance remained strong at £15.2
million as at 31 December 2015 (2014: £12.6 million). The net
proceeds of the successful equity raising more than offsetting
the capital expenditure incurred on the work programme for
the year. Debt marginally reduced to £12.9 million (2014: £13.4
million).
Pictured: View looking up the rig mast
Statement of Proved and Probable Reserves
The Group’s proved and probable hydrocarbon reserves as at
31 December 2015 were:
Proved reserves at 31 December 2014
Reclassifications*
Production
Proved reserves at 31 December 2015
Probable reserves at 31 December 2014
Reclassifications*
Probable reserves at 31 December 2015
Total Proved and Probable Reserves at
31 December 2015
Gas
(Bscf)
0.86
0.75
(0.13)
1.48
0.23
2.21
2.44
MMboe
0.14
0.13
(0.02)
0.25
0.04
0.37
0.41
3.92
0.66
Accounting Standards
* Reported 1P/2P/3P reserves are based on a reservoir study completed in
Jan 2015; following the commencement of production in 2016, revisions are
anticipated.
The Group has reported its 2015 full year accounts under
International Financial Reporting Standards (IFRS), as adopted
by the European Union.
Abbreviations:
Going Concern
Bscf: Billion standard cubic feet of gas.
MMbo: Million barrels of oil.
MMboe: Million barrels of oil equivalent (6,000 standard cubic
feet of gas = 1 barrel of oil).
The Directors have reviewed the forward cash flow projections
for the Group for the foreseeable future, being at least the
next 12 months from the date of this report, which show that
the Group has sufficient financial resources to undertake its
committed work programme, and thus the Directors have
concluded that the Group is a going concern.
24754.02 25 May 2016 7:43 PM Proof 4
19
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements
Corporate Social
Responsibility
Our business relies heavily on successful partnerships with
all stakeholders. We target building deep and constructive
relationships with our stakeholders, be they government, local
communities, employees, suppliers or investors, by being a
responsible operator and partner. We conduct our business
safely and in a socially responsible and ethical manner. We
respect the law and endeavour to protect the environment
and communities in which we work. We are focused on
minimising the environmental impact of our operations and are
committed to a healthy and safe workplace, whether it be on
a drill site or in an office. Alongside our employees, we ensure
our contractors share our values to produce a safe working
environment for all.
Transparency and Ethical Conduct
The Group continues to run its business in an ethical and
transparent manner and is aware of its legal obligations
with regards to the UK Bribery Act of 2010. These risks are
monitored continuously and the Company actively encourages
whistleblowing should any inappropriate behaviours be
suspected. Employees are supported in identifying and
managing these risks. Alongside this, we set minimum
standards for contractor selection to ensure our partners are
aligned with us in their conduct. We are committed to building
long term relationships with our key suppliers and treat them
with respect, aiming for prompt payment.
People and Skills
We strive to align our values in the interests of the people who
continue to contribute towards Sound Energy’s success. This
includes all employees and contractors, as we ensure their
safety and wellbeing while supporting individual educational
and training needs. We have a first class team on the ground
and throughout the organisation. The Company is focused on
controlling cost, which is reflected in the size of our workforce;
Sound Energy had an average of 22 employees during 2015.
Our business is growing at a rapid pace with the acquisition of
licences in Morocco and the 2016 planned drilling programme,
making the recruitment, training, development and retention of
our staff critical to the success of our business.
Health and Safety Policy
Sound Energy is committed to conducting its business and
operations in all areas of the world in a manner which achieves
the following objectives:
• Safeguard the HEALTH of its employees, contractors and
the public.
• Conduct its operations without accident, maintaining
SAFETY as its goal.
• Minimise the impact of its operations on, and maintain
respect for, the ENVIRONMENT.
The Directors and Senior Officers of the Company ensure that
these objectives are achieved through:
1. Ensuring that the standards and procedures adopted for
its operations will meet the requirements of both the laws
of local jurisdictions and international standards of best
oilfield practice.
2. Managing our activities to prevent pollution and to
minimise adverse effects on the world around us.
3. Ensuring that in designing our operations, health and
safety hazards and environmental impacts have been fully
assessed and appropriately mitigated.
4. Ensuring that all personnel, including contractors
employed by us, are fully aware of their HSE responsibilities
and have been properly trained. The commitment to, and
ability to adhere to, the above objectives will be a key factor
in selecting and awarding contracts to third parties.
5. Undertaking regular monitoring, audit and reporting of its
operational activity to identify the necessary compliance
with its HSE policy and objectives and adopting targets to
achieve continuous improvement in HSE performances.
6. HSE performance will be regularly reported to the Board
of Directors who will ensure that appropriate resources are
provided to achieve the objectives of this policy in full.
Where the Company participates in, but does not operate,
joint ventures it will seek to ensure that similar standards are
adopted by its Operators.
Considerations of health, safety and environment are the
concern of all employees of the Company and its contractors.
We will ensure that competent people, the correct equipment
and appropriate standards and procedures are available to
meet these considerations. Where necessary the appropriate
training will be provided.
We will always act responsibly and safely in our business
to bring energy resources to market for the benefit of the
community at large. In 2015, we are again delighted to report
that we recorded no lost time incidents.
20
Pictured: One team
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Managing Risks
Risk management is central to achieving the Group’s strategy
and delivering long term value to shareholders. The Board,
its Committees and the executive team are actively engaged
in setting the risk appetite as well as monitoring and limiting
(where possible) the risks to which the Group is exposed.
Our governance structure and processes ensure that the
Group is able to establish, monitor and review appropriate
risk management and internal control systems to identify
and mitigate the risks the Group faces. The risk management
framework:
• Defines the Company’s risk appetite, with reference to the
Company’s strategy
• Identifies the principal risks and their likelihood and impact
• Enables the Company to manage the risks through an
effective internal control system
• Regularly monitors and reviews the risk framework
The framework is regularly reviewed and assessed for
completeness and relevance and the Company’s business
profile monitored throughout the year. Prior to the approval
of any new project or transaction, risks are assessed
and incorporated into the risk register as appropriate.
Responsibility for the risk is allocated to an individual.
Principal risks
The table below indicates the principal risks the Group faces
and has been produced following a robust assessment of
risk, including consideration of those that would threaten its
business model, future performance, solvency or liquidity.
The list is not exhaustive or in priority order, and may change
over time.
Risk and definition
Impact
Mitigation
Limited diversification
• May adversely impact ability to operate (e.g.
• Diversify portfolio to multiple
Company and its
operations may be
significantly adversely
impacted by regulatory,
fiscal, political and/or any
other regime changes
change to on/offshore regulatory regime in Italy)
countries (e.g. Morocco entry in 2015)
• Adversely impact profitability & cash flow
• Build strong relationships with
• Reduce appetite for investment in the Company
governments, local authorities, local
population and other stakeholders
• Lobby where appropriate
• Monitor potential legislation changes
Licence to operate
• Environmental, ethical, and above ground incidents
• Build strong relationships with
may result in loss of reputation and licence to
operate
governments, local authorities, local
population and other stakeholders
• Key local stakeholders do not want the Company
as a partner adversely impacting the ability to
operate
Project execution
• Projects are unprofitable and do not generate
Major capital projects
realised late and/or over
budget or do not achieve
expected results
shareholder value
• Loss of company and management credibility
• Additional cost impacts the ability of Company to
finance itself
• Project reserve potential and
economics regularly reviewed
• High quality operational and financial
management processes in place,
incl. processes relating to well
design, AFE and budgeting
• Project progress & cost monitoring
controls in place
Loss of key personnel
• Loss of confidence of shareholder base
• Competitive remuneration for key
• Lack of direction and leadership within the
Company
• Loss of expertise and knowledge
executives bench-marked regularly
relative to the market
• Long term incentive plan in place
• Succession planning considered
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21
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements
Managing Risks
Risk and definition
Impact
Mitigation
Exploration & Reservoir
Risk
The Company fails to
locate, explore, appraise
and develop oil reserves
that deliver commercially
e.g. key wells are dry
or less successful than
anticipated.
Operational Incident
Including blowouts,
safety and environmental
incidents and accidents,
terrorism
• The Company does not manage to recover its
investment and suffers financial loss.
• The Company loses credibility and suffers
reputational damage
• Analysis of available technical
information (e.g. seismic, drill
results) to determine drilling
programme
• Risk sharing arrangements entered
into to reduce downside risk
• Technical, financial and Board
approvals required for all projects
• Loss of life or injury to personnel (staff,
• Highly skilled, qualified and
contractors, third parties)
• Reputational damage
• Loss of “licence to operate”
• Exposure to litigation
• Damage to equipment and disruption of operations
• Consequential financial loss (litigation, equipment
competent staff. Training provided as
required.
• Strong HSE ethic & risk assessment
• High quality operational
management processes including
well design, emergency response
plan and change of control process
replacement, cost to redrill)
• TAC & HSE Committee reviews
• Insurance
• Security measures in place
Insufficient funds
• Company can no longer finance current operations
• Finances are controlled through
To deliver the Company’s
work programme and
meet ongoing operating
requirements
or future investment
• Company cannot meet the capital commitments
required to maintain licence interests and explore
and develop assets
Exchange rate risk
Business transactions are
carried out in a variety of
currencies including GBP,
EUR, USD and MAD. The
exchange rates for these
key currencies in which
the Company transacts
may vary significantly.
• The Company may lose out in cash terms, due to
exchange rate fluctuations relative to when funds
were raised
• Exchange rate movements may have an income
statement impact where the currency of a
transaction differs from the functional currency of
the entity
22
24754.02 25 May 2016 7:43 PM Proof 4
an annual budgeting process and
periodic forecast updates, including
sensitivity reviews. Budgets are
monitored against prior period
actuals
• The projected cash balance is
reviewed on an ongoing basis
• There are mitigating actions
available to management, including
the delay of capex and discretionary
spending
• Risk is transferred through
mechanisms such farm-in and joint
venture agreements, which has
significantly mitigated the risk during
2016
• Match transactional currency to
currency of liabilities
• Consider use of forwards and/
or other derivative instruments to
hedge currency risk
• Ensure significant contracts are
denominated in currencies where
the Company can mitigate exchange
rate risk
Sound Energy plc Annual Report for the year ended 31 December 2015 Risk and definition
Impact
Mitigation
Commodity price
• Reduction in gas price reduces revenues and asset
valuations
• Reduction in commodity prices reduces appetite of
investors for the business risks and availability of
funding
• A number of different pricing
scenarios are used when
determining asset values
• Price flexes are undertaken for
budgeting and cash flow purposes
• Enter into long term price contracts
• Ensure the business is well funded
• Consider strategic purchases and
hedging
Breach of Bribery Act
• Prosecution of the Company and/or individuals
• Anti-bribery policy in place
The Company, or parties
acting on its behalf,
breach the rules of the
UK Bribery Act 2010 or
equivalent legislation.
under the UK Bribery Act 2010 (or foreign
equivalents) leading to unlimited fines, jail
sentences and prohibition from operating
• Reputational damage
• Uneconomic contracts
• Training of staff
• Vendors and partners made aware of
the Company’s anti-bribery policy
• Strong financial authority controls
24754.02 25 May 2016 7:43 PM Proof 4
23
www.soundenergyplc.comStock Code: SOU Strategic ReportOur GovernanceFinancial Statements The Team
01
04
07
02
05
08
03
06
09
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24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 01
Simon Davies
Chairman (Non-Executive)
Simon was appointed as a Non-executive Director of Sound
Energy in February 2014, and has over 30 years’ experience of
investment management. He is also currently a Non-Executive
Director of LCH Clearnet, and a Director of Old Mutual Wealth
Management Limited. He began his investment career in 1981
with Rothschild Asset Management, and has held various
positions in the City of London, including Chairman and Chief
Executive of Threadneedle Asset Management Limited, and
Chairman of Thames Water Pension Trustees.
Simon holds various professional and academic qualifications,
including a degree in Engineering and Economics.
02
James Parsons
Chief Executive Officer
James Parsons has over 20 years’ experience in the fields
of strategy, management, finance and corporate development
in the energy industry. James was appointed Chief Executive
Officer in October 2012 having previously held the office of
Chief Financial Officer for a period of a year.
James started his career with the Royal Dutch Shell group
in 1994 and spent 12 years with Shell working in Brazil, the
Dominican Republic, Scandinavia, Holland and London. Leading
up to 2006 (when he joined Inter Pipeline Fund), James held
various positions in Shell’s exploration and production business,
latterly as Vice President, Finance, of New Business. Prior
to joining Sound Energy, James was Finance and Corporate
Development Director of Inter Pipeline Europe, a division of
Inter Pipeline Fund, a Toronto-listed resources business.
03
Luca Madeddu
Managing Director, Morocco
Luca has over 25 years of experience in the upstream oil and
gas industry with the Company and ENI, a major integrated
energy company. Luca is a reservoir geologist by background
and has extensive experience in hydrocarbon production, field
development, petroleum engineering, supply chain management
and reservoir engineering. He has managed operations across
Italy, Venezuela, Nigeria, Indonesia, UK, Congo.
05
Leonardo Salvadori
Business Development Director and Deputy MD, Italy
Leonardo Salvadori has over 30 years of international upstream
experience with ENI (North Sea, North Africa, Middle and Far
East) and Dana Gas (Egypt) leading multinational teams in
exploration, business development and general management,
both onshore and offshore.
06
Mary Hood
Chief Financial Officer
Mary joined Sound Energy in January 2016. Mary has more
than 10 years upstream experience with Gulf Keystone and
Deloitte. Mary is a Qualified Chartered Accountant and
Chartered Company Secretary.
07
Marco Fumagalli
Director (Non-Executive)
Marco Fumagalli joined Sound Energy as a Non-executive
Director in July 2014. Marco is Managing Partner at
Continental Investment Partners SA, a Swiss based investment
firm and cornerstone shareholder in Sound Energy. Marco is a
well-known Italian businessman who was previously a Group
Partner at 3i. Marco is a qualified accountant and holds a
degree in Business Administration.
08
Richard Liddell
Director (Non-Executive)
Richard Liddell has over 35 years’ experience in the oil and
gas industry. He served on the board of Falkland Oil and Gas
from 2005 to 2015 initially as a non-executive director and
for the nine years from 2006, as Chairman. Richard is also
Chairman and Managing Director of Clara Petroleum, an
exploration and production company which he founded in 2008.
He served on the board of Premier Oil as Operations Director
from 2000 until 2003 and prior to that spent three years as
Director of Development on the board of BG Exploration and
Production. Richard previously held a number of senior UK
and international positions during an 18-year career at Philips
Petroleum Company.
Luca holds a degree in Geology and has been a Member
of the Society of Petroleum Engineers (SPE) since 1995.
09
Stephen Whyte
Director (Non-Executive)
04
Leonardo Spicci
Managing Director, Italy
Leonardo has over 25 years’ upstream experience with ENI,
Petrobel, KPO and GSA, with extensive experience of working
in Italy, Northern Africa, Middle East and Central Asia.
Prior to joining Sound Energy in 2013 he was the District
Manager for all Northern Italian Assets at ENI, managing
a portfolio of onshore fields, offshore platforms and gas and
oil treatment plants.
Leonardo has a BSc in Geological Science and is a Member
of the Society of Petroleum Engineers.
Stephen Whyte has over 25 years’ experience in the oil and gas
industry. He was Chief Operating Officer and Executive Director
for Exploration and Production at Galp Energia for three years
until 2014 and prior to that spent three years as Senior Vice
President Commercial at BG Group. He previously spent a total
of 14 years with Shell and six years with Clyde Petroleum.
24754.02 25 May 2016 7:43 PM Proof 4
25
www.soundenergyplc.comStock Code: SOU Financial StatementsStrategic ReportOur Governance Corporate Governance Report
There is close, day-to-day involvement by the Executive
Director in all of the Group’s activities. This includes the
comprehensive review of both management and technical
reports, the monitoring of foreign exchange and interest rate
fluctuations, government and fiscal policy issues and cash
control procedures. In this way, the key risk areas can be
monitored effectively and specialist expertise is applied in a
timely and productive manner.
Any system of internal control can provide only reasonable,
and not absolute, assurance that the risk of failure to achieve
business objectives is eliminated. The Directors acknowledge
that they are responsible for the Company’s system of internal
control and for reviewing its effectiveness. The Directors,
having reviewed the effectiveness of the system of internal
controls and risk management, consider that the system of
internal control operated effectively throughout the financial
year and up to the date that the financial statements were
signed.
The Company has less than thirty permanent employees
and the Directors do not believe the Company is sufficiently
complex to warrant the establishment of an internal audit
function. The Directors will review this policy as and when the
Company’s circumstances warrant.
The Board has a health and safety committee, audit committee,
remuneration and nominations committee and a technical
assurance committee.
Audit Committee
The Audit Committee comprises two of the Non-executive
Directors, Marco Fumagalli and Stephen Whyte. Mr Fumagalli
chairs the Committee. Its role is to monitor:
• the integrity of the Company’s financial statements and
other formal announcements relating to the Company’s
financial performance;
• the effectiveness of the risk management and internal
control systems including the result of reviews of the system
and management’s response to review findings;
• the appropriateness of the Company’s relationship with the
external Auditor and the objectivity of the audit process;
• the enforcement of the Company’s code of conduct and the
adequacy and security of the whistleblowing procedure and
anti-bribery and corruption policy.
The Audit Committee may if it wishes hold private sessions
with management and the external Auditor.
The Audit Committee met twice during 2015 and proposes to
meet at least twice during the next financial year.
The Board recognises the importance of sound corporate
governance and notes the guidelines set out in the UK
Corporate Governance Code (the “Code”). Companies on the
AIM market of the London Stock Exchange (“AIM”) are not
required to comply with the Code. However, the Company is
committed to high standards of good governance and has
regards to the principles of the Code as far as is practicable
and appropriate having regard to the current size and structure
of the Company.
The Board and its Committees
As at 31 December 2015 the Board consisted of the Chief
Executive Officer, Non-executive Chairman and three Non-
executive Directors. All the Non-executive Directors and the
Chairman are independent in character and judgement and
have the range of experience and calibre to bring independent
judgement on issues of strategy, performance, resources and
standards of conduct which is vital to the success of the Group.
Two of the Non-executive Directors meet the requirements of
independence prescribed in the UK Code.
In accordance with the Code no Director has an employment
contract with more than one year’s notice.
The Board is responsible for overall strategy, acquisition policy,
major capital expenditure projects, corporate overhead costs,
significant financing matters and maintaining sound internal
control procedures. The matters reserved for the Board include
approval of the Group’s long term objectives, policies, budgets,
changes to the management structure, ensuring systems of
internal control and approval of the annual report and financial
statements. The Company holds regular Board meetings,
with six scheduled meetings throughout the year and ad hoc
meetings held as and when required. During the year 13 Board
meetings were held.
There is a clearly defined organisational structure with lines
of responsibility and delegation of authority to executive
management. The Board is responsible for monitoring the
activities of the executive management. The Chairman has
the responsibility of ensuring that the Board discharges
its responsibilities. In the event of an equality of votes at a
meeting of the Board, the Chairman has a second or casting
vote. No one individual has unfettered powers of decision.
The roles of Chairman and Chief Executive Officer are split
in accordance with best practice. There is no formal Board
performance appraisal system in place but the Remuneration
and Nomination Committee considers this part of its remit.
The Board has established levels of authorisation of financial
commitments and payment approval procedures appropriate to
the size of the business. The Board receives reports on income
and expenditure and on the Company’s financial position.
On the wider aspects of internal control, relating to operational
and compliance controls and risk management as included in
provision C.2.1 of the Code, the Board, in setting the control
environment, identifies and reviews the key areas of business
risk facing the Group.
26
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Remuneration and Nominations Committee
The Board has a Remuneration and Nominations Committee
as described in the Report on Directors’ Remuneration. The
Committee consists of three Non-executive Directors, Simon
Davies, Marco Fumagalli and Richard Liddell. Mr Davies
chairs the Committee. The Committee meets to consider all
material elements of remuneration policy, including Directors’
remuneration, assessing Directors’ performance, planning
succession for the Chairman and Chief Executive and for new
nominees to the Board. The Committee met twice during 2015
and proposes to meet at least twice during the next financial
year.
Technical Assurance Committee
The Committee consists of two Non-executive Directors,
Richard Liddell and Stephen Whyte, with Richard Liddell in
the Chair. The Committee meets on an ad hoc basis to discuss
technical matters as required. In 2015 the Committee held 7
meetings.
Health and Safety (HSE) Committee
The Committee consists of Richard Liddell and two of the
executive management, Luca Madeddu and Leonardo Spicci.
Mr Liddell chairs the committee, which is primarily focused
on ensuring that the HSE policies are are adopted and applied
across the Group. In 2015 the Committee held 10 meetings.
24754.02 25 May 2016 7:43 PM Proof 4
27
www.soundenergyplc.comStock Code: SOU Financial StatementsStrategic ReportOur Governance Remuneration Report
Compliance
Base salary
The remuneration of the Executive Director is determined
by the Remuneration and Nominations Committee (the
‘Committee’) and ratified by the Board. The Committee is
composed entirely of Non-executive Directors, and currently
comprises Simon Davies, who chairs the Committee, Marco
Fumagalli and Richard Liddell. The Executive Director of the
Company is not involved in determining his own remuneration.
The Committee’s role includes:
• determining and agreeing the remuneration policy for
Directors and executive management;
• ensuring that executive remuneration packages are
competitive and fairly and responsibly reward contributions;
• determining the award of annual bonus payments and
recommending the levels for executives;
• determining the award of share options under the incentive
schemes;
• considering any new long term incentive schemes and any
performance criteria attached; and
• agreeing Directors’ service contracts.
The Committee has the authority to seek independent advice
as required. The Committee consults with the Executive Team
as required during the year. The Committee endorses the
principle of mitigation of damages on early termination of
a service contract.
It is the Committee’s current intention to continue with the
above remuneration approach for 2016 and subsequent years
although the Committee will keep the matter under review.
The Committee’s current intention with regard to share options
is that they form a critical part of the long term incentive
scheme for the executive team and may be awarded annually.
Remuneration structure
Base salary is reviewed each year against other comparable
companies in the oil and gas sector and general market data
on the basis of companies in similar industries and those
of a similar size. The objective is to ensure that the base
salary provides a competitive remuneration package. The
base salaries of the Executive Team are currently positioned
in the median. While salary is reviewed by reference to
market conditions, the performance of the Company and the
performance of the individual, the Committee would not regard
this element of remuneration as directly performance related.
Bonuses
The performance of the Company and the Executives over the
year is taken into consideration when assessing any annual
cash bonus. Both Corporate and Individual key performance
indicators (KPIs) are set at the beginning of each year’s budget
process. Bonuses may be awarded up to a maximum of 100%
of base salary depending on the seniority of the employee and
following a review of corporate and individual performance
against the KPIs.
Contracts of employment
The details of the Executive Director’s contract of employment
and Non-executive Directors’ letters of appointment are set out
below:
• James Parsons has a contract of employment with a notice
period for termination of six months.
• Non-executive Directors have letters of appointment with
a notice period for termination of three months.
• The Company has granted an indemnity to all its Directors
under which the Company will, to the fullest extent
permitted by applicable law and to the extent provided
by the Articles of Association, indemnify them against all
costs, charges, losses and liabilities incurred by them in the
execution of their duties.
The Executive Team’s remuneration is basic salary with
possible share options and bonuses awarded dependent on
individual and Company performance. A contributory pension
scheme, compliant with UK legislation, was established in 2012
for UK employees.
• In the event of a change of control of the Company, James
Parsons has the option to give notice and receive a lump
sum equivalent to 18 months’ salary. The Non-Executive
Directors have the option to give notice and receive a lump
sumequivlent to 12 months’ salary.
28
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Summary of actual remuneration of Directors
Executive Directors
James Parsons
Luca Madeddu(i) (iii)
Non-executive Directors and Chairman
Simon Davies
Marco Fumagalli
Richard Liddell(iv)
Stephen Whyte(iv)
Andrew Hockey(ii) (iii)
Gerry Orbell(iii)
Total for all Directors
2015
Performance
Award
£’000s
Salary
£’000s
Total
2015
£’000s
Total
2014
£’000s
287
150
60
40
10
10
56
40
653
205
N/A
–
–
–
–
–
–
205
492
150
60
40
10
10
56
40
858
420
104
40
15
–
–
62
30
671
Includes prorated salary as Group Chairman until 25 June 2014.
(i) Luca Madeddu’s reported remuneration commences from the date of his appointment to the Sound Energy Board in September 2014 until his resignation.
(ii)
(iii) Resigned from the Board on 28 September 2015.
(iv) Appointed 28 September 2015.
Share Options
J Parsons
Date of Grant
5.09.2011
5.09.2011
5.09.2011
1.03.2012
1.03.2012
1.03.2012
26.10.2012
26.10.2012
26.10.2012
19.06.2014
25.09.2015
Exercisable Date
5.09.2012–4.09.2016
5.09.2013–4.09.2016
5.09.2014–4.09.2016
1.03.2013–28.02.2018
1.03.2014–28.02.2018
1.03.2015–28.02.2018
26.10.2012–25.10.2016
26.10.2013–25.10.2016
26.10.2014–25.10.2016
29.07.2017–29.07.2019
25.09.2018–25.09.2020
Acquisition Price
per share (pence)
21.75
21.75
21.75
25.00
25.00
25.00
16.50
16.50
16.50
8.00
14.25
Options held at
1 January 2015
110,000
110,000
110,000
150,000
150,000
150,000
333,333
333,333
333,334
3,350,000
–
Options held at
31 December 2015
110,000
110,000
110,000
150,000
150,000
150,000
333,333
333,333
333,334
3,350,000
1,250,000
The granting of share options under the Long Term Incentive Plan (LTIP) is designed to align Executive remuneration with the
long term interest of shareholders. Only Key Personnel, whom the Group wishes to retain over the long term, are invited to join
the LTIP. The end of 2015 option coverage to Directors and Key Personnel is is 4.0% of issued share capital. Over the long term
the Board wish to move towards the 10% approved cap.
During 2015, James Parsons exercised 1,333,333 options at an acquisition price of 6.50 pence per share.
24754.02 25 May 2016 7:43 PM Proof 4
29
www.soundenergyplc.comStock Code: SOU Financial StatementsStrategic ReportOur Governance Directors’ Report
The Directors present their report and the Group financial
statements for the year ended 31 December 2015.
Principal Activities
The principal activity of the Company and its subsidiaries (the
Group) is the exploration, appraisal and development to first
production as an active operator in the oil and gas industry.
Its current principal activity is in Italy and Morocco.
Directors and their interests
Directors of Sound Energy plc holding office during the year
were:
Simon Davies
James Parsons
Marco Fumagalli
Richard Liddell (appointed 28 September 2015)
Stephen Whyte (appointed 28 September 2015)
Luca Madeddu (appointed 8 September 2014, resigned
28 September 2015)
Andrew Hockey (resigned 28 September 2015)
Gerry Orbell (appointed 5 February 2014, resigned
28 September 2015 )
The Directors who held office at the end of the financial year
had the following interests in the ordinary shares of the
Company:
Simon Davies
10,000,000 shares
James Parsons
957,354 shares
Richard Liddell
75,000 shares
Stephen Whyte
68,646 shares
Going concern
Details of going concern considerations are shown in the
Operating and Financial Review on page 19.
Results and Dividends
The loss for the year was £18.5 million (2014: £4.8 million)
The Directors do not recommend the payment of a dividend.
Political contributions
During the period the Group made no political contributions.
Auditor
Crowe Clark Whitehill LLP continue as the Company’s
Auditor until the next Annual General Meeting. A resolution to
reappoint them as Auditor will be put to shareholders at the
forthcoming Annual General Meeting.
Technical Assurance Committee (TAC)
The TAC exists to provide subsurface, technical, and
operational oversight of and support to the Company’s
executive. The TAC is also routinely involved in the technical,
geological and operational screening of growth opportunities.
The CEO attends all TAC meetings along with other Executive
Team members who are invited from time to time depending
on the requirement for specialist input. The TAC has formal
meetings which are minuted and has access to an annual
budget for use in securing relevant professional assistance.
Provision of information to Auditor
Each of the persons who is a Director at the date of approval
of this Annual Report and Financial Statements confirms that:
• so far as the Director is aware, there is no relevant audit
information of which the Company’s Auditor is unaware;
• the Director has taken all the steps that he ought to
have taken as Director in order to make himself aware of
any relevant audit information and to establish that the
Company’s Auditors is aware of that information; and
• this confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies
Act 2006.
Disclosure in the Strategic Report
As permitted by Paragraph 1A of Schedule 7 to the Large and
Medium-sized companies and groups (Accounts and Reports)
Regulations 2008, certain matters which are required to be
disclosed in the Directors’ report have been omitted as they are
included in the Strategic Report.
Health and Safety
The Board of Sound Energy plc considers the health and
safety of its employees, contractors and all stakeholders to
be paramount and is determined to protect the environment
in which it works. In 2012 Sound Energy convened a Board
Committee dedicated to ensuring the application of our HSE
policies across the Company. This Committee has continued
to work through 2014. The table below sets out our operational
HSE performance for 2014 and 2015, showing us continuing to
execute our operations without a Lost Time Incident occurring.
We are pleased with this performance and look forward to
maintaining these standards through 2016.
30
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015
Operations Type
Drilling
Well Testing
Facilities Construction
Production Operations
Totals
Operations
(Hours)
4,128
–
470
444
5,042
2015
Lost time Incidents*
(Numbers)
–
–
–
–
–
(Hours)
–
–
–
–
–
Operations
(Hours)
–
–
552
608
1,160
2014
Lost time Incidents*
(Numbers)
–
–
–
–
–
(Hours)
–
–
–
–
–
* Lost Time Incident: any work related injury or illness which prevents that person from doing any work the day after the accident (as defined by the International
Association of Oil and Gas Producers Glossary of HSE Terms,1999).
Substantial shareholdings
At 9 May 2016, Continental Investment Partners (Metano Capital S.A. & Greenberry S.A.) was directly and indirectly interested in
12.98% of Sound Energy’s share capital.
By order of the Board
Amanda Bateman
Company Secretary
23 May 2016
24754.02 25 May 2016 7:43 PM Proof 4
31
www.soundenergyplc.comStock Code: SOU Financial StatementsStrategic ReportOur Governance Statement of Directors’
Responsibilities
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and to disclose with reasonable accuracy at
any time the financial position of the Company and enable
them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are further responsible for ensuring that the
Report of the Directors and other information included in
the Annual Report and Financial Statements is prepared in
accordance with applicable law in the United Kingdom.
The Directors are responsible for preparing the Directors’
Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors have elected to prepare the financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and applicable law.
Under Company law the Directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Company and
the Group and of the profit or loss of the Group for that period.
In preparing these financial statements, the Directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
32
24754.02 25 May 2016 7:43 PM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Independent Auditor’s Report
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We have audited the consolidated financial statements of
Sound Energy plc for the year ended 31 December 2015 which
comprise Consolidated Statement of Comprehensive Income,
Consolidated and Company Balance Sheets, Consolidated and
Company Statements of Changes in Equity, the Consolidated
and Company Cash Flow Statements and the related notes.
The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union
and, as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies
Act 2006.
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we
might state to the Company’s members those matters we
are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company and the Company’s members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and the Auditor
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to
audit and express an opinion on the financial statements in
accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting
policies are appropriate to the Company’s circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by
the Directors; and the overall presentation of the financial
statements.
In addition, we read all the financial and non-financial
information in the Strategic Report, Directors’ Report, the
Chairman and Chief Executive Officer’s Statement, the
financial and technical reviews, the statement of proved and
probable reserves, the report on Directors’ Remuneration
and the Corporate Governance Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs as
at 31 December 2015 and of the Group’s loss for the year
then ended;
• the Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European
Union;
• the parent company financial statements have been
properly prepared in accordance with IFRS as adopted
by the European Union as applied in accordance with the
provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies
Act 2006
In our opinion the information given in the Strategic Report
and the Directors’ Report for the financial year for which
the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the parent company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Matthew Stallabrass (Senior Statutory Auditor)
For and on behalf of
Crowe Clark Whitehill LLP
Statutory Auditor
St. Bride’s House
10 Salisbury Square
London
EC4Y 8EH
23 May 2016
Note: The maintenance and integrity of Sound Energy plc website is the
responsibility of the Directors. The work carried out by the auditor does not
involve consideration of these matters and accordingly the auditor accept no
responsibility for any changes that may have occurred to the financial statements
since they were originally presented on the website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
24754.02 27 May 2016 8:27 AM Proof 4
33
www.soundenergyplc.comStock Code: SOU
Consolidated Statement of
Comprehensive Income
for the year ended 31 December 2015
Revenue
Operating costs
Impairment of producing assets
Exploration costs
Gross profit
Administrative expenses
Group operating loss from continuing operations
Finance revenue
Foreign exchange loss
External interest costs
Loss for the year before taxation
Tax expense
Loss for the year after taxation
Foreign currency translation
Total comprehensive loss for the year
Loss for the year attributable to:
Owners of the company
Non-controlling interests
Loss per share and diluted for the year
Attributable to the equity shareholders of the parent (pence)
Notes
9
11
3
6
7
Notes
8
8
2015
£’000s
859
(538)
(6,347)
(5,838)
(11,864)
(3,181)
(15,045)
52
(1,389)
(1,905)
(18,287)
–
(18,287)
(320)
(18,607)
(18,607)
–
2015
£’000s
(3.90)
(3.90)
2014
£’000s
983
(658)
(723)
(74)
(472)
(2,773)
(3,245)
7
(661)
(1,022)
(4,921)
–
(4,921)
127
(4,794)
(4,794)
–
2014
£’000s
(1.40)
(1.40)
34
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015
Consolidated Balance Sheet
as at 31 December 2015
Non-current assets
Property, plant and equipment
Intangible assets
Land and buildings
Current assets
Other receivables
Prepayments
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Loans repayable in under one year
Non-current liabilities
Deferred tax liabilities
Loans due in over one year
Provisions
Total liabilities
Net assets
Capital and reserves
Equity share capital
Warrant reserve
Foreign currency reserve
Accumulated deficit
Total equity
Notes
9
11
10
13
14
15
15
16
15
17
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
e
c
n
a
n
r
e
v
o
G
r
u
O
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
F
i
2015
£’000s
5,558
9,564
1,327
16,449
2,506
99
15,240
17,845
34,294
2,097
5,751
7,848
1,992
7,157
1,138
10,287
18,135
16,159
2014
£’000s
13,200
8,888
1,433
23,521
2,173
157
12,608
14,938
38,459
2,194
131
2,325
2,099
13,437
1,164
16,700
19,025
19,434
86,315
369
1,068
(71,593)
16,159
71,298
369
1,388
(53,621)
19,434
The financial statements were approved by the Board and authorised for issue on 23 May 2016 and were signed on its behalf by:
J Parsons
Director
S Davies
Director
The accounting policies on pages 40 to 44 and notes on pages 40 to 60 form part of these financial statements.
24754.02 27 May 2016 8:27 AM Proof 4
35
www.soundenergyplc.comStock Code: SOU
Company Balance Sheet
as at 31 December 2015
Company Number 05344804
Non-current assets
Property, plant and equipment
Fixtures and fittings
Software
Investments in subsidiaries
Current assets
Other receivables
Prepayments
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Loans
Net assets
Capital and reserves attributable to equity holders of the Company
Issued share capital and share premium
Warrant reserve
Accumulated deficit
Total equity
Notes
12
13
14
15
15
2015
£’000s
7
30
100
35,450
35,587
171
25
12,288
12,484
48,071
2014
£’000s
7
35
–
25,735
25,777
44
32
11,914
11,990
37,767
1,213
1,448
7,157
39,701
86,315
369
(46,983)
39,701
6,627
29,692
71,298
369
(41,975)
29,692
The financial statements were approved by the Board and authorised for issue on 23 May 2016 and were signed on its behalf by:
J Parsons
Director
S Davies
Director
36
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015
Consolidated Statement of
Changes in Equity
for the year ended 31 December 2015
Group
Notes
23
At 1 January 2015
Total loss for the year
Other comprehensive income
Total comprehensive loss
Issue of share capital
Transaction costs
Share based payments
At 31 December 2015
Company
At 1 January 2015
Total loss for the year
Issue of share capital
Transaction costs
Share based payments
At 31 December 2015
Group
Notes
At 1 January 2014
Total loss for the period
Other comprehensive income
Total comprehensive income/(loss)
Issue of share capital
Transaction costs
Fair value of warrants
Share based payments
At 31 December 2014
Company
23
At 1 January 2014
Total Loss for the period
issue of share capital
Transaction costs
Fair value of warrants
Share based payments
At 31 December 2014
Share
capital
£’000s
4,153
–
–
–
886
–
–
5,039
Share
premium
£’000s
67,145
–
–
–
15,342
(1,211)
–
81,276
Accumulated
deficit
£’000s
(53,621)
(18,287)
–
(18,287)
–
–
315
(71,593)
Warrant
reserve
£’000s
369
–
–
–
–
–
–
369
Notes
23
Share
capital
£’000s
2,876
–
–
–
1,277
–
–
–
4,153
Notes
23
Share
capital
£’000s
4,153
–
886
–
–
5,039
Share
premium
£’000s
67,145
–
15,342
(1,211)
–
81,276
Accumulated
deficit
£’000s
(41,975)
(5,323)
–
–
315
(46,983)
Share
premium
£’000s
60,209
–
–
–
7,442
(506)
–
–
67,145
Accumulated
deficit
£’000s
(49,029)
(4,921)
–
(4,921)
–
–
–
329
(53,621)
Warrant
reserve
£’000s
–
–
–
–
–
–
369
–
369
Share
capital
£’000s
2,876
–
1,277
–
–
–
4,153
Share
premium
£’000s
60,209
–
7,442
(506)
–
–
67,145
Accumulated
deficit
£’000s
(38,653)
(3,651)
–
–
–
329
(41,975)
Foreign
currency
reserves
£’000s
1,388
–
(320)
(320)
–
–
–
1,068
Warrant
reserve
£’000s
369
–
–
–
–
369
Foreign
currency
reserves
£’000s
1,261
–
127
127
–
–
–
–
1,388
Warrant
reserve
£’000s
–
–
–
–
369
–
369
24754.02 27 May 2016 8:27 AM Proof 4
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
Total
equity
£’000s
19,434
(18,287)
(320)
(18,607)
16,228
(1,211)
315
16,159
Total
equity
£’000s
29,692
(5,323)
16,228
(1,211)
315
39,701
Total
equity
£’000s
15,317
(4,921)
127
(4,794)
8,719
(506)
369
329
19,434
Total
equity
£’000s
24,432
(3,651)
8,719
(506)
369
329
29,692
37
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements
Consolidated Cash Flow Statement
for the year ended 31 December 2015
Cash flow from operating activities
Cash flow from operations
Interest received
Net cash flow from operating activities
Cash flow from investing activities
Capital expenditure and disposals
Exploration and development expenditure
Net cash flow from investing activities
CSTI funding contract
Net proceeds from debt
Net proceeds from equity issue
Interest payments
Net cash flow from financing activities
Net increase in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes to Cash Flow
for the year ended 31 December 2015
Cash flow from operations reconciliation
Loss before tax
Finance revenue
Payroll bonuses paid in shares
Exploration expenditure written off and impairment of producing assets
Decrease in accruals and short term payables
Depreciation
Share based payments charge
Increase in long term provisions
Finance costs and exchange loss on intercompany loans
Increase in receivables
Cash flow from operations
Notes
14
Notes
6
9
23
2015
£’000s
(3,487)
52
(3,435)
(1,156)
(6,545)
(7,701)
(117)
–
15,017
(1,051)
13,849
2,713
(81)
12,608
15,240
2015
£’000s
(18,287)
(52)
–
12,185
(97)
136
315
–
2,588
(275)
(3,487)
2014
£’000s
(3,327)
7
(3,320)
(2,258)
(1,089)
(3,347)
(242)
11,398
8,213
(280)
19,089
12,420
(355)
543
12,608
2014
£’000s
(4,921)
(7)
60
797
(603)
225
329
(62)
1,022
(167)
(3,327)
In the year the Company provided a bank guarantee of $2.75 million to the Moroccan Ministry of Petroleum in order to guarantee
the Company’s minimum work programme obligations. As the Company expects to satisfy these commitments within 2016, this
amount remains included as a liquid cash equivalent.
38
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015
Company Cash Flow Statement
for the year ended 31 December 2015
Cash flow from operating activities
Cash flow from operations
Interest received
Net cash flow from operating activities
Cash flow from investing activities
Capital expenditure and disposals
Cash advances to subsidiaries
Net cash flow from investing activities
Net proceeds from debt
Net proceeds from equity issue
Interest payments
Net cash flow from financing activities
Net increase in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes to Cash Flow
for the year ended 31 December 2015
Cash flow from operations reconciliation
Loss before tax
Intragroup recharges
Finance revenue
Finance charges to be paid in shares
Payroll bonuses paid in shares
(Increase)/decrease in receivables
(Decrease)/increase in accruals and short term payables
Depreciation
Share based payments charge
Finance costs and exchange losses on intercompany loans
Cash flow from operations
Notes
14
2015
£’000s
(2,937)
29
(2,908)
(55)
(10,669)
(10,724)
–
15,017
(662)
14,355
723
(349)
11,914
12,288
2014
£’000s
(2,034)
5
(2,029)
(36)
(1,263)
(1,299)
6,430
8,213
(185)
14,458
11,130
366
418
11,914
Notes
2015
£’000s
2014
£’000s
(5,323)
(143)
(29)
–
–
(120)
(235)
22
315
2,576
(2,937)
(4,921)
(408)
(5)
625
30
155
1,449
5
329
707
(2,034)
23
24754.02 27 May 2016 8:27 AM Proof 4
39
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements
Notes to the Financial Statements
1 Accounting policies
Sound Energy plc is a public limited company registered and domiciled in England and Wales under the Companies Act 2006.
(a) Basis of preparation
The financial statements of the Group and its parent have been prepared in accordance with:
1. International Financial Reporting Standards (IFRS) as adopted by the European Union (IFRSs, as adopted by the European
Union), IFRIC Interpretations; and
2. those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
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 2015 were authorised for issue by the
Board of Directors on 23 May 2016.
As at 31 December 2015 the Group had £15.2 million of available cash. Based on the current management plan, management
believes that the Group will remain a going concern for the next 12 months from the date of the authorisation of the financial
statements on the basis that the Group has sufficient funding options for the forecast expenditure (12 months through 23 May 2017)
using both the available cash resources and funding from partners in the main strategic licences.
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. Actual outcomes could differ from
those estimates.
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), investments
and goodwill and the estimation of share based payment costs.
The Group determines whether E&E assets are impaired in cost pools when facts and circumstances suggest that the carrying
amount of a cost pool may exceed its recoverable amount. As recoverable amounts are determined based upon risked potential,
or where relevant, discovered oil and gas reserves, this involves estimations and the selection of a suitable discount rate. The
capitalisation and any write-off of E&E assets necessarily involve certain judgements with regard to whether the asset will
ultimately prove to be recoverable.
In determining the treatment of E&E assets and investments the Directors are required to make estimates and assumptions as
to future events and circumstances. There are uncertainties inherent in making such assumptions, especially with regard to oil
and gas reserves and the life of, and title to, an asset; recovery rates; production costs; commodity prices; and exchange rates.
Assumptions that are valid at the time of estimation may change significantly as new information becomes available and changes
in these assumptions may alter the economic status of an E&E asset and result in resources or reserves being restated. The
estimation of recoverable amounts, based on risked potential and the application of value in use calculations, are dependent upon
finance being available to fund the development of the E&E assets.
Goodwill is tested annually and at other times when impairment indications exist. 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 11.
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 (see note 19).
40
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 1 Accounting policies continued
The Group considers the latest available information on the performance of producing licences compared to expected targets and
where there are indications that the production is below expectations, the Group’s reservoir engineers conduct an evaluation to
identify the technical reasons and where necessary seek opinion from external engineers. The Group has reviewed the carrying
value of the Casa Tonetto licence in view of the reservoir performance being below expectations upon commencement of production
at the beginning of 2016 and recognised that an impairment charge of £6.3 million (note 9) was required. The carrying value of Casa
Tonetto after impairment was £4.8 million and for every 5% adjustment in the reservoir size the impairment charge would vary by
approximately £0.3 million.
(b) Basis of consolidation
The Group financial statements consolidate the Income Statements and Balance Sheets of the Company and its subsidiary
undertakings. Joint venture undertakings are accounted for using the proportionate consolidation method from the date that
significant influence or joint control (respectively) commences until the date this ceases. Associates are accounted for using the
equity method.
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.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group, until the date that control ceases.
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, plus
costs directly attributable to the acquisition.
Separate financial statements
Investments in subsidiaries, joint ventures and associates are recorded at cost, subject to impairment testing in the Group’s
financial statements.
(c) Foreign currency translation
The functional currency of the Company is pound sterling. The functional currency of the Italian subsidiaries is the euro.
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.
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. The resulting exchange differences
are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised
in equity relating to that particular foreign operation is recognised in the income statement.
(d) Oil and gas assets
The Group’s capitalised oil and gas costs principally relate to properties that are in the exploration and evaluation stage.
As allowed under IFRS 6 the Group has continued to apply its existing accounting policy to exploration and evaluation activity,
subject to the specific requirements of the standard.
The Group will continue to monitor the application of these policies in the light of expected future guidance on accounting for oil
and gas activities.
The Group applies the successful efforts method of accounting for E&E costs.
Exploration and evaluation assets
Under the successful efforts method of accounting, all licence acquisition, exploration and appraisal costs are initially capitalised
in well, field or specific exploration cost centres as appropriate, pending determination.
Expenditure incurred during the various exploration and appraisal phases is then written off unless commercial reserves have
been established or the determination process has not been completed.
The useful lives of the assets are considered to be finite.
Exploration and evaluation costs
Costs are initially capitalised as E&E assets. Payments to acquire the legal right to explore, costs of technical services and
studies, seismic acquisition, exploratory drilling and testing are capitalised as exploration and evaluation assets.
41
24754.02 27 May 2016 8:27 AM Proof 4
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements Notes to the Financial Statements
continued
1 Accounting policies continued
Treatment of exploration and evaluation expenditure at the end of appraisal activities
Intangible E&E assets relating to each exploration licence/prospect are carried forward, until the existence (or otherwise)
of commercial reserves has been determined subject to certain limitations including review for indications of impairment.
If however, commercial reserves have been discovered and development has been approved, the carrying value, after any
impairment loss, of the relevant E&E assets is then reclassified as development and production assets. If, however, commercial
reserves have not been found, the capitalised costs are charged to expense after conclusion of appraisal activities.
Development and production assets
Development and production assets are accumulated generally on a field-by-field basis and represent the cost of developing
the commercial reserves discovered and bringing them into production, together with the E&E expenditures incurred in finding
commercial reserves transferred from intangible E&E assets as outlined in the accounting policy above.
The cost of development and production assets also includes the cost of acquisitions and purchases of such assets,
directly attributable overheads, finance costs capitalised, and the cost of recognising provisions for future restoration and
decommissioning.
Impairment of development and production assets
An impairment test is performed whenever events and circumstances arising during the development or production phase
indicate that the carrying value of a development or production asset may exceed its recoverable amount.
The carrying value is compared with the expected recoverable amount of the asset, generally by reference to the present value
of the future net cash flows expected to be derived from production of commercial reserves. The cash generating unit applied
for impairment test purposes is generally the field, except that a number of field interests may be grouped as a single income
generating unit where the cash flows of each field are interdependent.
Acquisitions, asset purchases and disposals
Acquisitions of oil and gas properties are accounted for under the purchase method where the transaction meets the definition of
a business combination or joint venture.
Transactions involving the purchase of an individual field interest, or a group of field interests, that do not qualify as a business
combination are treated as asset purchases, irrespective of whether the specific transactions involve the transfer of the field
interests directly, or the transfer of an incorporated entity. Accordingly, no goodwill arises, and the consideration is allocated to
the assets and liabilities purchased on an appropriate basis.
(e) Expenses recognition
Expenses are recognised on the accruals basis unless otherwise stated.
(f) Property, plant and equipment
Fixtures, fittings and equipment are recorded at cost as tangible assets.
The straight-line method of depreciation is used to depreciate the cost of these assets over their estimated useful lives, which is
estimated to be four years.
(g) Goodwill
Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s
interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is
measured at its original value, less any accumulated impairment losses subsequently incurred.
Goodwill is not amortised. Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances
indicate the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash
generating unit to which the goodwill relates. Where the recoverable amount of the cash generating unit or group of cash
generating units is less than the carrying amount, an impairment loss is recognised.
(h) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until
such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
42
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 1 Accounting policies continued
(i) Income tax
Current tax
The current tax expense is based on the taxable results for the year, using tax rates enacted or substantively enacted at the
Balance Sheet date, including any adjustments in respect of prior years.
Amounts are charged or credited to the Income Statement or equity as appropriate.
Deferred tax
Deferred tax is provided using the Balance Sheet liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax assets are recognised to
the extent that it is probable that future taxable results will be available against which the temporary differences can be utilised.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities.
Temporary differences arising from investments in subsidiaries give rise to deferred tax in the Company Balance Sheet only to the
extent that it is probable that the temporary difference will reverse in the foreseeable future or the Company does not control the
timing of the reversal of that difference.
Deferred tax is provided on unremitted earnings of subsidiaries to the extent that the temporary difference created is expected to
reverse in the foreseeable future.
Deferred tax is recognised in the Income Statement except when it relates to items recognised directly in the Statement of
Changes in Equity in which case it is credited or charged directly to Retained Earnings through the Statement of Changes
in Equity.
(j) Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks.
(k) Financial instruments
Financial assets and financial liabilities are recognised on the Group’s Balance Sheet when the Group becomes a party to the
contractual provisions of the instrument. Trade and other receivables are initially measured at fair value and are subsequently
reassessed at the end of each accounting period. Cash and cash equivalents comprise cash on hand and demand deposits,
and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value. Financial liabilities and equity instruments issued by the Group are classified according to
the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An
equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Trade payables are
initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. Equity
instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Shares issued are held at
their fair value.
(l) Share based payments
The Group issues equity-settled share based payments to certain employees. The fair value of each option at the date of the grant
is estimated using the Black–Scholes option-pricing model based upon the option price, the share price at the date of issue,
volatility and the life of the option. The estimated fair value of the option is amortised to expense over the options’ vesting period
with a corresponding increase to equity. No expense is recognised for awards that do not ultimately vest, except for awards where
vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is
satisfied, provided that all other performance and/or service conditions are satisfied.
24754.02 27 May 2016 8:27 AM Proof 4
43
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements Notes to the Financial Statements
continued
1 Accounting policies continued
(m) Standards, interpretations and amendments to published standards that are not yet effective and have not been early
adopted by the Group
A number of new standards and amendments to standards and interpretations have been issued but are not yet effective
and in some cases have not yet been adopted by the EU. The Directors do not expect that the adoption of these standards
will have a material impact on the financial statements of the Company in future periods, except that IFRS 9 will impact both
the measurement and disclosures of financial instruments, IFRS 15 may have an impact on revenue recognition and related
disclosures and IFRS 16 will have an impact on the recognition of operating leases. At this point it is not practicable for the
Directors to provide a reasonable estimate of the effect of these standards as their detailed review of these standards is still
ongoing.
(n) Earnings per share
Earnings per share are calculated using the weighted average number of ordinary shares outstanding during the period per
IAS 33. Diluted earnings per share are calculated based on the weighted average number of ordinary shares outstanding during
the period plus the weighted average number of shares that would be issued on the conversion of all potentially dilutive shares to
ordinary shares. It is assumed that any proceeds obtained on the exercise of any options and warrants would be used to purchase
ordinary shares at the average price during the period. Where the impact of converted shares would be anti-dilutive, these are
excluded from the calculation of diluted earnings.
(o) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the
amount of the obligation can be made.
(p) Revenue Recognition
Revenue associated with production sales of natural gas is recorded when title passes to the customer.
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 2015 the Group’s exploration and appraisal activities were carried out in Italy. A Moroccan office
was opened in 2015 with the objective of drilling at the recently acquired Tendrara appraisal opportunity.
The Group’s reportable segments are based on internal reports about components of the Group which are regularly reviewed and
used by the Board of Directors, being the Chief Operating Decision Maker (“CODM”), for strategic decision making and resource
allocation, in order to allocate resources to the segment and to assess its performance.
Details regarding each of the operations of each reportable segment is included in the following tables.
44
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 2 Segment information continued
Segment results for the period ended 31 December 2015
Sales and other operating revenues
Operating costs
Exploration costs
Impairment of producing assets
Administration expenses
Operating loss segment result
Interest receivable
Finance costs
Loss for the period before taxation
Corporate
£’000s
–
–
–
–
(3,181)
(3,181)
52
(3,294)
(6,423)
Development
& Production
£’000s
859
(538)
–
(6,347)
–
(6,026)
–
–
(6,026)
Exploration
& Appraisal
£’000s
–
–
(5,838)
–
–
(5,838)
–
–
(5,838)
Total
£’000s
859
(538)
(5,838)
(6,347)
(3,181)
(15,045)
52
(3,294)
(18,287)
Segment revenue reported above represents revenue generated from external customers. All the revenue arose from operations
in Italy.
The segments assets and liabilities at 31 December 2015 were as follows:
Non-current assets
Current assets
Total liabilities
The geographical split of non-current assets is as follows:
Development and production assets
Land and buildings
Fixtures, fittings and office equipment
Goodwill
Exploration and evaluation assets
Software
Total
Corporate
£’000s
137
17,845
(7,743)
Development
& Production
£’000s
5,391
–
(1,498)
Exploration
& Appraisal
£’000s
10,921
–
(8,894)
UK
£’000s
–
–
37
–
–
100
137
Italy
£’000s
5,391
1,327
101
1,992
6,960
–
15,771
Total
£’000s
16,449
17,845
(18,135)
Morocco
£’000s
–
–
29
–
512
–
541
Segment revenue reported above represents revenue generated from external customers. All the revenue arose from operations
in Italy.
Segment results for the year ended 31 December 2014 were as follows:
Sales and other operating revenues
Operating costs
Exploration costs
Impairment of producing assets
Administration expenses
Operating loss segment result
Interest receivable
Finance costs
Loss for the period before taxation
Corporate
£’000s
–
–
–
–
(2,773)
(2,773)
7
(1,552)
(4,318)
Development
& Production
£’000s
983
(658)
–
(723)
–
(398)
–
(131)
(529)
Exploration
& Appraisal
£’000s
–
–
(74)
–
–
(74)
–
–
(74)
Total
£’000s
983
(658)
(74)
(723)
(2,773)
(3,245)
7
(1,683)
(4,921)
45
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www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements
Notes to the Financial Statements
continued
2 Segment information continued
The segments assets and liabilities at 31 December 2014 are as follows:
Non-current assets
Current assets
Total liabilities
The geographical split of non-current assets is as follows:
Corporate
£’000s
–
14,938
(2,099)
Development
& Production
£’000s
13,112
–
(1,557)
Exploration
& Appraisal
£’000s
10,409
–
(15,369)
UK
£’000s
–
–
42
–
–
42
2015
£’000s
76
136
2,557
12,185
2015
£’000s
65
7
4
76
2015
£’000s
315
1,885
308
49
2,557
Development and production assets
Land and buildings
Fixtures, fittings and office equipment
Goodwill
Exploration and evaluation assets
Total
3 Operating Loss
Operating loss is stated after charging:
Auditor’s remuneration
Depreciation
Employee costs
Impairment charges and exploration costs
4 Auditor’s Remuneration
Fees payable to Company’s Auditor for the audit of Company’s annual accounts
Fees payable to the Company’s Auditor and its associates for other services:
The audit of the Company’s subsidiaries pursuant to legislation
Tax services
5 Employee Costs
Staff costs, including Executive Directors
Share based payments
Wages and salaries
Social security costs
Employee benefits
Total
46
24754.02 27 May 2016 8:27 AM Proof 4
Total
£’000s
23,521
14,938
(19,025)
Italy
£’000s
13,112
1,433
46
2,099
6,789
23,479
2014
£’000s
75
225
2,192
723
2014
£’000s
65
6
4
75
2014
£’000s
329
1,507
347
9
2,192
Sound Energy plc Annual Report for the year ended 31 December 2015
5 Employee Costs continued
Number of employees (including Executive Directors) at the end of the year
Technical and operations
Management and administration
Total
6 Finance Revenue
Interest on cash at bank and short term deposits
7 Taxation
(a) Analysis of the tax charge for the year:
Current tax
UK Corporation tax (charge)/credit
Adjustment to tax expense in respect of prior years
Overseas tax
Total current tax (charge)/credit
Deferred tax income arising in the current year
Total tax (charge)/credit
(b) Reconciliation of tax charge
Loss before tax
Tax (charge)/credit charged at UK corporation tax rate of 20% (2014: 21%)
Temporary differences not recognised
Differences in overseas tax rates
Total tax (charge)/credit
8 Profit/(loss) per share
2015
Number
2014
Number
8
14
22
2015
£’000s
52
2015
£’000s
Group
–
–
–
–
–
–
2015
£’000s
Group
(18,287)
3,657
(1,065)
(2,592)
–
5
11
16
2014
£’000s
7
2014
£’000s
Group
–
–
–
–
–
–
2014
£’000s
Group
(4,921)
1,033
(625)
(408)
–
The calculation of basic profit/(loss) per Ordinary Share is based on the profit/(loss) after tax and on the weighted average number
of Ordinary Shares in issue during the period. Basic profit/(loss) per share is calculated as follows:
Loss after tax from continuing operations
Weighted average shares in issue
Loss per share (basic) from continuing operations
24754.02 27 May 2016 8:27 AM Proof 4
2015
£’000s
(18,287)
2015
million
467
2015
pence
(3.90)
2014
£’000s
(4,921)
2014
million
360
2014
pence
(1.40)
47
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements
Notes to the Financial Statements
continued
9 Property, plant and equipment
Development and production assets
Cost
At start of the year
Exchange adjustments
Additions
Reversal of capitalised interest
Transfers
At end of the year
Depreciation
At start of the year
Impairment of assets
Charge for the year
At end of the year
Net book amount
Fixtures, fittings and office equipment
Cost
At start of the year
Exchange adjustments
Additions
Disposal
At end of the year
Depreciation
At start of the year
Exchange adjustments
Charge for the year
Disposals
At end of the year
Net book amount
Total net book amount
2015
£’000s
2014
£’000s
15,566
(957)
234
(546)
–
14,297
2,454
6,347
105
8,906
5,391
273
(10)
120
(6)
377
185
(4)
31
(2)
210
167
5,558
2,947
(548)
1,612
–
11,555
15,566
1,559
712
183
2,454
13,112
231
(4)
46
–
273
143
–
42
–
185
88
13,200
In 2015, the impairment costs related to Casa Tonetto due to latest revisions on the remaining life of production from the
field. The Group has reviewed the carrying value of the Casa Tonetto licence in view of the reservoir performance being below
expectations upon commencement of production at the beginning of 2016 and recognised an impairment charge of £6.3 million
as at 31 December 2015. In 2014, San Lorenzo was impaired due to revisions on the remaining life of production from the field
(see note 1 for further details).
2015
£’000s
6,347
6,347
2014
£’000s
712
712
Italy
Total
48
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Sound Energy plc Annual Report for the year ended 31 December 2015
10 Land and Buildings
Cost
At start of year
Additions
Exchange adjustments
At end of year
Depreciation
At start of year
Additions
At end of year
Net book amount
11 Intangibles
Cost
At 1 January 2015
Additions
Transfers
Exchange adjustments
At 31 December 2015
Impairment
At start of the year
Charge for the year
At end of the year
Net book amount at 31 December 2015
Cost
At 1 January 2014
Additions
Transfers
Exchange adjustments
At 31 December 2014
Impairment
At start of period
Exchange adjustments
Charge for period
At end of period
Net book amount at 31 December 2014
Group
2015
£’000s
2014
£’000s
1,433
–
(106)
1,327
–
–
–
1,327
Goodwill
£’000s
Software
£’000s
Exploration
& Evaluation
Assets
£’000s
2,099
–
–
(107)
1,992
–
–
–
1,992
91
15
–
–
106
–
6
6
100
11,758
6,545
–
(203)
18,100
5,060
5,568
10,628
7,472
Goodwill
£’000s
Software
£’000s
Exploration
& Evaluation
Assets
£’000s
2,167
–
–
(68)
2,099
–
–
–
–
2,099
–
91
–
–
91
–
–
–
–
91
22,393
998
(11,555)
(78)
11,758
5,060
–
–
5,060
6,698
–
1,433
–
1,433
–
–
–
1,433
2015
£’000s
13,948
6,560
–
(310)
20,198
5,060
5,574
10,634
9,564
2014
£’000s
24,560
1,089
(11,555)
(146)
13,948
5,060
–
–
5,060
8,888
Goodwill arises on acquisitions accounted for at fair value and consists largely of the synergies expected from combining acquired
operations with those of the Group. In accordance with IFRS, goodwill is assessed annually for impairment. The carrying value
of the goodwill is linked to the exploration and evaluation assets, on the basis that there is significant headroom (see below) no
impairment is considered necessary. The impairment charge is included within exploration costs in the consolidated statement of
comprehensive income.
The Company has no goodwill.
49
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www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements
Notes to the Financial Statements
continued
11 Intangibles continued
Exploration and Evaluation Assets
Intangible assets are allocated to the cash generating unit (“CGU”) identified according to business segment.
In assessing whether impairment indications exist in relation to intangible assets, the Directors have regard to the results of
the Group’s exploration and evaluation programme and to the most recent review and valuation of the Group’s assets prepared
independently by its geoscience advisers in competent persons’ reports (“CPRs”).
A CPR for covering most of Group’s assets was released in April 2015. A CPR for Santa Maria Goretti was performed in July
2014. A Badile CPR was executed in October 2013 which gave a Best estimate NPV10 of €486 million, an increase of 60% on
the previous CPR. During the year the Group wrote off £5.8 million as exploration costs primarily relating to the Carita licence
as commercial quantities of hydrocarbons were not discovered at the conclusion of drilling. After taking account of the CPR
and current work programme the Directors do not therefore consider that any impairment indications exist in relation to the
remaining Italian CGU.
The valuation calculations included in the CPRs are entirely dependent on the availability of finance to fund capital expenditure
on the development of exploration and evaluation assets. Should finance not be available the carrying amounts of the Group’s
exploration and evaluation assets are likely to be impaired to their market value in a distressed sale.
The methodology to arrive at the values attributed to the Group’s assets in the CPRs was as follows:
• Net present value (“NPV”) calculations were prepared for proven contingent resources, including all the Italian licences.
Estimates of the NPV of any project are always subject to many factors and wide margins of error. NPV calculations have been
prepared over the period of the expected production profile and duration of sales contracts. The principal assumptions on which
the NPV calculations are based are as follows:
• The 2015 Italian CPR was produced with five different pricing scenarios with base gas prices of between 23 euro cents and
31 euro cents for 2015. Gas prices, in all cases, were then escalated at 2% per annum from 2016. The oil price scenarios were
priced from 38.64 euros per barrel to 57.96 euros per barrel with future years being escalated according to a Brent futures
curve until 2022 and from then on at 2% per annum.
• A discount rate of 10% was used which the Directors believe to be standard industry practice and approximate to the Group’s
weighted average cost of capital.
• The NPV calculations are most sensitive to the assumptions for production and operating expenditure.
During the year, the Group had capitalised interest costs of approximately £525,000 (2014: £799,000); primarily to Carita licence
but these were subsequently written off on impairment of the Carita licence.
12 Investment in subsidiaries
At 1 January
Net advances to Group companies
At 31 December
2015
£’000s
Company
25,735
9,715
35,450
2014
£’000s
Company
24,252
1,483
25,735
The subsidiary companies of the Company at 31 December 2015, which are all 100% owned by the Company are:
Name
Sound Oil International Limited
Sound Oil Asia Limited
Mitra Energia Citarum Limited*
Sound Energy Holdings Italy Limited
Apennine Energy SpA
Sound Energy Morocco SARL
Incorporated
British Virgin Isles
British Virgin Isles
Mauritius
UK
Italy
Morocco
Principal Activity
Holding Company
Holding Company
Exploration Company
Holding Company
Exploration, Development and Production Company
Exploration Company
* The investment in Mitra Energia Citarum Limited is held indirectly via Sound Oil International Limited.
50
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Sound Energy plc Annual Report for the year ended 31 December 2015
12 Investment in subsidiaries continued
The investment in Apennine Energy SpA is held indirectly through Sound Energy Holdings Italy Limited. Apennine Oil and Gas SPA
was merged with Apennine Energy SPA during 2015.
Sound Energy Holdings Italy Limited (formerly Consul Oil and Gas Limited) is directly funded through non-current, non-interest
bearing loans from Sound Energy plc.
Given that Sound Energy has no intention to call the loans in the foreseeable future, the loans are treated as “permanent as
equity”. As a result, Sound Energy has classified these loans as investments which represent the carrying value of the investment
in Sound Energy International and the Italian company.
Composition of the Group
Information about the composition of the Group at the end of the reporting period is as follows:
Principal activity
Gas exploration and production
Holding companies
Holding companies
Holding companies
Gas exploration
13 Other Receivables
Group
Place of incorporation
and operation
Italy
UK
British Virgin Isles
Mauritius
Morocco
Italian VAT
UK VAT
Other receivables
Currency Analysis
Euro
GBP sterling
Moroccan dirham
Company
UK VAT
Other receivables
Currency Analysis
GBP sterling
Total
24754.02 27 May 2016 8:27 AM Proof 4
Number of wholly
owned subsidiaries
2015
1
2
2
1
1
2015
£’000s
2,124
140
242
2,506
2015
£’000s
2,262
192
52
2,506
2015
£’000s
140
31
171
2015
£’000s
171
171
2014
2
2
2
1
–
2014
£’000s
1,975
24
174
2,173
2014
£’000s
2,117
56
–
2,173
2014
£’000s
24
20
44
2014
£’000s
44
44
51
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements
Notes to the Financial Statements
continued
2015
£’000s
3,157
12,263
15,240
1
7,406
5,957
1,876
15,240
2015
£’000s
25
12,263
12,288
1
6,330
5,957
12,288
2015
£’000s
1,257
160
680
2,097
2015
£’000s
786
1,302
9
2,097
2014
£’000s
719
11,889
12,608
1
11,205
1,402
–
12,608
2014
£’000s
25
11,889
11,914
1
10,511
1,402
11,914
2014
£’000s
1,016
88
1,090
2,194
2014
£’000s
747
1,447
–
2,194
14 Cash and Cash Equivalents
Group
Cash at bank and in hand
Cash equivalents:
Short term deposits
Carrying amount 31 December
Being:
In US dollar
In euros
In sterling
In Moroccan dirham
Company
Cash at bank and in hand
Cash equivalents:
Short term deposits
Carrying amount 31 December
Being
In US dollar
In euros
In sterling
Total
15 Trade & Other Payables
Group
Trade payable
Payroll taxes and social security
Accruals
Currency Analysis
Euro
Sterling
Moroccan dirham
Total
52
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Sound Energy plc Annual Report for the year ended 31 December 2015
15 Trade & Other Payables continued
Company
Trade payable
Payroll taxes and social security
Accruals
Total
Currency Analysis
Sterling
Total
Loans and Borrowings
Group
Current liabilities
Other loans
Non-current liabilities
Other loans
Loans and Borrowings
Company
Current liabilities
Other loans
Non-current liabilities
Other loans
The non-current loans are repayable in July 2017.
16 Deferred tax liabilities
1 January
Unreleased foreign exchange (decrease)/increase
31 December
2015
£’000s
683
29
501
1,213
2015
£’000s
1,213
1,213
2014
£’000s
502
34
912
1,448
2014
£’000s
1,448
1,448
2015
£’000s
2014
£’000s
5,751
131
7,157
13,437
2015
£’000s
2014
£’000s
–
–
7,157
6,627
2015
£’000s
2,099
(107)
1,992
2014
£’000s
2,165
(66)
2,099
Deferred tax assets have not been recognised in respect of tax losses available due to the uncertainty of utilisation of those
assets.
24754.02 27 May 2016 8:27 AM Proof 4
53
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Notes to the Financial Statements
continued
17 Provisions
At 1 January 2015
Discount unwind
Additions in 2015
Released due to change in estimates
Unrealised forex decrease
At 31 December 2015
The provision of £1,138,000 relates to the following licenses:
Rapagnano
Montemarciano
Marciano
Carita
Abandonment
£’000s
1,164
32
151
(124)
(85)
1,138
Total
£’000s
1,164
32
151
(124)
(85)
1,138
£’000s
115
214
262
547
Decommissioning is likely to occur within one year for Marciano and between 2017 and 2025 for the other licences. Expected
abandonment costs are capitalised and depreciated on a unit of production basis once gas sales commence.
There are no provisions in the parent company.
18 Capital and Reserves
Group
Ordinary shares – 1p
Company
Ordinary shares – 1p
2015
Number
of shares
503,898,868
2015
Number
of shares
503,898,868
2014
Number
of shares
415,300,815
2014
Number
of shares
415,300,815
£’000s
5,039
£’000s
5,039
£’000s
4,153
£’000s
4,153
Share option schemes
Options to subscribe for the Company’s shares were granted to certain executives in 2014 and 2015 (note 19).
54
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Sound Energy plc Annual Report for the year ended 31 December 2015
18 Capital and Reserves continued
Share Issues
On 22 January 2015, Sound Energy announced the issue of 3,906,250 shares in relation to payment of introductory fees relating to
the reserve based lending facility provided by Greenbury SA in 2014.
On 28 April 2015, Sound Energy announced an equity raise arranged by Continental Investment Partners for the issue of
63,157,895 ordinary shares and 63,157,895 warrants. The issue of these shares and warrants was completed in two tranches and
was completed by July 2015.
On 24 June 2015, Sound Energy was pleased to announce the results of its Open Offer which resulted in 15,599,752 new ordinary
shares being issued along with 15,599,752 warrants.
On 17 July 2015, the Group announced that 1,499,999 new ordinary shares had been issued following the exercise of share options
available to senior management.
On 21 July 2015, Sound Energy announced the issue of 2,196,153 new ordinary shares following the exercise of 2014 warrants at
10.4p per share.
On 29 July 2015, Sound Energy announced the issue of 2,015,807 new ordinary shares following the exercise of 2014 warrants at
10.4p per share.
On 13 August 2015, Sound Energy announced the issue of 10,600 new ordinary shares following the exercise of warrants issued in
July 2015 at 24p per share.
On 17 August 2015, Sound Energy announced a block admission covering up to 100,737,454 warrants.
At the end of December 2015, the Company had 503,898,868 ordinary shares in issue.
19 Related Party Disclosures
The financial statements include the financial statements of Sound Energy plc (the parent) and the subsidiaries listed in the
following table:
Name
Sound Oil International Limited
Sound Oil Asia Limited
Sound Energy Holdings Italy Limited
(formerly Consul Oil and Gas Limited)
Apennine Energy SPA
Apennine Oil and Gas SPA
Mitra Energia Citarum Limited
Sound Oil Morocco Sarl
Country of Incorporation
British Virgin Isles
British Virgin Isles
UK
Italy
Italy
Mauritius
Morocco
2015
100%
100%
100%
100%
N/A
100%
100%
2014
100%
100%
100%
100%
100%
100%
–
Apennine Oil and Gas SPA was merged with Apennine Energy SPA in 2015 in order to streamline the business and reduce
overhead costs.
Terms and conditions of transactions with related parties
There were no sales or purchases to or from related parties (2014: none). There have been no guarantees provided or received for
any related party receivables or payables. For the year ended 31 December 2015, the Group has not recorded any impairment of
receivables relating to amounts owed by related parties (2014: none) and is not owed or owes amounts to/from any related parties.
24754.02 27 May 2016 8:27 AM Proof 4
55
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continued
19 Related Party Disclosures continued
Key Management
As at 31 December 2015, there were three key management personnel other than Directors of the Company (2014: one). Details
of the Directors’ remuneration are set out in the Report of Directors’ Remuneration.
Salaries and employee benefits
Share based payments
Directors’ Interest in employee share options
2015
£’000s
1,317
315
2014
£’000s
1,219
329
At 31 December 2015, the Chairman had no interest in share options in the Group. No other Non-executive Directors held any
options. Andrew Hockey, whose appointment was terminated on 28 September 2015, continued to hold 400,000 options.
2011
2012
Expiry Date
2016
2016
2015
Exercise price
Number
Pence
49.5p 100,000
300,000
16.5p
2014
Number
100,000
300,000
Share options held by the executive members of the Board of Directors at 31 December 2015 have the following expiry dates and
exercise prices:
2011
2012
2012
2012
2013
2014
2014
2015
Key management’s interest in employee share options
2012
2012
2013
2014
2014
2015
2015
2015
Expiry Date
2016
2018
2016
2017
2018
2017
2019
2020
Exercise price
Pence
21.75p
25.0p
16.5p
16.5p
12.15p
6.50p
8.0p
14.25p
Expiry Date
2018
2017
2018
2017
2019
2020
2020
2020
Exercise price
Pence
25.0p
16.5p
12.15p
6.50p
8.0p
14.25p
14.20p
14.07p
2015
Number
330,000
450,000
1,000,000
–
–
–
3,350,000
1,250,000
2015
Number
450,000
330,000
2,622,221
166,666
4,500,000
1,250,000
1,250,000
1,250,000
2014
Number
330,000
900,000
1,000,000
330,000
1,333,333
1,499,999
5,800,000
–
2014
Number
–
–
1,288,888
166,666
2,050,000
–
–
–
20 Financial Instruments risk management objectives and policies
A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity. The Group’s financial instruments comprise trade payables, receivables, cash and short term
deposits. The Group has no long term borrowings. The main purpose of the financial instruments is to finance the Group’s
operations. The fair value of the financial instruments is their carrying value, with the carrying value amounts included in the
Group Balance Sheet with further analysis in note 13 (other debtors), note 14 (cash and cash equivalents) and note 15 (trade and
other payables).
56
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Sound Energy plc Annual Report for the year ended 31 December 2015
20 Financial Instruments risk management objectives and policies continued
The main risks arising from the Group’s financial instruments are interest rate risk and foreign currency risk. The Board of
Directors reviews and agrees policies for managing each of these risks which are summarised below:
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s deposit accounts and short
term debt instruments.
The Group’s policy is to manage this exposure by investing in short term, low risk bank deposits.
Interest rate risk table
2015
Sterling
US dollar
Euro
Sterling
US dollar
Euro
2014
Sterling
US dollar
Euro
Sterling
US dollar
Euro
Increase/
(decrease)
%
Effect
on profit
before tax
£’000s
10
10
10
(10)
(10)
(10)
10
10
10
(10)
(10)
(10)
5
–
–
(5)
–
–
1
–
–
(1)
–
–
Capital Management
The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to provide
return for shareholders, benefit for other stakeholders and to maintain optimal capital structure and to reduce the cost of capital.
Management considers as part of its capital, the financial sources of funding from shareholders and third parties.
In order to ensure an appropriate return for shareholder capital invested in the Group, management thoroughly evaluates all
material projects and potential acquisitions and has them approved by the Board of Directors where applicable.
The Group monitors capital on a short and medium term view. During 2015 the Group’s strategy was to fund capital expenditure
through equity. The table below illustrates the Group’s capital structure.
Borrowings
Cash and cash equivalents
Net (debt)/cash
Total capital excluding reserves:
Equity share capital
Equity share premium
Shareholders’ equity
2015
£’000s
(12,908)
15,240
2,332
5,039
81,276
16,159
2014
£’000s
(13,568)
12,608
(960)
4,153
67,145
19,434
57
24754.02 27 May 2016 8:27 AM Proof 4
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements
Notes to the Financial Statements
continued
21 Foreign Currency Risk
As a result of the majority of the Group’s operations being denominated in euros, the Group’s balance sheet can be impacted by
movements in these exchange rates against sterling. Such movements will result in book gains or losses which are unrealised
and will be offset if the currencies involved move in the opposite direction.
The sterling cost of the assets being acquired with the euro or Moroccan deposits rises or falls pro rata to the currency
movements, so the purchasing power of the respective currency remains the same.
As the Group also holds some Moroccan dirham (MAD) denominated assets at the end of the year, the following table
demonstrates the sensitivity to a reasonably possible change in the MAD or euro exchange rates, with all other variables held
constant, of the Group’s profit or loss before tax. Wherever possible the company holds the same currency as our liabilities,
thereby providing a natural hedge. The Group no longer holds significant US dollar assets.
2015
2014
Credit risk
Increase/
(decrease)
in euro rate
%
5
(5)
Effect on
profit or loss
before tax
£’000s
(535)
563
Increase/
(decrease)
in MAD rate
%
5
(5)
Effect on
profit or loss
before tax
£’000s
(10)
11
5
(5)
(708)
745
–
–
–
–
The Group currently has sales to one customer. The maximum credit exposure at the reporting date of each category of financial
assets above is the carrying value as detailed in the relevant notes. The Group’s management considers that the financial assets
that are not impaired for each of the reporting dates are of good credit quality. Payment terms are limited to one month’s gas
sales at any one time and therefore the credit risk is considered negligible.
Liquidity Risk
The Group and Company have significant liquid assets and are not materially exposed to liquidity risk. For further details on the
maturity of financial liabilities see note 15.
22 Financial Instruments
2015
Cash and short term deposits
Sterling
Euro
US dollar
Moroccan dirham
2014
Cash and short term deposits
Sterling
Euro
US dollar
Floating
Rate
£’000s
Fixed
rate
£’000s
Interest-
free
£’000s
5,932
7,406
1
–
13,339
39
696
1
736
–
–
–
1,876
1,876
25
–
–
–
25
1,363
10,511
–
11,874
Total
£’000s
5,957
7,406
1
1,876
15,240
1,402
11,205
1
12,608
Weighted
average
rate %
0.57
0.06
0.00
3.75
0.00
0.00
0.25
–
Euro cash balances have been converted at the exchange rate of €1.3572:£1.00 (2014: €1.2565:£1.00).
Moroccan dirham cash balances have been converted at the exchange rate of MAD14.6608:£1.00 (2014: Not applicable).
US dollar cash balances have been converted at the exchange rate of US$1.4803:£1.00 (2014: USD$1.5649:£1.00).
The floating rate cash and short term deposits comprise cash held in interest bearing deposit accounts. The Group carrying value
of the financial instruments approximates the fair values.
58
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015
23 Share Based Payments
The Group has a Long Term Incentive Plan under which share options have been granted to the Executive team.
The expense recognised for employee services in the Consolidated Income Statement is as follows:
Group
Expense arising from equity-settled share options
Company
Expense arising from equity-settled share options
2015
£’000s
315
2015
£’000s
315
2014
£’000s
329
2014
£’000s
329
The fair value of equity-settled share options granted is estimated at the date of grant using a Black–Scholes model, taking into
account the terms and conditions upon which the options were granted.
2015
Total
2014 total
Granted
4,000,000
1,250,000
1,250,000
6,500,000
Period
(years)
5
5
5
Price
(pence)
14.25
14.20
14.07
15,350,000
3–5
6.06–6.50
The expected life of the options is based on the maximum option period and is not necessarily indicative of exercise patterns that
may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not
necessarily be the actual outcome.
No other features of options grant were incorporated into the measurement of fair value.
Share options outstanding at the start of the year
Share options granted
Share options expired
Share options exercised
Share options outstanding at the end of the year
2015
£’000s
15,698,885
6,500,000
(350,000)
(1,499,999)
20,348,886
2014
£’000s
6,182,220
15,350,000
(5,833,335)
–
15,698,885
If all equity share options were exercisable immediately, new ordinary shares equal to approximately 4.0% would be created.
24 Commitment and guarantees
At 31 December 2015, the Group had the following commitments other than for decommissioning (note 17) and a capital
commitment to drill at least one appraisal well on the Tendrara licence in Morocco. Sound Energy has provided a $2.75 million
bond to the Moroccan Oil Ministry in order to guarantee this commitment will be met. We expect the well to drill in Q2 2016
thereby satisfying this requirement.
24754.02 27 May 2016 8:27 AM Proof 4
59
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements
Notes to the Financial Statements
continued
25 Debt and Warrant Instruments
On 28 July 2014, the Company issued £8 million of debt to Continental Investment Partners (£7 million) and Simon Davis (£1
million) combined with equity and warrants with a three year term with an annual coupons of 8% and 10% respectively. Each
warrant is convertible into equity at a price of 10.4p for that three year term. The loan notes therefore contain two components:
liability and equity elements. The equity is presented in equity under the heading ‘‘warrant reserve’’.
Proceeds of issue
Liability at date of issue
Equity component
Liability component at 1 January 2015/date of issue
Interest charge calculated at effective interest rate
Interest paid
Liability component at 31 December
26 Post Balance Sheet Events
2015
£’000s
–
–
–
6,588
1,190
(660)
7,118
2014
£’000s
6,605
(6,236)
369
6,236
491
(139)
6,588
On 14 January 2016, the Company entered into an agreement with Maghreb Petroleum Exploration S.A (‘‘MPE’’) for the purchase
of three onshore gas permits located in Morocco (together the ‘‘Sidi Moktar Licences’’). In consideration for the acquisition, the
Company issued MPE 21,764,706 ordinary shares and granted MPE a 1.6% net profit interest in any future cash flows from the
Kechoula discovery.
On 8 February 2016, the Company announced that it had signed a binding agreement with Oil & Gas Investment Fund S.A.S
(‘‘OGIF’’) whereby OGIF granted the Company an option to acquire a 55% interest in the Meridja permit, onshore Morocco.
As consideration for the option, the Company was required to pay OGIF US$100,000 as well as funding commitment of up to
US$200,000 and on exercise of option pay a further US$150,000 to OGIF and a carry of costs up to the end of a first Meridja
exploration well.
On 10 March 2016, the Company announced a further 50% acquisition of an operated interest in three onshore gas licences in
Morocco (together the ‘‘Sidi Moktar Licences’’) from PetroMaroc Corporation Plc (‘‘PetroMaroc’’). The Company also entered into
a transaction with Culebra Petroleum Limited for Culebra to acquire a 50% interest in Sidi Moktar. The effect of the transaction
was that the Company has an effective 25% working interest in Sidi Moktar with a carry to US$18 million and an additional US$6
million receivable by the Company.
On 21 April 2016 the Company announced the commencement of drilling of the first well at Tendrara, onshore Morocco.
On 10 May 2016, the Company announced the signing of heads of terms with Greenberry plc for Greenberry and other investors to
subscribe for bonds to be issued by the Company to provide additional funding for the Company’s growth strategy and simplify the
Company’s corporate debt. The bonds are expected to be five year non-amortising bonds with aggregate par value of up to €28.8
million and a 5% coupon. The bonds will be issued at a 32% discount to par and will attract a total cash fee of €1.1 million. The
Company also intends to issue Greenberry 70,312,500 warrants to subscribe for new shares in the Company at an exercise price
of 30p per share and with an exercise period of five years from the date of issue.
On 11 May 2016, the Company announced the receipt of the final Badile Drilling Approval.
On 16 May 2016, the Company provided an update on Nervesa and noted that there had been reduction in the resevoir pressure
and that it was planning for a remedial re-perforation and evaluating the possibility of a sidetrack well.
60
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 List of Licences and Interests
Licence
Rapagnano
San Lorenzo
Fonte San Damiano
Status1
Concession
Concession
Concession
Key Project or Prospect
Name
Marciano
Type
Rapagnano Gas Production
Casa Tiberi Gas Production
Awaiting
Abandonment
Gas Discovery
Oil Discovery
Appraisal
Prospect
Appraisal
Oil Discovery
–
–
Gas Discovery
Gas Discovery
–
–
–
Oil Discovery
–
–
Prospect
Prospect
Prospect
App Conc. Casa Tonetto
Strombone
Nervesa
Badile
T.Tesino
Musone
–
–
Laura
Dora/Dalla
–
–
–
Manfria
–
–
Tendrara
Meridja
Sidi Moktar
Permit
Permit
Permit
Permit
Permit
Permit
Permit
Permit
Application
Application
Application
Application
Application
Application
Application
Permit
Reconnaissance
Permit
WI
(%)
100
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
100
27.5
55
25
Area
(km2)
8.5
4.9
23.7
Operator
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
4.2
Apennine Energy
84.3
Apennine Energy
529.8
Apennine Energy
154.5
Apennine Energy
101.3
Apennine Energy
100.9
Apennine Energy
287.7
Apennine Energy
49.4
Apennine Energy
65.2
Apennine Energy
138.1
Apennine Energy
113.6
Apennine Energy
337
Apennine Energy
162.3
Apennine Energy
41.5
Apennine Energy
212.4
Apennine Energy
118.0
Sound Energy Morocco
14,500
9,000
Sound Energy Morocco
4,500 Sound Energy Morocco South
Carità2
Torrente Alvo2
Carità2
Badile
S.Maria Goretti
Villa Gigli3
Monte Negro2
Montemarciano
D-R74-AP
D503 BR-CS
Posta Del Giudice3
Solfara Mare
D148 DR-CS
Costa Del Sole
Tardiano
Torre del Ferro
Tendrara
Meridja4
Sidi Moktar
Notes:
1. A Concession allows hydrocarbon production and is valid for 20 years. An Application for a Concession can be made following
a declaration of commercial discovery ratified by the Ministry of Economic Development. The Concession requires the
approval of an Environmental Impact Assessment and becomes exclusive after publication in the Official Journal of the
EU. A Permit is valid for six years and allows seismic and drilling operations. An Application for a permit can be made at
any time it becomes exclusive to the applying company three months after publication in the Official Journal of the EU. All
the applications listed here are exclusive to Apennine Energy. The conversion of an application to a full permit requires the
approval of an Environmental Impact Assessment.
2. Carità, Monte Negro and Torrente Alvo Permit: 100% . SOU (50% Apennine Energy – 50% Apennine Oil and Gas; Apennine Oil
and Gas merged with Apennine Energy during 2015).
3. Prior to the asset swap transaction announced by the Company on 28 February 2013, Compagnia Generale Idrocarburi SpA
and Sound Energy each held a 50% equity position in four assets: two awarded licences (Villa Gigli and Colle Ginestre) and two
outstanding applications (Posta del Guidice and Il Convento). Sound Energy increased its equity position to 100% in Villa Gigli
and Posta Del Giudice in exchange for eliminating any equity interest in Il Convento and Colle Ginestre.
4. The Group has an option to acquire a 55% interest in the exploration permit.
24754.02 27 May 2016 8:27 AM Proof 4
61
www.soundenergyplc.comStock Code: SOU Our GovernanceStrategic ReportFinancial Statements Shareholder Information
Dealing Information
FT Share Price Index – Telephone 0906 8433711
SEAQ short code – SOU
Financial Calendar
Meetings
Annual General Meeting – 29 June 2016
Announcements
2016 Interim – 15 September 2016
2016 Preliminary – May 2017
Addresses
Registered Office
Sound Energy plc
4A Brewery Lane
Sevenoaks, Kent
TN13 1DF
Business Address
Sound Energy plc
4A Brewery Lane
Sevenoaks
Kent
TN13 1DF
Company Secretary
A Bateman
Amba Co Sec Ltd
12 Clifton Park
Caversham
Reading
Berkshire
RG4 7PD
Website
www.soundenergyplc.com
Auditor
Crowe Clark Whitehill LLP
St Bride’s House
10 Salisbury Square
London
EC4Y 8EH
Stockbrokers
Cantor Fitzgerald
One Churchill Place
London
E14 5RB
Nominated Advisers
Smith & Williamson Corporate Finance Limited
25 Moorgate
London
EC2R 6AY
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
62
24754.02 27 May 2016 8:27 AM Proof 4
Sound Energy plc Annual Report for the year ended 31 December 2015 Sound Energy plc
4a Brewery Lane
Bligh’s Meadow
Sevenoaks
TN13 1DF
United Kingdom
Tel: +44 (0)1732 606030
#deliveringdreamsinthedesert
24754.02 25 May 2016 7:43 PM Proof 4
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