S
o
u
n
d
E
n
e
r
g
y
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
D
e
c
e
m
b
e
r
2
0
1
7
ANNUAL REPORT & ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2017
DELIVERING
THE MOROCCAN
GAS PROMISE
25655.04
4 April 2018 1:15 PM
Proof 26
2017 ANNUAL REPORT
Sound Energy is a well-funded exploration-focused
onshore gas company, listed on AIM (LSE: SOU), with
a low cost 0.65 Tcf gas discovery, a supportive investor
base, a strategic partnership with Schlumberger and a
potentially transformational drill programme. Our strategy
is focused on the further exploration and development of
our Moroccan portfolio.
Read more in our Strategy and KPIs
on page 08
A MID-CAP MOROCCAN GAS COMPANY
REGIONAL GAS STRATEGY
UNDERPINNED BY
• Strong European gas demand and local pricing
• Supportive Cornerstone Investors
• Private Investor Centricity
STRONG THEMATIC
POSITIONING
LOW COST 0.65 TCF
DEVELOPMENT IN EASTERN
MOROCCO WITH RECENT
RESERVES CERTIFICATION
SIGNIFICANT
EXPLORATION
POTENTIAL
• Carbon consciousness and global warming driving
• Eastern Morocco up to 31 Tcf
transition to gas
• Southern Morocco up to 11.2 Tcf
FURTHER CONSOLIDATION
OPPORTUNITIES IN
MOROCCO
Getting around the Report
Read more content within
this Report
View more content
Online
“ Our focus during 2017 has been building
on our success in Morocco, both in terms
of exploration and the development of our
existing discovery.”
James Parsons
Chief Executive Officer
Corporate website
Visit www.soundenergyplc.com for the latest news, reports,
presentations and videos
01
Strategic Report
Our Asset Portfolio
Highlights
Statement from the Chairman and
Chief Executive Officer
Business Model
Strategy and KPIs – The Journey So Far
Strategy and KPIs – Future Focus and Plans
Market Review
Key Partners
Reserves and Resources
Operational Review
Financial Review
Corporate Responsibility
Health and Safety Review
Managing Our Risk and Opportunities
02
Governance
Leadership
– Overview
– The Team
Effectiveness
– Board activities
– Shareholder relations
Accountability
– Health and Safety Committee
– Audit Committee
– Remuneration and Nominations
Committee
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report
03
Financial Statements
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Group and Company Statements of
Changes in Equity
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
List of Licences and Interests
Shareholder Information
02
03
04
06
08
10
12
14
16
18
24
26
28
30
36
37
39
41
42
43
44
45
50
52
53
58
59
60
61
62
63
64
90
91
01
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01
Sound Energy plc Annual Report for the year ended 31 December 2017
Stock code: SOU
OUR ASSET PORTFOLIO
Eastern Morocco
Asset
Interest
Status
Area
Tendrara
Anoual
Matarka
47.5%
interest
operated
47.5%
interest
operated
47.5%
interest
operated
8 year
exploration
permit
Exploration
permit
9,336km2
acreage, 7
wells drilled
8,873km2
Reconnaissance
permit
5,223km2
Read more about Eastern Morocco in the
Operational Review on pages 18 to 23
Southern Morocco
Asset
Interest
Status
Area
Sidi Moktar 75%
interest
Exploration
permit
4,499 km2*
* Subject to final approvals.
Read more about Southern Morocco in the
Operational Review on pages 18 to 23
02
25655.04
4 April 2018 1:15 PM
Proof 26
HIGHLIGHTS
Morocco
• Successful TE-7 extended well test
• Acquisition of interests in OGIF (Oil & Gas Investment Fund)
in Eastern Morocco
• US$27.2 million Schlumberger carried seismic programme
• Continued preparation for next exploration drilling, including
ongoing 2D seismic acquisition and aerial gradiometry
US$27.2 million
carried seismic programme
Read more in our Operational Review
on pages 18 and 23
Corporate
• Cash balance at 31 December 2017 of £21.2 million
• Strong safety record
• Disposal of Italian interests
• Appointment of new Chief Financial Officer
£21.2 million
cash balance at 31 December 2017
Read more in our Financial Review
on pages 24 and 25
03
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01 STATEMENT FROM THE CHAIRMAN
AND CHIEF EXECUTIVE OFFICER
Richard Liddell
Non-executive Chairman
James Parsons
Chief Executive Officer
“ 2017 has been a busy year for the
Sound Energy business, consolidating
and expanding our operations in
Eastern Morocco, particularly through
a significant seismic programme and
bringing on board our cornerstone
partner, OGIF.”
2017 was a busy year for Sound Energy with a successful
extended well test on TE-7, the acquisition of Oil & Gas
Investment Fund’s (“OGIF”) interests in Morocco, two material
exploration wells drilled safely, a further Schlumberger
investment in Eastern Morocco and significant progress on a
fully carried seismic programme.
Morocco Portfolio and Schlumberger Field Management
Agreement (“FMA”)
During 2017, the Company built on its early success in
Tendrara with the acquisition from OGIF of a further 27.5%
interest in Tendrara and a 75% interest in both the Anoual
exploration permit and the Matarka reconnaissance licence.
The Company granted a 27.5% working interest in the Anoual
permit and the Matarka reconnaissance (subject to definitive
agreements) to Schlumberger. This has enabled a fully funded
material seismic programme which we believe will prove
to be critical in de-risking the forthcoming exploration drill
programme.
Tendrara
During the period, the Company completed a successful
extended well test on TE-7 and drilled a third well, TE-8,
which was largely funded by Schlumberger under its carried
arrangement. Drilling was completed in May 2017 and despite
tighter TAGI sands than in TE-6 and TE-7, this well established
the westward extension of the primary hydrocarbon system
proven in Algeria into Morocco.
Building on the outstanding TE-6 and TE-7 well results in 2016
and 2017, the Company is progressing with the development
of its existing discovery. As outlined in our recent resource
certification, the discovery has a gross (100%) mid-case
unrisked gas originally in place (“GOIP”) of 651 Bcf with an 873
Bcf upside case and a 349 Bcf downside case. The Company
intends to sign a Gas Sales Agreement, secure development
funding and apply for a concession, all during 2018.
Seismic Programme
The Company continues to progress its 2,900 km 2D seismic
programme which is now already more than 47% complete.
The objective of the seismic is to de-risk the forthcoming three
well exploration programme and provide line of sight on the
potential of the province. The US$ 27.2 million cost of the
programme is fully funded by Schlumberger.
Sidi Moktar
During 2017, the Company completed its licence obligations
with a positive re-entry and work over of the Koba-1 well.
Sound has recently received, subject to Ministerial approval,
a new eight year exploration permit and is looking forward to
further drilling in 2019 once a seismic programme is complete.
04
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU Italy
Following the safe but unsuccessful drilling of the Badile well
in Italy, an agreement was signed with Saffron Energy PLC
to divest of the Company’s Italian portfolio. It is anticipated
that this transaction will complete in early April 2018. The
consideration shares in Saffron Energy PLC are to be
distributed directly to Sound shareholders on the register
on 3 April 2018.
Corporate
The Company remains in a solid financial position as it enters
2018. Funding through the Schlumberger seismic carry, and
cash balance of £21.2 million as at 31 December 2017 will
support the forthcoming exploration well programme. We
continue to work with strategic partners to technically and
financially de-risk our portfolio.
During 2017, we also continued to broaden and deepen the
team and we were delighted to welcome JJ Traynor to the
Company (and soon to the Board) as Chief Financial Officer.
Summary
The Company continues to believe that the TAGI and Paleozoic
plays across Tendrara, Anoual and Matarka have the potential
to become a material hydrocarbon province on a regional scale
and therefore transform both Sound Energy and the Moroccan
gas industry.
Unlocking such a province requires time and technical skill and
none of this would be possible without the efforts of our people,
our shareholders and other stakeholders.
We remain hugely excited about our future and look forward to
success together.
Richard Liddell
Chairman
James Parsons
Chief Executive Officer
Pictured below:
Part of the exploration team in the South Sevenoaks office.
05
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01 BUSINESS MODEL
Key Partners
1 Strategic Industry
2
Partnerships
Cornerstone
Investors
Operational Model
A C QUIRE
R
E
P
E
A
T
R
E
V
O
D I S C
The building blocks
of the business
Our business model is underpinned by a series of fundamental building blocks that we must have in
place to manage our risks and provide us with our licence to operate. These include:
An engaged, industry
experienced and
entrepreneurial team
with a balance of
technical, commercial
and financial skills.
Strong governance
coupled with effective
risk management.
A culture of safe and
sustainable operations,
enabling us to achieve
high standards of health
and safety and minimise
our environmental and
social impact.
06
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
Key Partners
Key Partners
1 Strategic Industry
2
Partnerships
Cornerstone
Investors
1
Strategic Industry Partnerships
2
Cornerstone Investors
Our strategic industry partnerships allow Sound
Energy to achieve more than we could alone. Our
partners enable scale, help to technically de-risk
assets and provide funding for our activities.
We contribute our ability to move quickly and
take advantage of opportunities, as well as our
own creative technical, commercial and financial
expertise. The partnerships we create are
mutually beneficial, enhancing both our, and our
partners’, businesses. We play to our strengths
and are stronger together.
Our cornerstone investors give Sound Energy
a strong financial foundation, bringing to the
table both asset opportunities and the funds to
develop discoveries. Having our cornerstone
investors represented on the Board helps align
management and shareholders, ensuring that our
strategy plays to our strengths and delivers value.
Our cornerstone investors bring more than just
funds to the business – their skills, knowledge
and relationships help us deliver successful
outcomes.
Operational Model
Operational Model
A C QUIRE
R
E
P
E
A
T
R
E
V
O
D I S C
The building blocks
of the business
Our business model is underpinned by a series of fundamental building blocks that we must have in
place to manage our risks and provide us with our licence to operate. These include:
ACQUIRE
DISCOVER
REPEAT
Sound is continually looking for new
opportunities to diversify our portfolio.
We screen for corporate and asset
acquisitions which fit with our high
impact exploration strategy, onshore or
shallow water, in countries with attractive
fiscal terms. We have demonstrated our
deal-making capability to enter assets
pre-discovery and can apply the same
skills to gas commercialisation and asset
or corporate exit as required. We can
move quickly to take advantage of the
attractive opportunities identified by our
team under current market conditions.
We are well-positioned in this
environment to take advantage of our
exciting exploration acreage and the
significantly reduced cost of drilling to
deliver material gains to shareholders.
We are permanently placing emphasis
on efficient exploration and low-cost
reserves. We have demonstrated our
capability to discover major fields and
deliver wells, and carefully manage our
technical and financial risk.
Our business model, like the oil and
gas industry, is cyclical. We acquire,
discover and deliver value to our
shareholders. Building on our strong
technical experience, we are agile and
innovative. Through these attributes we
are able to look for and quickly create
new opportunities for the Company.
Our primary goal is to deliver returns to
shareholders.
Read more on our Portfolio
on pages 18 to 23
Read more on our Risks
on pages 30 to 34
Read more on our Strategy
on pages 2 to 34
07
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01
Sound Energy plc Annual Report for the year ended 31 December 2017
Stock code: SOU
STRATEGY
AND KPIs
The Journey So Far . . .
Introduction of Cornerstone
Investors
• Continental Investment Partners
• Oil and Gas Investment Fund (OGIF)
Acquisition of Moroccan
onshore gas portfolio
• Eastern Morocco (Tendrara, Anoual,
Matarka)
• Southern Morocco (Sidi Moktar)
Introduction of
Strategic Partner
• Schlumberger
Successful drilling and appraisal
in Eastern Morocco
• TE-6 – 28m net pay, 17mmscf/d achieved
post stimulation
• TE-7 – 32 mmscf/d after clean up,
successful extended well test
• TE-8 – Paleozoic Play Opener and
extension of TAGI reservoir
• Start of Tendrara aerial gradiometry and
seismic programme
Sidi Moktar Work
Programme
• Workover and test of Koba-1
1
2
3
4
5
08
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.com
01
Strategic Report
We measure our performance based on the achievement of desired
outcomes. At the beginning of each year, we create a vision of what
strategic success looks like and capture this in a corporate scorecard.
Sound’s scorecard is made up of a collection of key performance indicators (KPIs) across a range
of operational and financial metrics. Each objective measured has a percentage weighting and
a desired outcome. Progress is tracked throughout the year and the Board’s and Executives’
performance is judged on the delivery of desired outcomes. We disclosed the summary of our
targets in our 2016 Annual Report. They are listed below, along with associated KPIs, and our
performance against these targets.
2017 KPI
Measurement
2017 Performance
Continued
diversification and
further build out of
Sound’s Eastern
Morocco position.
• New acreage in Morocco.
• Additional acreage in
Eastern Morocco.
Exploration, appraisal
and development of
the Tendrara Licence.
• Deliver exploration and
appraisal program.
Detailed work on new play
opportunities in Morocco has been
completed.
Completion of the OGIF deal delivered
the Anoual exploration permit and
Matarka reconnaissance area.
Material seismic programme across
Tendrara and Eastern licences initiated
in 2017 with Schlumberger funding.
• Progress TE-5
development to FID.
Independent CPR complete for TE-5 to
prepare project for FEED.
Successful delivery
of the Badile well and
operations on Sidi
Moktar.
• Delivery of Moirago-1 well
at Badile.
Moirago-1 well drilled safely, however
discovery uneconomic.
• Sidi Moktar licence
obligations.
Koba-1 successful re-entry confirming
producible gas accumulation.
Exploring early
opportunities to
monetise assets.
• Monitor potential farm out
and other monetisation
options.
Ensure continued
high-quality partner
relationships.
• Strategic investor
engagement.
Work continues to develop
monetisation options. With the
unsuccessful Morago-1 well at Badile,
exit from Italy to focus portfolio and
deliver value to shareholders.
Completion of the OGIF deal in Q3
enabled full alignment with largest
shareholder with additional Eastern
Morocco acreage.
• Leverage industry
partnership with
Schlumberger.
Schlumberger partnership delivered
fully funded material seismic programme
for Eastern Morocco acreage.
09
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017
Stock code: SOU
STRATEGY
AND KPIs
Future Focus . . .
Our Overall Aim
The strategic focus for the Company
is the further exploration and
development of our Moroccan
portfolio. Below are the key steps
we plan to take to deliver increased
shareholder value.
Disposal of Italian Portfolio
• By exiting Italy, we can focus our capital
allocation and management time on
Morocco
Grow the Value of our Assets and
De-risk Upside Volumes
• De-risk 31 Tcf exploration potential in
Eastern Morocco and up to 11 Tcf in Sidi
Moktar through shooting new seismic and
aerial gradiometry
• Prove further volumes with three bold
exploration wells in Eastern Morocco, each
with multi Tcf potential
Development of Existing
Gas Discovery
• Develop existing 0.6 Tcf gas discovery, with
first gas targeted for 2020
Broaden our Portfolio in Morocco
• Consolidate onshore gas position in
Morocco
1
2
3
4
10
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.com
01
Strategic Report
Future Plans . . .
Sound’s 2018 scorecard comprises a mix of
stretching financial, operational and corporate targets
incentivising sustainable growth and safe operations.
A summary of the targets is listed below and the
KPIs will be disclosed in the 2018 Annual Report:
2018
Scorecard
1
2
3
4
5
6
7
8
Upcoming Newsflow
Ongoing (to August 2018)
Tendrara – New 2D seismic (2,900 live km)
Ongoing
Morocco consolidation
April 2018
Tendrara – 1st CPR released
Q2 2018
Tendrara – 2nd CPR released
Q3 2018
Tendrara – 3rd CPR released
H1 2018
Tendrara – GSA secured
Eastern Morocco – Pipeline BOT secured
July 2018 onwards
Eastern Morocco – Three well exploration programme
2018
Tendrara – Final investment decision on discovery
11
25655.04
4 April 2018 1:15 PM
Proof 26
Brent Price (US$/bbl)
Source: Bloomberg as at 8 February 2018
75
65
55
45
35
25
6
1
n
a
J
6
1
r
p
A
6
1
l
u
J
6
1
t
c
O
7
1
n
a
J
7
1
r
p
A
7
1
l
u
J
7
1
t
c
O
8
1
n
a
J
NBP (GBP/therm)
Source: Bloomberg as at 8 February 2018
70
60
50
40
30
20
6
1
n
a
J
6
1
r
p
A
6
1
l
u
J
6
1
t
c
O
7
1
n
a
J
7
1
r
p
A
7
1
l
u
J
7
1
t
c
O
8
1
n
a
J
MARKET
REVIEW
Energy Sector
The oil market has been volatile over the last few years, with
the energy sector as a whole affected by the decline in the oil
price from its highs. Although there has been some recovery
in oil prices in 2017, the uncertainty in the sector led to a drop
in the AIM Oil and Gas Index (around 9% for 2017) with many
of our peers experiencing financial difficulties. For well-funded
companies such as Sound Energy, the broader sector malaise
has resulted in a number of high-quality assets coming onto the
market which we have been able to and continue to look to add
to our portfolio at attractive prices.
Despite a recovery in the oil price (Brent was up 17% during
2017) the AIM O&G index still struggled, closing the year
down by around 9% although the FTSE 350 O&G fared
slightly better, up 6.2%. As we enter 2018 (despite a recent
weakening in global equity markets), there is a sense that there
has been a shift in sentiment with many investors becoming
increasingly optimistic about the oil and gas sector and its
future performance. The recovering oil price and sustained
cost-cutting efforts over the last few years will result in a
supply deficit in the coming years. Oil and gas companies have
materially cut operating costs, both internally and as a result of
the c.50% decline in oil service company rates. Consequently,
companies possessing strong balance sheets, near-term
exploration/appraisal upside and low/manageable debt are
increasingly the ‘top picks’ for fund managers.
Increased carbon consciousness and concerns around climate
change are becoming increasingly prevalent globally. Gas has
around half the emissions of coal and is recognised for the
role it can play as the ideal bridging fuel during the transition
to carbon neutral solutions. As a result, demand for gas has
increased and will continue to do so for the foreseeable future –
currently, the consumption of natural gas worldwide is projected
to increase to 177 Tcf in 2040, with demand in countries
outside the Organisation for Economic Co-operation and
Development (OECD) increasing more than those 35 member
countries across the globe.
Key Themes for 2018:
• Improvement in global growth which should evoke gains in
global equities
• Monetary policy shift, with divergence between US and
the EU, and although the ECB will slow its asset purchase
programme it is not expected for them to raise rates any
time soon
• Geopolitical risks – Brexit negotiations likely to cause some
instability
• Further support for O&G equities on any commodity price
rallies
12
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
01
Strategic Report
European Oil Demand
Source: RBC Capital Markets, Petro-Logistics SA, IEA, EIA, JODI,
company and government sources; IEA disclosure
MOROCCO
15,000
14,500
14,000
13,500
13,000
• Around 90% of Morocco’s hydrocarbons are imported
from Algeria
• In the medium to long term, Morocco expects to
increase the share of natural gas in the energy mix
• Morocco provides one of the most attractive fiscal
regimes for oil and gas companies worldwide
• GME pipeline ownership transitions to Morocco in 2021
• New Gas Agency is under discussion
A
6
1
’
1
Q
A
6
1
’
2
Q
A
6
1
’
3
Q
A
6
1
’
4
Q
A
7
1
’
1
Q
A
7
1
’
2
Q
A
7
1
’
3
Q
A
7
1
’
4
Q
E
8
1
’
1
Q
E
8
1
’
2
Q
E
8
1
’
3
Q
E
8
1
’
4
Q
Regional Infrastructure
European Gas Consumption
Source: RBC Capital Markets, Petro-Logistics SA, IEA, EIA, JODI,
company and government sources; IEA disclosure
15,000
14,500
14,000
13,500
13,000
A
6
1
’
1
Q
A
6
1
’
2
Q
A
6
1
’
3
Q
A
6
1
’
4
Q
A
7
1
’
1
Q
A
7
1
’
2
Q
A
7
1
’
3
Q
A
7
1
’
4
Q
E
8
1
’
1
Q
E
8
1
’
2
Q
E
8
1
’
3
Q
E
8
1
’
4
Q
What this means to Sound Energy
• Favourable fiscal terms (10 year tax holiday and 36%
net Government take including 5% royalty – one of the
lowest globally)
• Good economics and ability to get gas to market with
ease
• Attractive pricing – benefits from high European gas
pricing
• Supportive government with a desire to keep gas in-
country
• Low cost production
13
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comGas Maghreb-Europe PipelineTriassic (TAGI) leadsGas Pipeline ProjectOuedEl Makhazine2 x 400 MWAl Wahda4 x 400 MWDhar Doum4 x 400 MWCasablancaMarrakechMOROCCORabatTahaddart Power2 x 400 MW Jorf LasfarPower PlantSafi Chemicals PlantChichaouaState owned Phosphate Plant (OCP)Planned New PhosphatePlantMeskalaGas Field
KEY
PARTNERS
Our key partners allow Sound Energy to achieve more than we could do alone. Our partners
support us from investment and funding to project execution and delivery.
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
2016. During April 2015, they 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 28 February 2018, Continental had an
interest in 6.63% of Sound Energy’s current
issued share capital.
Oil and Gas Investment
Fund (OGIF)
In January 2017, Sound Energy announced
the acquisition of OGIF’s Eastern Morocco
portfolio and introduced OGIF as a second
cornerstone investor:
• Consolidates interest in Eastern
Morocco’s prospective acreage
• Strengthens Sound Energy’s position
in Morocco; OGIF is a Moroccan fund,
owned by the seven largest Moroccan
financial institutions
As at 28 February 2018, OGIF had an
interest in 26.77% of Sound Energy’s
current issued share capital.
14
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU Schlumberger
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
Schlumberger’s wealth of experience and vast
resource within the sector. In addition, Schlumberger
shares the risks of the Tendrara project, earning its
net profit interest through funding a significant portion
of the initial capital expenditure.
Schlumberger provides integrated technical services,
equipment and personnel to Sound Energy, operator
of the Tendrara licence:
• Schlumberger has funded a significant proportion
of the capital expenditure on the first three
Tendrara appraisal wells (75-80%), and of the
development of the licence area thereafter
(27.5%); and fully funded the $27.2 million seismic
acquisition in Eastern Morocco; and
• Schlumberger has 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).
Our Partners in
Our Ventures
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.
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.
15
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01 RESERVES AND
RESOURCES
Sound Energy Resource and
Reserve Estimates
The Company volumes and risk factors are presented
in accordance with the 2007 SPE/WPC/AAPG/SPEE
Petroleum Resource Management System (“PRMS”). The
Tendrara licences contain both discovered hydrocarbons
and undiscovered prospects which fall within the PRMS
classifications of either Contingent or Prospective Resources.
Given the current phase of a field life cycle, these contain no
proven reserves at this point.
Both the Contingent Resources and Prospective Resources
in Tendrara are subject to risk. Prospective Resources are,
by definition, undiscovered and the probability of success is
referred by the Company in PRMS as the Chance of Success
(CoS). Contingent Resources are, by definition, discovered, and
therefore do not have an associated Chance of Success (CoS).
Using the PRMS methodology, Contingent Resources may be
subject to a Chance of Development (CoD).
Contingent Resource Estimates for Eastern Morocco
(Tendrara, Matarka and Anoual)
Contingent Resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from
known accumulations, but the applied project(s) are not yet
considered mature enough for commercial development due to
one or more contingencies. Contingent Resources are further
categorised in accordance with the level of certainty associated
with the estimates and may be subclassified based on project
maturity and/or characterised by their economic status as follows:
• Contingent Resources (Development Pending);
• Contingent Resources (Development Unclarified or On Hold);
• Contingent Resources (Development Not Viable).
The Tendrara development contains Contingent Resources
(Development Unclarified or On Hold). At the point of FID, the
resources will move to Contingent Resources (Development
Pending). When developed, the Contingent Resources will be
converted into Reserves.
In late 2017, Sound Energy undertook a resource certification
exercise for the core Tendrara licence area, the key results of
which are outlined below.
Discovered In-place Volumes and Contingent Resources
Segment
nameet``
Discovered Gas
Originally In-place
(Bcf)
Contingent
Resources (Bcf)1
Gross (100%) basis Gross (100%) basis
Low Mid
High
1C
2C
3C
349
651
873
197
377
533
TE-5 Horst
(TAGI 1 and 2)
1 Contingent Resources are technical volumes i.e. no economic limit test applied.
16
Prospective Resource Estimates for Eastern Morocco
(Tendrara, Matarka and Anoual)
Prospective Resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable
from undiscovered accumulations by application of future
development projects.
Prospective Resources have both an associated chance of
success and a chance of development. Prospective Resources
are further subdivided in accordance with the level of certainty
associated with recoverable estimates assuming their discovery
and development and may be subclassified based on project
maturity. Sound Energy has internally estimated prospective
resources for the Tendrara, Matarka and Anoual licences, which
are given in Fig. 1 below. These estimates are based on work
previously communicated by RNS on 1 February 2017. The
Prospective Resource estimates were based on a preliminary
basin modelling study undertaken by a leading independent
consultancy. The output of the basin modelling allowed Sound
Energy to estimate that the exploration potential of the entire
Tendrara, Matarka and Anoual permit areas is 17 Tcf mid
case unrisked original gas in place (gross). The Basin Model
highlights the possibility for a range of estimated volumes
across the entire permit areas, with a 9 Tcf low case for
unrisked original gas in place (gross) and, if all the key elements
of the petroleum system’s model are present, an upside case of
31 Tcf of unrisked original gas in place (gross).
These resource estimates are all Sound Energy 100% gross, in
place, unrisked estimates.
31
Paleozoic
Anoual
Identified
TAGI leads
5.5
)
F
C
T
(
E
M
U
L
O
V
S
A
G
H
G
H
I
I
D
M
W
O
L
21.2 TCF
17
Tendrara and Matarka
Identified TAGI
leads 14.7
9
0
Eastern Morocco
Development
Volumes 1.0
Fig. 1 Summary chart showing the internally estimated, gross, unrisked GIIP
volumes for the Tendrara, Matarka and Anoual licences. The Eastern Morocco
Development Volumes estimate (1.0 Tcf) is based on the sum of the externally
certified, gross, mid case discovered and undiscovered GIIP estimates from the
RPS resource certification exercise. The Prospective Resource estimates are
Sound Energy internal estimates and have not been externally verified or certified.
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
Prospective Resource Estimates for Southern Morocco
(Sidi Moktar Onshore)
The Sidi Moktar Onshore permit area was awarded to Sound
Energy on 12 February 2018. In late 2017, Sound Energy
commissioned Echo Geoscience Management Ltd (“EG”) (a
UK-based consultancy providing geological and geophysical
interpretation services to the upstream oil and gas industry)
to undertake an independent preliminary technical evaluation*
of the available historical exploration well and 2D seismic
data across the Sidi Moktar permit area with a focus on the
under-explored pre-salt plays. EG have defined and mapped a
portfolio of 28 Liassic, Triassic and Paleozoic leads in a variety
of hydrocarbon trap types across the Sidi Moktar licences.
Much of the potential lies within 11 of the pre-salt Triassic and
Paleozoic leads ranging in size individually from 200 Bcf to 2.5
Tcf. The EG Study highlights an exploration potential best case
of 8.9 Tcf with a high of 11.2 Tcf and a low case of 6.7 Tcf,
unrisked gas originally in place (gross), shown in Fig 2 below.
Prospects, Leads and Resources
Paleozoic
7.6
Best Case
8.9
11.2
8.9
6.7
H
G
H
I
I
D
M
W
O
L
)
F
C
T
(
E
M
U
L
O
V
S
A
G
Triassic
0.6
Liassic
0.6
0
Fig 2 Summary chart showing the internally estimated, gross, unrisked GIIP
volumes for the Sidi Moktar onshore licences. These estimates were produced
as part of the Echo Geoscience evaluation of the permit area and have not been
externally verified or certified.
* The evaluation was prepared by Echo Geoscience Management Ltd, (“EG”) for
the sole use of Sound Energy plc. The Study is not a Competent Person’s Report
(CPR), a Qualified Person’s Report (QPR) or a Technical Expert’s Report (TER) and
should not be relied upon as such.
Pictured:
Rig at TE-7
17
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01
OPERATIONAL
REVIEW
Overview of the Operational Performance for the Year
2017 was a busy year for Sound Energy in Morocco.
Wells Programme
Two challenging wells were safely delivered in the year,
Moirago-1 at Badile in Italy and the TE-8 step out well
for Tendrara in Morocco. The Italian well was ultimately
unsuccessful with insufficient hydrocarbon shows. The TE-8
step out well completed drilling in May 2017 and despite lower
quality TAGI sands than in the previous wells, is the first well
to establish significant gas shows with a Westphalian aged
sequence.
Sidi Moktar
During 2017, the Company completed the licence obligations
with a positive re-entry and work over of the Koba-1 well.
Sound Energy has, subject to final approvals, recently received
the exploration permit for the next phase on the licence and is
looking forward to progressing the work programme in this area
in late 2018 onwards.
Seismic
2017 saw Sound Energy commence its geophysical
programme in Eastern Morocco. The coverage of all the
22,800km2 of the licences with flown Gravity Gradiometry,
Magnetics and LiDAR data was completed during Q4 and
augmented with detailed satellite imagery. The proposed
2,900km of 2D seismic was commenced in October and
the phase 1 lines completed in early December. In total,
598km were acquired in 2017. In addition to this operational
programme, the Company has completed reprocessing of
the existing 522km2 of 3D seismic data across the TE-5 Horst
discovery and an integrated programme of geological studies
including commissioning new petrographic, geochemical,
chemostratigraphic and biostratigraphic analyses of the
historical well data.
Development of existing discovery
Good progress has been made on the development project,
including the resource certification issued in January 2018.
Key forward steps include the contracting, engineering and
financing which are progressing as well as off take and other
related commercial agreements. The Company intends to apply
for the concession in 2018 with final sanction estimated for later
in the year.
The Company’s HSE record has been strong with only one LTI
(Lost Time Incident) during the year. More details on HSE are
provided in the Health and Safety Review on page 28.
Pictured:
TE-7 storage tank and generator
18
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU www.soundenergyplc.com
EASTERN MOROCCO
Permit Area
• Figuig Province, North-East Morocco
Overview
Eastern Morocco, representing a total superfice of 23,432 km2
is composed of three areas:
Asset
Area
Status
Terms
Interest
9,336
km2
8,873
km2
Tendara-
Lakbir
Effective Date
16 April 2013
Anoual
Effective Date
31 August 2017
Matarka
Effective Date
27 July 2017
Permits
8 years Net effective
interest of
47.5%
Permits
8 years Net effective
5,223
km2
Reconnaissance
Licence
1 year
interest of
47.5%
Net effective
interest of
47.5%
Tahaddart Power
2 x 400 MW
Dhar Doum
4 x 400 MW
M E D I T E R R A N E
N
A
Oued
El Makhazine
2 x 400 MW
Oujda
I C
T
N
A
L
T
A
Rabat
Al Wahda
4 x 400 MW
120km
Anoual
Casablanca
Sidi Moktar
Marrakech
Tendrara
Matarka
A
A L G E R I
Gas Maghreb-Europe Pipeline
Gas Pipeline Project
Highlights
• TE-8 vertical well drilled and proved evidence of the
presence of a potential second play in Paleozoic
• Achievement of the Reserves Certification on the first
unlocked field, TE-5 Horst structure
• Completion of OGIF transaction
• Completion of the Field Development Plan of TE-5 Horst
structure
• Acquisition of an airborne gradiometry survey / delineation
of the Basin geometry and understanding of the Paleozoic
potential underway
• Completion of the existing 2D and 3D seismic
reprocessing / better assessment of potential prospects
• Launch of the biggest 2D seismic campaign ever done in
onshore Morocco, to better image the next structures to
be drilled
• 120km from Gazoduc Maghreb Europe (GME) pipeline
(connecting Algeria and Morocco to the Spanish/Portuguese
gas grids)
• Sub-divided into eight blocks
Geology
Represents a continuity of the Algerian Triassic Province and
Saharan Hercynian platform. Same tectono-sedimentary as the
evolution in the Algeria Basins.
Partnerships
• Sound Energy farmed in to the Tendrara licence in June
2015, taking a 55% working interest in the licence,
partnering L’office National des Hydrocarbures et des Mines
(ONHYM) (25% interest) and OGIF - (20% interest) and
assuming Operatorship
• In December 2015, Sound Energy entered into a Field
Management Agreement (FMA) with Schlumberger.
Schlumberger agreed to fund a significant portion of the
capital expenditure on the first three Tendrara wells and
provide technical services, equipment, personnel to Sound
Energy as Operator in exchange for an upside linked to
production performance
• In February 2017, Sound Energy entered into binding
agreements with OGIF for the conditional acquisition by
the Company of a further 20% interest in the Company’s
Tendrara-Lakbir permits and a 75% position in Matarka
(relinquished area of the Tendrara exploration area) and
in Anoual permits (ex Meridja reconnaissance licence
converted in permits). These agreements were approved by
Sound Energy shareholders at a general meeting in March
2017
• In June 2017, Sound Energy and Schlumberger expanded
their partnership to Matarka reconnaissance licence and
Anoual permits
• In September 2017, after the completion of all the conditions
precedent-related to February 2017’s binding agreements,
OGIF became a substantial shareholder of the company.
Pictured:
Map of Tendrara
19
25655.04
4 April 2018 1:15 PM
Proof 26
MOROCCOStrategic Report 01 OPERATIONAL
REVIEW CONTINUED
Existing Wells
TE-6
28m net pay, 17 mmscf/d achieved
post-stimulation
TE-7
32m mmscf/d after clean up:
Successful Extended Well Test
TE-8
paleozoic play opener and extension
of TAGI reservoir
Forthcoming Exploration Wells
Main Results
• TE-8 proved, 12km to the Northeast of TE-7, the presence
of a TAGI sand sequence, commencing at a measured
depth of 2,643 metres. It penetrated 114 metres of TAGI I
(approximately twice the thickness of the TAGI I reservoir
encountered in wells on the TE-5 Horst) with gas shows.
The TAGI sands encountered by TE-8 are also interpreted to
be at the same reservoir pressure as the previous wells on
the TE-5 Horst (TE-5, TE-6 and TE-7)
• TE-8 was drilled some 359 metres into the Paleozoic
and identified the full series of Westphalian stratigraphy
including sandstones (between 2,762 metres through to
3,120 metres), which are one of the producing horizons
in neighbouring Algeria. The sandstones are interpreted
to lie in a separate pressure regime to the overlying TAGI
play beneath the TE-5 Horst and the Lakbir High. Gas
shows were encountered over this interval and subsequent
petrophysical analysis suggests that these sandstones may
be permeable and likely to be producible with mechanical
stimulation
• Sound Energy completed the first phase of the 2D seismic
and magneto-telluric acquisition in Eastern Morocco
Future Focus
• The second phase of the 2D seismic acquisition campaign is
underway and should be completed during summer 2018
• Further wells targeting the Paleozoic on the Tendrara permit
are being planned in 2018. The ‘A’ Structure is expected to
be the first target at TAGI level
s i c T
v
o
s 2
A
e r y a
G I
n
1 . 2 T
d
c f
T ri a
d i s
l e
s
c
a
p
d
o t e
5
2
n ti a l
3
-
0
5
0
0
0 m
M
D
JK-1
North East Lakbir
N
TE-2
TE-8
TE-3
A Structure
RR-1
TE-6
TE-7
TE-5
Paleozoic Test
SBK-1
TE-1
TE-4
‘A’ Structure (up to 1.2 Tcf)
North East Lakbir (up to 5 Tcf)
P
a l e
o
c
a
o
z
c
n
d
1
o i c
p t s
n
c f p
-
0
e
d iti o
0 T
0
3
0
a l c
a .
o t e
0
0
n ti a l
M
0 m
4
D
5
0
K
M
20
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOUANOUALTENDRARA& MATARKA www.soundenergyplc.com
SOUTHERN MOROCCO
Sidi Moktar
Overview
Western Morocco is composed of a unique area, Sidi Moktar.
Terms Interest
8 years Net
Asset
Sidi
Moktar
Area Status
Effective
Date
4,499
km2*
Exploration
Permits
February
2018
* Subject to final approvals.
Jorf Lasfar
Power Plant
Safi Chemicals
Plant
State owned
Phosphate
Plant (OCP)
Tahaddart Power
2 x 400 MW
Dhar Doum
4 x 400 MW
Oued
El Makhazine
2 x 400 MW
Meskala
Gas Field
Planned
New
Phosphate
Plant
Chichaoua
Rabat
Al Wahda
4 x 400 MW
Casablanca
Marrakech
Highlights
• Play type: gas discovery (Kechoula) in the Lower Liassic
Gas Maghreb-Europe Pipeline
Triassic (TAGI) leads
sequence, (73 Bscf net to Sound Energy, initial estimate, single
accumulation most likely), deeper upside potential in Triassic
(TAGI) and Paleozoic
Gas Pipeline Project
• Two wells drilled with positive gas indications from log and gas
shows in the Liassic; extended well test planned in 2017
• Unrisked up to 11.2 Tcf exploration potential (Net to Sound
Energy) following interpretation of the existing 2D seismic
• Risked up to 3 Tcf exploration potential targeting the Triassic
(TAGI) objective; net to Sound Energy
• Asset is located 10km from the Meskala gas processing plant
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
4,500km2
• 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 and Activity History
There are four Exploration plays 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 Liassic (sandstone) which has given rise to two
discoveries (Zelten and Kechoula);
• PS3 Triassic (TAGI equivalent) which has given rise to one
discovery (Meskala); and
effective
interest of
75%
• PS4 Paleozoic Devonian carbonates which remain frontier
exploration, gas shows present in penetrations beneath the
Meskala field with one well testing gas.
Essaouira Basin history
• Historically, 84 wells have been drilled in the Essaouira Basin
with discoveries in the lower Liassic and Triassic having the
highest discovery ratio. Additionally, 7,000 km of seismic
have been acquired since the late 1950s.
1950s and 1960s
• 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 oilfield (Sidi Rhalem in 1961).
1970s
• 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), N’Dark (1976) and Meskala (1977).
1980s
• 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
Paleozoic target.
Most recent history
• 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 (the Moroccan
NOC). 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 not completed
and tested. In January 2016, Sound Energy secured and
retained MPE’s 25% carried interest in the licence and in
March 2016 secured Petromaroc’s 50%.
21
25655.04
4 April 2018 1:15 PM
Proof 26
MOROCCOStrategic Report 01 Sound Energy plc Annual Report for the year ended 31 December 2017
Stock code: SOU
22
25655.04
4 April 2018 1:15 PM
Proof 26
ITALY
Badile
Moirago-1
The exploration well Moirago-1 was located 20 km south of
Milan and was spudded on the 7th March 2017, by the drilling
contractor Pergemine S.p.A. The project was successfully
executed with no Lost Time Incidents (LTIs) and no recordable
injuries.
The objective of the well was to target the Badile prospect.
The prognosed reservoir in Badile was the Lower Jurassic aged
Conchodon Dolomite formation. The Conchodon dolomite
reservoir was successfully reached, was proven to be permeable
and displayed significant gas shows during drilling. Subsequent
data, however, proved that any potential gas accumulation
was sub-commercial, and as such the well was plugged and
abandoned on the 26th July 2017. The well reached a final TD
of 4473m MD (4406m TVD).
Saffron Deal
Sound Energy plc entered on 5 October into non-binding
conditional heads of terms with Saffron Energy PLC, based on
which Sound Energy plc proposes to dispose its portfolio of
Italian interests and permits through the sale of Apennine Energy
SpA (“APN”) and its Holding Company, Sound Energy Holding
Italy Limited to Saffron Energy PLC. The SPA was signed on
22 January 2018 and the deal is expected to complete in
April 2018.
Pictured:
Badile rig and shakers at Moirago 1 well
23
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01 FINANCIAL
REVIEW
“ Our commitment to unlocking
Moroccan gas was demonstrated by
the issue of 272 million shares valued
at £138.8 million for the acquisition of
OGIF’s interests in Tendrara, Anoual
and Matarka licences, increasing our
investment in Morocco.”
JJ Traynor
Chief Financial Officer
£24.0 million
spend on drilling and exploration
activities in Morocco and Italy
£164.0 million
carrying value of intangible assets
at 31 December 2017
Income Statement
The Group’s operations in Italy were classified as discontinued
operations following the entering of an agreement between
the Company and Saffron Energy Plc for the divestment of
the Company’s Italian licences. The loss from discontinued
operations increased to £21.8 million (2016: £8.7 million)
primarily due to an impairment charge of approximately
£19.0 million attributable to the Badile licence following sub-
commercial well results.
The loss for the year before tax from continuing operations
was £12.3 million (2016: £4.7 million). Administrative costs
increased by £4.3 million to £8.5 million (2016: £4.2 million)
reflecting the growth of the business with increased activities
in Morocco.
Foreign exchange gains and losses primarily related to intra-
Group loans and Euro denominated borrowings.
As part of the acquisition of the Sidi Moktar licences, onshore
Morocco, an agreement was entered with PetroMaroc and
provides that, if the shares of the Company which were issued
as part of the consideration for the acquisition, are sold, the
realised proceeds for any share price achieved above 50 pence
to be shared equally between the Company and PetroMaroc.
The loss on the derivative financial instruments of £1.9 million
(2016: £0.6 million gain) arose from this arrangement and
reflects the change in the share price during the year.
Cash Flow/Financing
During 2017, warrants and share options exercises raised
approximately £11.6 million (2016: £15.9 million). Net proceeds
from equity issued in 2016 also included £24.3 million that had
been raised through an underwritten offer.
The financing costs were £1.1 million (2016: £3.7 million)
primarily due to amortised costs of the bonds, net of interest
capitalised to the exploration licences of £1.6 million (2016:
£1.5 million). Financing costs in 2016 included accelerated
amortisation of issue costs on refinancing of the debt.
24
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU Cash Flow Bridge Chart
(£’000)
46,809
(11,747)
(23,960)
592
60
11,550
(1,293)
22,011
r
e
b
m
e
c
e
D
1
3
t
A
6
1
0
2
n
o
d
n
e
p
S
g
n
i
t
a
r
e
p
o
s
e
i
t
i
v
i
t
c
a
e
r
u
t
i
d
n
e
p
x
e
l
a
t
i
p
a
C
y
t
i
u
q
e
m
o
r
f
s
d
e
e
c
o
r
P
e
u
s
s
i
s
d
e
e
c
o
r
P
e
v
i
t
a
v
i
r
e
d
m
o
r
f
s
t
n
e
m
y
a
p
t
s
e
r
e
t
n
I
e
g
n
a
h
c
x
e
e
c
n
e
r
e
f
f
i
d
i
n
g
e
r
o
F
r
e
b
m
e
c
e
D
1
3
t
A
7
1
0
2
Net Assets
(£ million)
Intangible Assets
(£ million)
172
164
58
19
4
1
0
2
16
5
1
0
2
6
1
0
2
7
1
0
2
9
4
1
0
2
10
5
1
0
2
28
6
1
0
2
7
1
0
2
Original image of this map needed
The Group spent £24.0 million (2016: £11.8 million) on investing
activities during 2017, which largely consisted of the Badile
licence’s Moirago-1 well, Tendrara TE-8 exploration well and
re-entry of Koba-1 well at the Sidi Moktar licence in Morocco.
2016 capital expenditure was primarily for TE-6 and TE-7 wells
in the Tendrara licence.
Balance Sheet
Additions to the intangible assets included consideration paid
for the acquisition of OGIF’s interests in Tendrara, Anoual and
Matarka licences in Morocco. The consideration included the
issue of 272.0 million shares valued at £138.8 million at the
time of the acquisition. Additions also included expenditure on
drilling Moirago-1 well at Badile, TE-8 well at Tendrara licence
and re-entry of Koba-1 well at Sidi Moktar licence.
Other receivables amounting to £3.5 million (2015: £8.8 million)
primarily related to receivables from our partners in the Tendrara
licence.
Assets of the Disposal Group held for sale related to the Italian
operations and primarily included intangible assets, Badile land
and VAT receivable.
Trade and other payables amounting to £6.6 million (2016:
£12.6 million) primarily related to payables and accruals for
the operations in the Group’s licences in Morocco, where
the Group, as operator, recognises 100% of the liability and
receives funds from partners to pay the partners’ share.
Liabilities of Disposal Group held for sale related to the Italian
operations and primarily included trade and other payables and
provision for decommissioning of licences.
Accounting Standards
The Group has reported its 2017 and 2016 full year accounts
under International Financial Reporting Standards (IFRS), as
adopted by the European Union.
Going Concern
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.
Pictured:
Seismic work, Morocco
25
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01
Sound Energy plc Annual Report for the year ended 31 December 2017
Stock code: SOU
CORPORATE
RESPONSIBILITY
Our CSR Strategy
1
Environment
2
Suppliers
Aims:
• All operations shall be completed with minimal
disruption to the environment
• All flora and fauna in our operating area should
be treated with respect
Aims:
• We aim to treat and deal with our suppliers
fairly and with respect
• Where possible we look to use in-country
suppliers to benefit the local economic
environment
3
Employees
4
Communities
Aims:
• We will provide a rewarding, safe and
hospitable working environment with high levels
of employee engagement and participation
• We actively engage, nurture and develop local
labour in all countries of operation
• We value and support diversity in the
workplace
Aims:
• We aim to conduct our activities with minimal
disruption to local hosts
• We aim to play an active part in the community
hiring local employees, assisting with
infrastructure and supporting the improvement
of local facilities such as mobile phone towers
and hospitals
26
25655.04
4 April 2018 1:15 PM
Proof 26
We are committed to operating our business in a way that delivers
lasting benefit to the communities and environments where we
work, as well as to our shareholders and employees.
• We are also in the process of building an office with
accommodation that will vastly improve the conditions of
the employees that live and work on-site in the sometimes
unforgiving desert heat and freezing cold conditions that
occur in the region. Further details and photos of this project
are below
The office building is a two-storey building with offices, meeting
room/kitchen on the main floor and accommodation reception
room on the top floor, as well as a 12m x 12m warehouse, and
will be the main focal point for drilling support. The building is
right next door to the current Saipem Rig camp, however the
Saipem camp will move with the equipment as it goes out into
the field and then the space will be used as a pipe and storage
yard.
“ Creating lasting legacies for local
communities is core to our CSR
strategy.”
Mohammed Seghiri
Managing Director, Morocco
Sound Energy’s strategic positioning continues to focus on gas
– a bridge fuel with significantly lower CO2 emissions than coal
(around half as much).
At Sound Energy, we understand that being involved in the
exploration and production of energy brings with it enormous
environmental, social and cultural responsibilities. Core to our
CSR strategy is conducting operations that comply to the
highest international social, environmental and safety standards.
Sound Energy places great importance on engaging with
the community near our operations and ensuring that they
benefit from our presence in the area. This approach is shown
through the numerous ways that we have supported the local
community near the Tendrara site in Morocco. They are as
follows:
• In addition to the many locals we employ across a range
of jobs on and near our site. In 2017 with the start of the
seismic programme our subcontractor hired and trained
more than 70 local people
• We have built a new mobile phone tower, improving the local
community’s ability to communicate
• We are also in the process of improving the health centre in
the local area which requires extensive work and supplies to
be able to serve the local community adequately
Pictured:
Logistics manager Kelly Sheets with his dog
27
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01 HEALTH AND
SAFETY REVIEW
Morocco
• Civil works for construction of well pads for TE-8 in
Tendrara field
• Drilling and completion of TE-8 in Tendrara field
• Drilling and completion of Koba-1 well in Sidi Moktar field
• Completion of airborne survey on Tendrara-Lakbir
Concession by ABI
• Beginning of seismic Tendrara-Lakbir project by
WesternGeco
Italy
• Completion and P&A of Badile well in Basilicata
• Site restoration of Cascina Daga 1 dir well in Veneto
• Ongoing production sites support
The worked man hours have been 624.849 (121.351 Company, 503.498 Contractors) and the data recorded have been
divided into the three main following families:
1
Lagging Indicators
2 Leading Indicators
3
Environmental Data
Environmental Data
Diesel Consumed (m3)
Water Consumed (m3)
Mud Cuttings (m3)
Sewage Water (m3)
Waste Water
Non-Hazardous Wastes (ton)
Fuel Gas (m3)
Electrical Energy (kWh)
Km Driven
1.085,35
14.272,2
6.627,0
8.549,8
2.342,9
4.066,0
5.612
8.888.332
1.494.324
There has been an increase of working manhours compared to
2016, and the recordable injuries have followed the same trend.
However, comparing the data recorded against the market
reference standards, the values of the HSE indexes are broadly
in line with industry data.
Lagging Indicators
Fatality
LTI (Lost Time Injury)
RWC (Restricted Work Case)
MTC (Medical Treatment Case)
FAC (First Aid Case)
Property Damage
Environmental Incident
RTA (Road Traffic Accident)
NM (Near Miss)
HiPO (High Potential Event)
Lost Workdays
Leading Indicators
HSE Inspections
HSE Audits
HSE Meetings
HSE Inductions
Emergency Drills
Toolbox Talks
Training Hours
SHOC Cards (Safety Hazard Observation Card)
Job Safety Analysis
Management Tours
0
1
1
3
1
1
4
1
6
4
15
1.588
8
711
2.121
54
1.343
7.986
5.007
872
29
28
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU HSE Initiatives
Many initiatives were carried out in 2017 in order to strengthen the Company’s, HSE culture and to promote positive HSE behaviours:
Despite the reference to industry benchmarks, it is positive to see that the Severity Index has been low, which means the LTI
occurred had a minor severity.
Celebration of the World
Day for Health & Safety at
Work promoted by the ILO
Organisation. Company
employees and subcontractors’
personnel were involved in
different events: for example,
a Mannequin HSE Challenge
was launched in all sites and
at the Moirago-1 Dir site in Italy
and HSE campaign relevant to
Hand Safety (Hands Up Before
Hands On) was carried out in
collaboration with Schlumberger.
In 2016 the Company introduced the use of HSE Observation
Cards. In 2017 this use has been consolidated and positive
behaviour has been highlighted.
An implementation of awareness programme was held at each
site through the regular execution of daily Toolbox Talks, during
which workers’ attention is focused on the main risks potentially
encounterable during the day.
Dedicated HSE Workshops were carried out, both by Italy and Morocco teams, in order to make everybody familiar with the
HSE architecture of the Group HSE Management System and in order to stimulate the active participation, involvement and
commitment of all staff and contractors.
29
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01 MANAGING OUR RISK
AND OPPORTUNITIES
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 managing both risks and
opportunities to the Group.
Definition of Risk
Risk is defined as a potential future event that may influence
the achievement of business objectives. This includes both
“upside” (opportunity) and “downside” (threat) risks. Risks and
opportunities can come from a variety of sources and can be
directly related to the Company operational and commercial
activities and support functions, or they can arise externally:
from third parties such as Joint Venture partners, suppliers,
regulators and competitors; from the economic environment; or
from the political climate.
Risk Management
The Group operates to ensure that risks are identified,
understood, agreed, communicated and acted upon in a timely
and consistent manner. It enables informed resource allocation
and the delivery of expected results by providing a structured
way to foresee the unexpected and be prepared for it. The main
objectives for the Group risk management system are:
• Support the achievement of business objectives and
safeguard Company assets
• Integrate consistent risk management methodology into key
business processes
• Create a risk-aware culture where staff actively identify and
respond to risks and opportunities
• Ensure compliance with legal, regulatory, and ethical
requirements
Identifying Risk and Ownership
Risk management is actively promoted from both a top-
down and bottom-up approach where all individuals in the
organisation are empowered to highlight risks and opportunities
to the business. All agreed risks are allocated to an individual
risk owner with mitigations and actions followed up through
quarterly reporting to the Executive team and biannual
reporting to the Audit Committee. Our principal risks have been
categorised as strategic, operational and financial, although
many risks impact more than one aspect of the business.
Principal Risks at a Glance
Main Risk Movements
Our principal risks
1
Limited diversification
2 Reservoir uncertainty
Commodity price
3
Insufficient funds
Inadequate resourcing to handle workload and
complexity
Changes in regulatory or fiscal regime
t
c
a
p
m
I
Major HSE incident
Development risk
Fraud, bribery and corruption
Currency risk
Loss of key personnel
4
5
6
7
8
9
10
11
30
7
8
3
4
9
6
2
1
5
11
10
s
u
o
i
r
e
S
t
n
a
c
i
f
i
n
g
S
i
e
t
a
r
e
d
o
M
r
o
n
M
i
Unlikely
Possible
Probable
Almost Certain
Likelihood
Risks that are highly likely to occur and could materially impact our ability
to reach our business objectives
Risks that remain at tolerable levels but could impact the business unless
monitored and managed
Risks that are unlikely to materialise and are unlikely to materially impact
our business
Current risks
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU Changes to Risks in the Year:
Several factors have impacted the Company risk register through 2017, including exit from Italy, focus on Morocco and particularly
the progress towards the Horst TE-5 Development project.
Removed or Changed:
Loss of Key Partners
OGIF transaction and seismic funding with Schlumberger demonstrate
strong relationships with our key partners.
Environmental lobbying prevents successful
development of discovered resources
With the focus on Eastern Morocco and engagement with local
organisations.
Exploration risk
As the fundamental focus of the Company this risk has been distilled into the
areas ‘reservoir’ and ‘development’, to key stages in the exploration for new
resources.
Our 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.
Current
ranking
Strategic
1
2
Risk
Impact
Mitigation
Owner
• Ability to operate
• Build strong relationships with
CEO
• Profitability and cash
flow
• Reduce appetite for
investment in the
Company
governments, local authorities, local
population and other stakeholders
• Actively monitor potential legislation
changes
• Unable to recover
investment and
financial loss
• Exploration team bench strength and
experience
Expl
Dir
• Delivery of Eastern Morocco seismic
• Loss of credibility and
programme with Schlumberger
reputation
Limited Diversification
Company operates in
limited jurisdictions may
be significantly adversely
impacted by geopolitical
issues and/or any regime
changes.
Reservoir Uncertainty
Play risk in relation to
basin understanding,
reservoir distribution
and effectiveness.
Hydrocarbon volume
available to charge the
structures in the basin, in
order to deliver 9-17-31
Tcf potential.
31
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01 MANAGING OUR RISK AND
OPPORTUNITIES CONTINUED
Current
ranking
Strategic
8
11
Risk
Impact
Mitigation
Owner
Development Risk
The Company fails
to locate and explore
hydrocarbons that have
the potential to deliver
commercially.
Loss of Key Personnel
• Ability to operate
• Gate approach to development with
CFO
• Profitability and cash
management oversight
flow
• Use of key contractors to support project
• Loss of credibility and
team
reputation
• Loss of confidence of
retail shareholder base
• Lack of direction and
leadership within the
Company
• Competitive remuneration for key
CEO
Executives benchmarked regularly,
relative to the market
• Depth across the organisation in all key
activities
• Loss of expertise and
• Stock incentives in place
knowledge
• Succession planning
Operational
5
7
Inadequate Resourcing
to Handle Workload and
Complexity
Major HSE Incident
• Errors could lead to
• Active personnel selection and
Head
of HR
management to meet business needs
• Develop robust processes and
procedures and embed throughout
organisation
operational incident or
financial loss
• Inability to delivery
business objectives in
timely manner
• Loss of life or injury
to personnel (staff,
contractors, third
parties)
• Reputational damage
• Ability to operate
• Exposure to litigation
• Financial and
operational losses
• Highly skilled, qualified and competent
staff. Training provided as required
Mor
MD
• Strong HSE ethic and risk management
system
• High-quality operational management
processes including well design, security,
emergency response plan and change of
control process
• HSE Committee reviews and regular HSE
meetings with Executive leaders and HSE
manager
• Insurance cover
32
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU Current
ranking
Financial
3
4
6
Risk
Impact
Mitigation
Owner
Commodity Price
Gas prices have a material
impact on the return of
the Company, particularly
for Development
economics.
Insufficient Funds
Inability to deliver the
Company’s exploration
and development work
programme.
• Reduction in gas
• Utilise a number of different pricing
CFO
prices reduces asset
valuations
scenarios when determining asset values
and planning
• Reduction in
• Enter into long term price contracts,
commodity prices
reduces appetite
of investors for the
business risks and
availability of funding
• Company cannot
meet the capital
commitments required
to explore and develop
assets
• Company cannot
service and/or repay
its debt
• Business is insolvent
considering oil indexation
• Ensure the business is well-funded with
appropriate mix of debt and equity
• Annual planning process and periodic
forecast updates and sensitivities.
Performance reporting to ensure delivery
CFO
• The projected cash balance is reviewed
on an ongoing basis
• Mitigating actions available to
management, including the delay of
capex and discretionary spending
• Risk is transferred through mechanisms
such farm-in and JV agreements, such
as funding for 2017/18 Schlumberger
seismic programme
• Tailored funding solution to support
development project
Change in Regulatory or
Fiscal Regime
Fiscal pressures on
governments may lead
to unfavourable changes
in regime, particularly
in emerging oil and gas
producing countries.
• Regulatory and
• Build strong relationships with
CFO
tax changes affect
profitability and
operational viability
• Delayed projects and/
or regulatory approvals
whilst changes are
being proposed and
agreed
• Renegotiation with
government and
partners
governments, local authorities, local
population and other stakeholders
• Ensure appropriate local content and that
all stakeholders benefit from operations
• Actively monitor potential legislation
changes
• Work with governments to share good
governance and best practices
33
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comStrategic Report 01 MANAGING OUR RISK AND
OPPORTUNITIES CONTINUED
Current
ranking
Financial
9
10
Risk
Impact
Mitigation
Owner
Fraud, Bribery,
Corruption
The Company, or parties
acting on its behalf,
breach the rules of the
UK Bribery Act 2010 or
equivalent legislation.
Currency 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.
• Prosecution of the
Company and/or
individuals leading
to unlimited fines, jail
sentences
• Ability to operate
• Reputational damage
• Uneconomic contracts
• Anti-bribery policy and training in place
CFO
• Staff required to sign an agreement to
comply with anti-bribery policies
• Ensuring staff are aware of where the
policy can be found
• Vendors and partners made aware of the
Company’s anti-bribery policy
• Strong financial authority controls
• The Company may
• Match transactional currency to currency
CFO
of liabilities
• Actively manage cash balances
by currency with view to forward
requirements
• Ensure significant contracts are
denominated in currencies where the
Company can mitigate exchange rate risk
• Monitor exchange rate movements and
take advantage of events and political
news to obtain favourable rates
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
• MAD is a controlled
currency limiting
hedging opportunities
34
Pictured:
Seismic planning and analysis
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU www.soundenergyplc.com
02
Governance
GOVERNANCE
Leadership
– Overview
– The Team
Effectiveness
– Board activities
– Shareholder relations
Accountability
– Health and Safety Committee
– Audit Committee
– Remuneration and
Nominations Committee
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’
Responsibilities
Independent Auditor’s Report
36
37
39
41
42
43
44
45
50
52
53
35
25655.04
4 April 2018 1:15 PM
Proof 26
OVERVIEW
Leadership
Sound Energy’s success is fundamentally linked to good
governance and we remain committed to achieving high
standards in all we do. Our business and processes are aligned
around a robust governance framework. We support the
principles and recommendations of the Corporate Governance
Code for Small and Mid-Size Quoted Companies published
by the Quoted Company Alliance (“QCA Guidelines”) and are
committed to applying these principles as far as practicable,
having regard to the current size and structure of the Company,
and the requirements of the AIM market of the London Stock
Exchange.
As the Company grows, the Directors are developing policies
and procedures in line with the QCA Guidelines where
appropriate and these policies and procedures are monitored
on a regular basis. The Directors will continue to comply with
the relevant requirements of the QCA Guidelines to the extent
that they consider it appropriate for the current business.
While building a strong governance framework we also try to
ensure that we take a proportionate approach and that our
processes remain fit for purpose as well as embedded within
the culture of our organisation. We continue to evolve our
approach and make ongoing improvements as part of building
a successful and sustainable company.
Good governance provides a framework that allows the right
decisions to be taken by the right people at the right time.
Shareholders and other stakeholders
Board
Set strategy and deliver value to shareholders
Review performance against plan
Board reserved matters: policy risk
Health and
Safety Committee
The Health and Safety Committee is
primarily focused on ensuring that the
HSE policies are adopted and applied
across the Group.
Remuneration and
Nominations Committee
The Remuneration and Nominations
Committee is responsible for all
material elements of remuneration
policy, including Directors’
remuneration and assessing Directors’
performance. It is also responsible for
Board recruitment and succession
planning, ensuring that the right skill
sets are present in the Boardroom.
Audit
Committee
The main responsibilities of the Audit
Committee are to monitor the integrity
of the Company’s financial statements
and other formal announcements
relating to the Company’s financial
performance. The Committee ensures
that the Company has effective risk
management and appropriate internal
controls in place. The responsibility
for the enforcement of the Company’s
code of conduct, and the adequacy
and security of the anti-bribery and
corruption policy also rests with the
Audit Committee.
Executive Committee
The Executive Team supports CEO and Board decision-making, particularly around
assurance at project decision gates and new business opportunities. The Executive Team
is accountable for implementation of the strategy, the performance of the business, and
designing and implementing the culture and tone of the organisation.
36
Execution and Delivery
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU THE TEAM
THE TEAM
Leadership
Leadership
Governance
Leadership
Directors and Executives
James Parsons
Chief Executive Officer
(Executive Director)
Appointed to Board
October 2012
Background
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.
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 left Shell to join Inter
Pipeline Fund), James held
various positions in Shell’s
exploration and production
business, latterly as Vice
President, Finance, of New
Business. James joined Sound
Energy as CFO in 2011 from
the European division of Inter
Pipeline Fund, where he held
the position of Finance and
Corporate Development Director
of Inter Pipeline Europe.
James is a qualified accountant
and has a BA Hons in Business
Administration.
Current external
commitments
Chairman (Non-executive) Echo
Energy PLC, Chairman (Non-
executive) Coro Energy PLC.
Richard Liddell
Chairman
(Non-executive)
Marco Fumagalli
Director
(Non-executive)
Brian Mitchener
Exploration Director
(Executive Director)
A R H
A R
H
Appointed to Board
September 2015
Appointed Chairman
January 2018
Background
Richard Liddell joined the Board
as a Non-executive Director in
September 2015, taking on the
role of Non-executive Chairman in
January 2018. 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.
Richard has a BSc in Electrical
Engineering.
Current external
commitments
Founder and Executive Chairman
Clara Petroleum Ltd
Executive Director – Spinnaker
Opportunities plc.
Appointed to Board
July 2014
Appointed to Board
June 2017
Background
Brian Mitchener has over 36
years’ experience in Oil & Gas
exploration including as Regional
General Manager Exploration at
BG, Vice President International
Exploration for Africa at Statoil
and 22 years with BP Exploration.
Brian is a Chartered Geologist,
and a past President of the
Petroleum Group of the
Geological Society.
Current external
commitments
None
Background
Marco Fumagalli joined Sound
Energy as a Non-executive
Director in July 2014. Marco is
Founding Partner at Continental
Investment Partners SA, a Swiss
based investment firm and
cornerstone shareholder in Sound
Energy. He 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.
Current external
commitments
Director (Non-executive) Echo
Energy PLC, Director (Non-
executive) Coro Energy PLC
Director of Continental Groups of
companies.
Key:
A Audit Committee
R Remuneration Committee
H Health and Safety
Committee
37
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.com02 THE TEAM
Leadership
JJ Traynor
Chief Financial Officer
Mohammed Seghiri
Managing Director, Morocco
Background
JJ Traynor joined Sound Energy in September
2018 has over 28 years’ experience in the
Oil & Gas and financial markets, including as
Executive Vice President of Investor Relations
at Shell, Managing Director of the number one
ranked Oil & Gas research team at Deutsche
Bank and as an Exploration Geologist at BP.
JJ has a First Class honours degree in
Geology and a PhD in Geology from
Cambridge University.
To be appointed to the Board.
Background
Mohammed Seghiri has over 18 years’
experience leading complex European and
African projects across different sectors,
including Gas Storage, Oil & Gas Exploration,
Telecom, Real Estate and Power Production.
He was Managing Director at Advisory &
Finance Group, a Morocco-based investment
bank where he led, amongst other projects,
the financing and construction of the first coal
to power plant in Senegal. Mohammed joined
Sound Energy from OGIF where he was a
Managing Partner.
Mohammed is a graduate from the School of
Mines in Nancy, France (one of the top ten
engineering schools in France).
38
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU BOARD
ACTIVITIES
Effectiveness
The Board
The Board is responsible for the long-term
success of the Group and retains ultimate
accountability for strategy, risk management,
performance and governance. It is responsible
for ensuring that its obligations to its
shareholders and other stakeholders, including
employees, host governments, suppliers,
customers and the community, are understood
and met as well as being responsible for the
Group’s values and standards.
The roles of Chairman and Chief Executive
Officer are split in accordance with best
practice. The Non-executive Chairman,
Richard Liddell, has the responsibility of
ensuring that the Board discharges its
responsibilities as per key matters below. He is
responsible for facilitating full and constructive
contributions from each member of the Board
in determination of the Group’s strategy and
overall commercial objectives. The Chief
Executive, James Parsons, leads the business
and the Executive Team, ensuring that strategic
and commercial objectives are met. He is
accountable to the Board for the operational
and financial performance of the business.
Board Composition %
25%
50%
25%
Chairman
Executive Director
Non-Executive Director
The key matters reserved for the Board’s decision are:
• Reviewing the effectiveness of the Board and its Committees
• Approval of the Group’s strategic aims and objectives
• Approval of the Group’s annual operating and capital
expenditure budgets and any material changes to them
• Review of Group performance and ensuring that any
necessary corrective action is taken
• Extension on the Group’s activities into new business or
geographical areas
• Any decision to cease to operate all or any material part of
the Group’s business
• Major changes to the Group’s corporate structure and
management and control structure
• Any changes to the Company’s listing
• Changes to governance and key business policies
• Ensuring maintenance of a sound system of internal control
and risk management
• Approval of half yearly and annual report and accounts and
preliminary announcements of final year results
• Reviewing material contracts and contracts not in the
ordinary course of business
The Board delegates matters not reserved for the Board
concerning the management of the Group’s business to the
Executive Team.
Composition and Independence
The skills and experience of the Non-executive Directors are
wide and varied and they provide constructive challenge in the
Boardroom. The composition and mix of the Board change
during 2017 was reflective of the business need and growth of
the Company:
Role
Non-exec Chairman
Non-exec Directors
Executive Directors
Q1
Q2
Q3
Q4
1
3
1
1
3
2
1
3
2
1
2
2
Addition of Brian Mitchener as Executive Director
It is anticipated that JJ Traynor, CFO, will join the Board as an
Executive Director at a future date.
The Company is currently recruiting two new Non-executive
Directors.
Attendance at Meetings
The following meetings where held during 2017. Key Executives and staff have attended these meetings to present and provide
feedback on actions throughout the year.
Number of meetings
Stephen Whyte (Chairman)*
James Parsons (CFO)
Richard Liddell (Senior Independent Director)
Marco Fumagalli
Brian Mitchener (appointed June 2017)
*Resigned on 23 January 2018
Board
(6 scheduled; 5 ad hoc)
11
11
11
11
10
6
Audit
2
N/A
N/A
N/A
2
N/A
Remuneration and
Nominations
Health and Safety
Committee
2
N/A
N/A
2
2
N/A
6
N/A
N/A
6
N/A
39
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comGovernance 02 BOARD
ACTIVITIES CONTINUED
Effectiveness
What the Board did in 2017
15%
45%
15%
Governance & Risk – 15%
Strategy – 45%
Investor Engagement – 15%
• Board effectiveness workshop
• Completion of OGIF transaction
• Investor events held with
• Manual of authorities reviewed and
• Divestment of Italian assets
updated
• Business development opportunities
• Matters reserved for the Board
considered by the Board
reviewed and updated
• External strategy advisers retained to
• Risk Management Policy and
present and advise to the Board
Register reviewed
• Receive updates from Board
Committees
• Updated from the Group Auditor via
the Audit Committee
• Funding review undertaken
opportunities for shareholders to
speak to Executive Directors in a
formal environment and a more
informal one-to-one
• AGM and General Meeting –
Directors present to answer
shareholders questions
• Q&A sessions with the CEO and
Executive Team
• Considered the AGM proxy figures
• Liaised closely with the Company’s
major shareholders
10%
15%
People, Visions, Values – 10%
Performance Monitoring – 15%
• CEO Scorecard presented and
approved
• Personal development of staff
• Executive Team meetings
• Meetings with staff both in Rabat
and Italy
• Reviewed structure of the
organisation, giving consideration
to the development needs of the
business
• Monthly reports on performance
against targets received by the
Board
• Treasury management updated
• Updates from the Chairman of the
Audit Committee, Remuneration
Committee and HSE Committee
• Approval of full and half year results
• 2016 Annual Report & Accounts
approved
40
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU SHAREHOLDER
RELATIONS
Effectiveness
Governance
Effectiveness
In 2017, the Directors undertook a Board evaluation exercise
with the Institute of Directors (IoD), to consider the effectiveness
of the Board. The evaluation was based on the IoD board
evaluation methodology and covered key areas such as
strategy, performance, corporate culture and risk oversight.
Consideration was given to Board composition, processes
and behaviours. It enabled the Directors to consider the
functioning of the Board, both within the Boardroom and in the
relationships of the Non-executive and Executive Directors. The
findings of the exercise were positive and whilst there is always
room for improvement, the overall indication was that the
Board has performed well during a period of rapid growth for
the Company. In particular, the Board needs to look to build its
representation of Non-executive Directors. This is an area that
the Directors are currently addressing in early 2018.
The Board will look to carry out a similar exercise every few years
to ensure that it continues to function as effectively as possible.
The Board meets every other month, with ad hoc meetings
as and when business demands require. The Agenda is set
with the consultation of both the CEO and Chairman, with
consideration being given to both standing Agenda items and
the strategic and operational needs of the business. Papers
are circulated well in advance of the meetings, giving Directors
ample time to review the documentation and enabling an
effective meeting. Resulting actions are tracked for appropriate
delivery and follow-up.
The CEO and Chairman meet and speak regularly to ensure
alignment between the day-to-day running of the business
and the Board. The Chairman ensures that there is open
communication with the other Non-executive Directors.
The Board enters 2018 looking forward to building further on
the governance structure already in place. Ongoing review of
the functioning of the Board and ensuring that the highest level
of governance is maintained whilst being mindful of the size and
stage of development of the Company.
Communications with Shareholders
2017 Review
• Shareholder visits to Badile (Italy), Tendrara and Sidi
Moktar (Morocco) locations by over 200 investors
• Annual AGM held 23 May 2017
• Annual investor engagement meeting on 5 October
2017 in London, attended by over 400 shareholders
• Implementation of online Q&A sessions with CEO and
Executive Team in Q4 2017, with over 450 questions
answered over the sessions to date
2018 Look Forward
• Regional meetings initiated with first meeting planned for
Chester in March 2018
• Further site visit in the second half of the year
• Regular Q&A sessions throughout the year
The Company has a strong reputation of active and transparent
communication with its shareholders. It regularly offers
opportunities for the private investor to attend events and meet
Executive Management, as well as offering opportunities for all
interested shareholders to see its operations at work. It uses its
website and social media as key communication tools to reach
its wide private investor audience. In addition, cornerstone
investors have Board representation, further helping to align
Executive Management and shareholder interests. The
Executive Team regularly meets with present and prospective
institutional investors. At the Company’s Annual General
Meetings, all Directors are available to respond to questions
from shareholders present. The Annual General Meeting
provides a forum for constructive communication between the
Board and shareholders.
Pictured:
Investor engagement session in Morocco
41
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.com02 HEALTH AND
SAFETY COMMITTEE
Accountability
Health and Safety (HSE) Committee Activities
The Committee consists of Richard Liddell, Brian Mitchener
and three of the Executive Management: Luca Madeddu,
Leonardo Salvadori and Leonardo Spicci. Mr Liddell chairs the
Committee, which is primarily focused on ensuring that the
HSE policies are adopted and applied across the Group. In
2017, the Committee held six meetings and a full report on its
activities, the Health and Safety Review, can be found on pages
28 to 29.
Richard Liddell
Chairman of the Health and Safety Committee
2017 Review
• HSE Focus Group established which reports back
to the HSE Committee
• Completion of HSE management system
• Crisis management, a number of staged drills
carried out
2018 Look Forward
• Ensure HSE policy and procedures remain effective
given the exit from Italy and focus on Morocco
exploration activities
• Ensure HSE management system and resources are in
place for Tendrara Development project post sanction
• Carry out an audit of the HSE management system
to ensure it conforms with the requirements of
management
• Carry out further staged drills
42
Pictured:
Earthworks, Morocco
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU AUDIT
COMMITTEE
Accountability
Audit Committee Activities
Marco Fumagalli
Chairman of the Audit Committee
2017 Review
• Approved full year and interim accounts; including
key judgements and policies to ensure they are fair,
balanced and understandable for our shareholders
• Reviewed and recommended the reappointment of our
external Auditor Crowe Clark Whitehill LLP, including fee
structure
• Update to our risk framework from policy to
implementation (see pages 30 to 34)
• Tender and selection of new insurance broker, Alesco,
owned by Arthur J Gallagher
• Comprehensive review of the existing Group Manual of
Authorities
2018 Look Forward
• Review and update existing Company control
framework in light of exit from Italy and increased
exploration activity levels in Morocco
• In line with business priorities for the year, complement
existing internal resources with fit for purpose internal
audit support through external providers
• Ensure that risk management processes and
appropriate controls required to support Tendrara
development project post sanction are in place and
operational
Governance
Accountability
The Audit Committee is comprised of Marco Fumagalli
(Chairman), and Stephen Whyte (subsequently replaced by
Richard Liddell).
Audit Committee
The main responsibilities of the Audit Committee are to monitor
the integrity of the Company’s financial statements and other
formal announcements relating to the Company’s financial
performance. The Committee approves the risk management
policy, strategic risks and mitigation actions allocated to
the Executive Team. Follow-up and review is undertaken
throughout the year to ensure effective risk management and
appropriate internal controls are in place. The responsibility for
the enforcement of the Company’s code of conduct, and the
adequacy and security of the anti-bribery and corruption policy
also rests with the Audit Committee.
Financial and Business Reporting
The Board is responsible for presenting a fair, balanced and
understandable assessment of the Group’s position and
prospects. The statement setting out the reasons why the
Board continues to adopt the going concern basis for preparing
the financial statements is included in the Directors’ Report on
page 50.
Risk and Controls
The Board, through the Audit Committee, is responsible for
determining the nature and extent of the significant risks that
the Group is willing to take in achieving its strategic objectives
and for maintaining sound risk management and internal control
procedures. The Group’s internal control system is designed to
manage the risk of failure to achieve business objectives, rather
than to eliminate that risk. Such systems can only provide
reasonable, and not absolute, assurance against material
misstatement or loss. A summary of our approach and strategic
risks is covered in detail on page 30.
Conflicts of Interest
Under the Companies Act 2006, a Director must avoid a
situation where a direct or an indirect conflict of interest may
occur. The Company has in place procedures to deal with any
situation where a conflict may be perceived.
43
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.com02 REMUNERATION AND
NOMINATIONS COMMITTEE
Accountability
Remuneration and Nominations Committee Activities
The Remuneration and Nominations Committee is comprised of
Richard Liddell (Chairman), and Marco Fumagalli.
Remuneration and Nominations Committee
The Remuneration and Nominations Committee is responsible
for all material elements of remuneration policy, including
Directors’ remuneration and assessing Directors’ performance.
It is also responsible for Board recruitment and succession
planning, ensuring that the right skill sets are present in the
Boardroom at each stage of the Company’s evolution.
Pictured:
Saipem operative, Morocco
Richard Liddell
Chairman of the Remuneration
and Nominations Committee
2017 Review
• Review of the Directors’ remuneration policy, including
any shareholding requirements
• Review of pay and benefits for CEO and Executive
Directors’ ensuring packages are competitive and fairly
and responsibly reward contributions
• Assessment of performance targets and outcome
against annual bonus targets for CEO and other
Executive Directors
• Determining the award of share options under the
incentive schemes
• Selection and appointment of new CFO, JJ Traynor,
who commenced in September 2017
2018 Look Forward
• Ensure Board and organisation remains fit for purpose
for business activities including exploration and
development activities for Tendrara development
• Consideration of the composition of the Board
• Ongoing monitoring of pay and benefits of CEO and
Executive Directors
• Approval of performance targets for CEO
• Approval of Restricted Stock Units (RSU) and
performance criteria
44
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU DIRECTORS’
REMUNERATION REPORT
The Committee and the wider Board recognise the importance
of attracting, retaining and motivating talent within the Board
and wider Executive Team to continue the successful growth
of the Group as Sound Energy pursues its strategy to deliver
high-impact exploration and development opportunities, to
leverage strategic partnerships and to add further opportunities
through acquisition. As Sound Energy continues to grow, the
Company’s remuneration policy and framework is evolving to
ensure that Directors and Executives are rewarded for achieving
strategic targets and creating value for shareholders. We
are creating a remuneration framework that is appropriately
aligned, both to our business and to the interests and current
expectations of our shareholders. The Committee also wanted
to ensure that the policy was capable of satisfying investor
preferences for simplicity and transparency.
Principles For Executive Remuneration
The main principles of the senior Executive remuneration policy
are set out below:
• Attract and retain high-calibre Executives in a competitive
international market, and remunerate Executives fairly and
responsibly
• Motivate delivery of our key business strategies and
encourage a strong performance-oriented culture
• Reward achievement over the short and long term
• Support both near-term and long-term success and
sustainable shareholder value
• Align the business strategy and achievement of planned
business objectives
• Be compatible with the Company’s risk policies and systems
• Ensure that a significant proportion of remuneration is
performance-related
• Take into consideration the views of shareholders and best
practice guidelines
Fixed remuneration comprises salary, pension and benefits.
Variable pay includes annual bonus and LTIP awards. Together,
fixed and variable remuneration comprise total remuneration
for Senior Executives. The Committee recognises that it
may be necessary on occasion to use its discretion to make
remuneration decisions outside the standard remuneration
policy, such as agreeing a sign-on payment, to attract and
retain talent.
Purpose
Salary
Operation
Maximum Opportunity
Performance Measures
Attract and retain the right calibre
of staff required to support
the long-term success of the
business.
Determined by reference to
market data.
Reflects individual experience,
skills and role.
Provide the basis for a
competitive remuneration
package.
Paid monthly.
Reviewed annually.
None, although overall
performance of the
individual is considered
when setting and
reviewing salaries
annually.
Increases will be made
at the discretion of the
Committee, or for Non-
executive Directors, the
CEO, considering:
• increase in responsibility,
particularly as the
Company grows and
expands
• development and
performance in the role
• alignment to market level
Pension
Provide a level of pension
provision which is compliant
with regulation and allows staff
to build long-term retirement
savings.
Defined contribution based on a
percentage of salary.
Executives may elect to take
part of their pension contribution
as salary.
4% of base salary.
No element other than
salary is pensionable.
None. Pension
contribution is set at
commencement of an
individual’s contract.
45
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comGovernance 02 DIRECTORS’ REMUNERATION
REPORT CONTINUED
Purpose
Benefits
Operation
Maximum Opportunity
Performance Measures
Protect against risks and provide
other benefits reflecting the
international aspects of roles.
Private medical and dental
insurance in the UK, permanent
health insurance and life
assurance cover.
Set at a level which provides
a sufficient level of benefit.
None
The value of any annual
bonus is limited to a
percentage of salary.
Performance is
assessed using
specific metrics set
by the Remuneration
and Nominations
Committee, including
the delivery of the
Company Scorecard
and the share price
performance.
Awards are made at market
price at the date of grant
and are discretionary.
Awards vest based
on share price
performance.
Awarded annually.
Alternative or additional
criteria may be used
to determine future
rewards.
Individual Executive bonus
is based on performance
measured against Group and
personal objectives.
Performance measures are both
quantitative and qualitative, and
both financial and non-financial.
Bonus awards are made by the
Committee and awards are paid
in cash.
LTIP awards are made by
the Committee for the CEO
and for Executives by the
Committee based on CEO
recommendations.
Awards vest three years after
the date of the award, subject
to achievement of performance
criteria. At vesting, the LTIP
awards are satisfied in Sound
Energy shares.
Awards will typically lapse on
termination of employment,
although the Committee may
determine that awards may vest
after termination of employment,
in accordance with the plan
rules and taking into account
performance during the date of
grant and date of termination of
employment.
In the event of a change of
control of the Company, awards
shall vest and be exercisable.
Annual Bonus
Provide a direct link between
measurable individual
performance and rewards.
Encourage the achievement of
outstanding results aligned to
Group strategy and achievement
of business objectives.
Long-Term Incentive Plan (LTIP)
Reward execution of Group
strategy and growth in
shareholder value over a multiple-
year period.
Long-term performance
measurement discourages
excessive risk-taking and
inappropriate short-term
behaviours, and also aligns
Executive interests with those of
shareholders.
The LTIP is designed to retain
Senior Executives over the
performance period of the
awards.
In order to better meet the LTIP
objectives, the Board determined
in January 2018 that the existing
Share Option Plan be replaced
with a Restricted Stock Unit (RSU)
Plan. The RSU awards will be
made on an annual basis, with a
three-year vesting period, and at
vesting the awards will be satisfied
in Sound Energy shares. First
award to occur in 2018 and first
vesting to occur in January 2021.
46
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU Purpose
Operation
Maximum Opportunity
Performance Measures
Chairman and Non-executive Director Fees
Provide an appropriate reward
to attract and retain high calibre
individuals.
Neither the Chairman nor any
of the Non-executive Directors
are entitled to a bonus or
benefits and their fees are not
performance-related.
The fee for the Chairman and
Non-executive Directors reflects
the level of commitment and
responsibility of the role.
The fee is paid monthly in cash
and is inclusive of all Committee
roles. There is a fee for the role
of Senior Independent Director.
Benchmarked externally
from time to time as
appropriate.
Set at a level which reflects
the commitment and
contribution expected from
the Chairman and Non-
executive Directors, and
is appropriately positioned
against comparable roles in
companies of a similar size
and complexity.
Actual fee levels are
disclosed in the Directors’
Annual Remuneration
Report for the relevant
financial year.
Recruitment Remuneration Arrangements
When recruiting a new Executive Director, whether from within
the organisation or externally, the Committee will take into
consideration all relevant factors to ensure that remuneration
arrangements are in the best interests of the Company and its
shareholders without paying more than is necessary to recruit
an Executive of the required calibre. The Committee will seek to
align the remuneration package offered with the remuneration
policy outlined above, but retains discretion to make proposals
on hiring which are outside the standard policy.
Director Shareholding Guidelines
From 2017 and applicable to future LTIP awards, the
Committee has introduced new guidelines regarding Director
and Senior Executive shareholdering requirements. All Executive
Directors and Senior Executives are expected to build up over
a reasonable period from appointment, and hold, a minimum
level of shareholding in the Company equal to one year’s salary,
with the CEO expected to build up a holding of 200% of base
salary. Transitional provisions have been introduced with each
Executive having three years to build up the requisite holding.
The minimum level of shareholding is intended to be a pre-
requisite for further LTIP awards. This is considered an effective
way to align the interests of the Executive Management and
shareholders over the long term.
Executive Director Service Contracts and Termination
Payments
The CEO and the Exploration Director have service contracts
which entitles them to the fixed elements of remuneration and
to consideration for variable remuneration each year. Their
contracts are terminable by the Company on not more than six
months’ written notice.
External Appointments
It has been expressly agreed, which is reflected in his contract
of employment, that the CEO can take the position of Non-
executive Director or Non-executive Chairman in another
listed company provided that (i) the company is not in direct
or indirect competition with the business of Sound Energy
plc and/or any Group company and that (ii) the position and
corresponding duties and obligations do not reduce in any
manner his ability to fulfil his duties and obligations under his
employment contract with Sound Energy. It is the Company’s
policy that remuneration earned from any such appointment
may be retained by the individual.
Remuneration Policy for the Chairman and Non-executive
Directors
The Chairman and other Non-executive Directors are
appointed under a letter of appointment with a notice period for
termination of three months. The letters of appointment cover
such matters as duties, time commitment and other business
interests.
Loss of Office and Change of Control Provisions
In the event of a change of control of the Company, the CEO
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 sum equivalent to 12
months’ salary.
All of the Company’s current share plans contain provisions
relating to a change of control. On a change of control,
outstanding awards would normally vest and become
exercisable, subject to the satisfaction of any performance
conditions at that time.
47
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comGovernance 02 DIRECTORS’ REMUNERATION
REPORT CONTINUED
Summary Of Actual Remuneration Of Directors
Executive Directors
James Parsons(i)
Brian Mitchener(i) (ii)
Non-executive Directors and Chairman
Stephen Whyte
Marco Fumagalli
Richard Liddell
Simon Davies
Total for all Directors
(i)
Includes pension contribution of 4%.
2017
Performance
Award
£’000s
Salary
£’000s
Medical
Insurance
£’000s
Total
2017
£’000s
394
148
94
50
55
–
741
152
46
–
–
–
–
198
3
1
–
–
–
–
4
549
195
94
50
55
–
943
Total
2016
£’000s
1,092
–
60
45
45
30
1,272
(ii) Appointed Director from 21 June 2017. Remuneration disclosed is from the date of the appointment.
Share Options
James Parsons
Brian Mitchener
Stephen Whyte
Marco Fumagalli
Richard Liddell
Date of
Grant
19.06.14
25.09.15
23.03.16
07.10.16
25.01.17
08.08.16
08.08.16
08.08.16
Exercisable Date
29.07.17 – 29.07.19
25.09.18 – 25.09.20
23.03.19 – 23.03.21
07.10.19 – 07.10.21
25.01.20 – 25.01.22
08.08.19 – 08.08.21
08.08.19 – 08.08.21
08.08.19 – 08.08.21
Acquisition Price
per share (pence)
8.00
14.25
16.00
84.00
67.00
60.00
60.00
60.00
Options held at
1 January 2017
3,350,000
1,250,000
3,000,000
1,500,000
–
1,000,000
250,000
250,000
Options held at
31 December 2017
–
1,250,000
3,000,000
1,500,000
1,500,000
1,000,000
250,000
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 2017 option coverage is approximately 3.3% of issued share capital. Over the long term, the Board wishes to move
towards the 10% approved cap.
During 2017, James Parsons exercised a total of 3.35 million options at an exercise price of 8.0 pence per option. The share price
at the date of exercise was 48.15 pence and the calculated gain on the options at the date of exercise was £1,345,025.
In order to better meet the LTIP objectives, the Board determined in January 2018 that the existing Share Option Plan be replaced
with a RSU Plan. The RSU awards will be made on an annual basis, with a three-year vesting period, and at vesting the awards will
be satisfied in Sound Energy shares. First award to occur in 2018 and first vesting to occur in January 2021.
48
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU Directors’ Shareholdings and Interests in Shares
The Directors who held office at the end of the financial
year had the following interests in the ordinary shares of the
Company:
Directors and connected persons
James Parsons
Richard Liddell
Brian Mitchener
Marco Fumagalli
(Continental Investment Partners)
Steve Whyte
Nicola Whyte
No. of
Shares
3,192,283
100,000
–
66,417,162
141,786
24,171
Movements in Share Price During the Year
The mid-market price of the Company’s shares at the end of
the financial year was 51p and the range of mid-market prices
during the year was between 40p and 94p.
Advice Received by the Committee
The Committee has access to advice when it considers
appropriate. In the year ended 31 December 2017, the
Committee received advice relating to specific Executive
compensation from Mercer who were paid £6,500 (excluding
VAT).
This Remuneration Report was approved by a duly authorised
Committee of the Board of Directors on 21 March 2018 and
signed on its behalf by:
Richard Liddell
Chairman
21 March 2018
49
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comGovernance 02 Political Donations
No political donations were made during the year (2016: £Nil).
Takeover Directive
The Company has only one class of ordinary share and these
shares have equal voting rights. The nature of individual
Directors’ holdings is disclosed on page 49.
Board of Directors
The names of the present Directors and their biographical
details are shown on page 37.
The Directors who served during the year were as follows:
Stephen Whyte
James Parsons
Richard Liddell
Marco Fumagalli
Brian Mitchener
None of the Directors had any interest during or at the end
of the year in any contract of significance in relation to the
business of the Company or its subsidiary undertakings.
Full details of the interests in the ordinary share capital of the
Company of those Directors holding office on 31 December
2017, are set out in the Directors’ Remuneration Report.
Powers Given to Directors
The powers given to the Directors are contained in the
Articles of Association (the Articles) and are subject to relevant
legislation and, in certain circumstances (including in relation
to the issuing or buying back by the Company of its ordinary
shares), subject to authority being given to the Directors by
shareholders in general meeting. The Articles also govern
the appointment and replacement of Directors. The Articles,
which may only be amended with shareholders’ approval in
accordance with relevant legislation, can be found on our
website.
DIRECTORS’
REPORT
Other Disclosures
Pages 37 to 51 inclusive (together with sections of the Annual
Report incorporated by reference) constitute a Directors’
Report that has been drawn up and presented in accordance
with applicable English company law and the liabilities of the
Directors in connection with that report are subject to the
limitations and restrictions provided by that law.
Principal Activities and Business Review
Sound Energy plc is the holding company for a group of
companies whose principal activities are the exploration,
appraisal and development of oil and gas assets to first
production and the operation of producing assets. With the sale
of Italian assets, anticipated to complete in 2018, the Group’s
current principal area of activity is Morocco. A review of the
performance and future development of the Group’s business is
contained on pages 3 to 34 and forms part of this report.
Results and Dividends
The loss for the year before tax was £34.2 million (2016: £15.2
million). The Directors do not recommend the payment of a
dividend.
Going Concern
In presenting the annual and interim financial statements,
the Directors aim to present a balanced and understandable
assessment of the Group’s position and prospects. After
making enquiries, the Directors have a reasonable expectation
that the Group has adequate resources to continue in
operational existence for the foreseeable. As at 31 December
2017, the Group had £21.2 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 using both the available cash resources
and funding from partners in the main strategic licences, and
therefore, the Group continues to adopt the going concern
basis in preparing the financial statements.
Auditor
So far as each Director is aware, there is no relevant audit
information of which the Company’s Auditor is unaware. Each
Director has taken all the steps that they ought to have taken
as a Director in order to make themselves aware of any relevant
audit information and to establish that the Company’s Auditor is
aware of that information.
The Auditor, Crowe Clark Whitehill LLP, has indicated its
willingness to continue in office and a resolution that they be
reappointed will be proposed at the Annual General Meeting.
50
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU Indemnities
Insurance cover also remains in place to protect all Directors
and senior management in the event of a claim being brought
against them in their capacity as Directors or officers of the
Company and its subsidiaries.
Share Capital
At 31 December 2017, the Company had 1,015,869,699
ordinary shares in issue as shown in note 17 to the consolidated
financial statements. There are no restrictions on the transfer of
the Company’s ordinary shares other than certain restrictions
which may be imposed by law, for example, insider trading
law and the Company’s share dealing code. Each ordinary
share carries the right to one vote at General Meetings of the
Company. No person has any special rights of control over the
Company’s share capital and all issued shares are fully paid.
Substantial Shareholdings
The Company was advised of the following significant direct
and indirect interests in the issued ordinary share capital of the
Company as at 31 December 2017 and up to the date of this
report.
Continental Investment Partners
(Metano Capital S.A. & Greenberry S.A.)
Oil & Gas Investment Partners (OGIF)
66,417,162
share interest
272,000,000 share
interest
Financial Instruments
The information relating to the Group’s financial assets and
its financial risk management can be found in note 19 to the
consolidated financial statements.
Subsequent Events
See note 26 on page 89.
By order of the Board
Richard Liddell
Chairman
21 March 2018
51
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comGovernance 02 STATEMENT OF DIRECTORS’
RESPONSIBILITIES
They are further responsible for ensuring that the Strategic
Report and the Directors’ Report and other information included
in the Annual Report and financial statements is prepared in
accordance with applicable law in the United Kingdom.
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 the consideration of these matters
and, accordingly, the Auditor accepts no responsibility for any
changes that may have occurred in the accounts since they
were initially presented on the website.
Legislation in the United Kingdom governing the preparation
and dissemination of financial statements and other information
included in the Annual Report may differ from legislation in other
jurisdictions.
James Parsons
Chief Executive Officer
21 March 2018
The Directors are responsible for preparing the Strategic
Report, 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.
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.
52
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU INDEPENDENT
AUDITOR’S REPORT
Opinion
We have audited the financial statements of Sound Energy plc
(the “Parent Company”) and its subsidiaries (the “Group”) for
the year ended 31 December 2017, which comprise:
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which ISAs (UK) require us to report to you when:
• the Directors’ use of the going concern basis of accounting
• the Consolidated statement of comprehensive income for
the year ended 31 December 2017;
in the preparation of the financial statements is not
appropriate; or
• the Consolidated balance sheet and Company balance
sheet as at 31 December 2017;
• the Consolidated cash flow statement and Company cash
flow statement for the year then ended;
• the Group and Company statements of changes in equity for
the year then ended; and
• the notes to the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and of the Company’s affairs as at 31
December 2017 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 IFRSs 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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the
Group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
• the Directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Group’s or the parent Company’s ability to
continue to adopt the going concern basis of accounting for
a period of at least twelve months from the date when the
financial statements are authorised for issue.
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept of
materiality. An item is considered material if it could reasonably
be expected to change the economic decisions of a user of the
financial statements. We used the concept of materiality to both
focus our testing and to evaluate the impact of misstatements
identified.
Based on our professional judgement, we determined overall
materiality for the Group financial statements as a whole to be
£1.4m, based approximately 0.8% of net assets.
We use a different level of materiality (‘performance materiality’)
to determine the extent of our testing for the audit of the
financial statements. Performance materiality is set based on
the audit materiality as adjusted for the judgements made as
to the entity risk and our evaluation of the specific risk of each
audit area having regard to the internal control environment.
Where considered appropriate performance materiality may be
reduced to a lower level, such as, for related party transactions
and Directors’ remuneration.
We agreed with the Audit Committee to report to it all identified
errors in excess of £50,000. Errors below that threshold would
also be reported to it if, in our opinion as Auditor, disclosure
was required on qualitative grounds.
Overview of the scope of our audit
The head office of the Group is located in the UK which has
an accounting function for group reporting as well as the head
office costs and certain exploration activities. Our audit was
conducted from this location.
The Group also has a significant component, which was
included as a disposal group at 31 December 2017 based
in Italy. A member firm of the Crowe Horwath International
network undertook the audit in Italy under our instruction. Key
audit risks were communicated to them at the planning stage
and audit findings and underlying audit working papers were
reviewed as part of our work.
53
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comGovernance 02 INDEPENDENT AUDITOR’S
REPORT CONTINUED
The Group also has operations in Morocco which has a
separate accounting function. A senior member of the audit
team visited Morocco in order to assess the accounting systems
operating locally and to perform the required audit work.
the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing
This is not a complete list of all risks identified by our audit.
Key audit matter
How the scope of our audit addressed the key audit matter
Impairment of exploration assets
The group’s primary focus is on exploration activities in
Eastern and Southern Morocco. Exploration expenditure
in the current year totalled £150.5m which includes the
£138.8m transaction relating to the acquisition of OGIF’s
interests in the Tendrara, Anoual and Martaka licences
We considered the risk that exploration assets are
impaired.
Classification and valuation of the disposal group.
On 5 October the Company announced that it had entered
into a non-binding conditional heads of terms with Saffron
Energy plc to dispose of its Italian interests through the
disposal of 100% of the share capital of Sound Energy
Holdings Italy Limited, who in turn hold 100% of the issued
share capital of Apennine Energy Spa.
The classification of this as a disposal group has a material
impact on the presentation of these financial statements.
We reviewed management’s assessment which concluded that there
are no facts or circumstances that suggest the recoverable amount of
the asset exceeds the carrying amount.
In considering this assessment we reviewed the following sources of
evidence:
• Board minutes, budgets and other operational plans setting out
the Group’s current plans for the continued commercial appraisal
of each exploration asset;
• Reviewing current well and licence reserves appraisals; and
• Discussing plans and intentions with management
The Italian interests can only be accounted for as a disposal group in
the event that, at the year end, management is committed to a plan
to sell, the assets were available for sale and a sale is highly probable.
We evidenced this by examining board minutes, market news
announcements and agreements with the potential acquirer.
In addition we carried out tests to compare the carrying value of the
disposal group to the fair value less costs to sell to establish whether
any impairment charge was required.
Management override of controls
Our work focused on the following areas:
The Group operates out of a number of different
geographical locations. We considered the risk that
material weaknesses exist in relation to controls over
financial controls and processes.
• Considering the appropriateness of estimates and judgements to
external evidence
• Reviewing journal transactions
• Assessing the control environment in Morocco given its
recent establishment and geographical distance from central
management
Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not
designed to enable us to express an opinion on these matters individually and we express no such opinion.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual
report, other than the financial statements and our Auditor’s report thereon. Our opinion on the financial statements does not
54
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Opinion on other matter prescribed by the Companies Act
2006
In our opinion based on the work undertaken in the course of
our audit:
• 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; and
• the strategic report and directors’ report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the group
and the parent Company and their environment obtained
in the course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
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.
Responsibilities of the Directors for the financial
statements
As explained more fully in the Directors’ responsibilities
statement set out on page 52, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and parent Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to
liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an Auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our Auditor’s report.
Use of our report
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.
Matthew Stallabrass (Senior Statutory Auditor)
for and on behalf of
Crowe Clark Whitehill LLP
Statutory Auditor
London
21 March 2018
55
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comGovernance 02 Sound Energy plc Annual Report for the year ended 31 December 2017
Stock code: SOU
56
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.com
03
Financial Statements
FINANCIAL
STATEMENTS
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Group and Company
Statements of Changes in Equity
Consolidated Cash Flow
Statement
Company Cash Flow Statement
Notes to the Financial
Statements
58
59
60
61
62
63
64 – 89
57
25655.04
4 April 2018 1:15 PM
Proof 26
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
for the year ended 31 December 2017
Continuing operations
Revenue
Other income
Gross loss
Administrative expenses
Group operating loss from continuing operations
Finance revenue
Foreign exchange (loss)/gain
Other gains and (losses)
– derivative financial instruments
External interest costs
Loss for the year from continuing operations before taxation
Tax credit/(expense)
Loss for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations
Total loss for the year
Other comprehensive (loss)/income
Items that may subsequently be reclassified to the profit and loss account
Foreign currency translation (loss)/gain
Total comprehensive loss for the year
Loss for the year attributable to:
Owners of the company
Non-controlling interests
Basic and diluted loss per share for the year from continuing and discontinued
operations
Attributable to the equity shareholders of the parent (pence)
Basic and diluted loss per share for the year from continuing operations
Attributable to the equity shareholders of the parent (pence)
Notes
2017
£’000s
2016
£’000s
–
–
–
(8,458)
(8,458)
23
(914)
(1,873)
(1,117)
(12,339)
–
(12,339)
–
715
715
(4,246)
(3,531)
96
1,844
583
(3,697)
(4,705)
–
(4,705)
(21,811)
(34,150)
(8,734)
(13,439)
(5,361)
(39,511)
(39,511)
–
2017
Pence
(4.28)
(4.28)
(1.54)
(1.54)
375
(13,064)
(13,064)
–
2016
Pence
(2.52)
(2.52)
(0.88)
(0.88)
3
6
21
24
7
25
Notes
8
8
8
8
58
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
CONSOLIDATED
BALANCE SHEET
as at 31 December 2017
Non-current assets
Property, plant and equipment
Intangible assets
Land and buildings
Current assets
Inventories
Other receivables
Derivative financial instruments
Prepayments
Cash and short term deposits
Assets of disposal group held for sale
Total assets
Current liabilities
Trade and other payables
Loans repayable in under one year
Liabilities of disposal group held for sale
Non-current liabilities
Deferred tax liabilities
Loans due in over one year
Provisions
Total liabilities
Net assets
Capital and reserves
Share capital and share premium
Shares to be issued
Warrant reserve
Foreign currency reserve
Accumulated deficit
Total equity
Notes
2017
£’000s
2016
£’000s
9
10
12
21
13
25
14
24
25
15
24
16
17
372
163,939
–
164,311
628
3,526
80
117
21,198
25,549
12,292
202,152
6,601
–
6,601
4,492
–
18,566
–
18,566
29,659
172,493
287,829
–
4,090
(3,918)
(115,508)
172,493
1,729
28,060
1,535
31,324
331
8,777
2,545
320
46,809
58,782
–
90,106
12,604
986
13,590
–
433
16,455
2,049
18,937
32,527
57,579
135,667
223
4,459
1,443
(84,213)
57,579
The financial statements were approved by the Board and authorised for issue on 21 March 2018 and were signed on its behalf by:
James Parsons
Director
Richard Liddell
Director
The accounting policies on pages 64 to 69 and notes on pages 64 to 89 form part of these financial statements.
59
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
COMPANY
BALANCE SHEET
for the year ended 31 December 2017
Company Number 05344804
Non-current assets
Property, plant and equipment
Fixtures and fittings
Software
Investments in subsidiaries
Current assets
Other receivables
Prepayments
Derivative financial instruments
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Loans due in under one year
Non-current liabilities
Loans
Total liabilities
Net assets
Capital and reserves attributable to equity holders of the Company
Share capital and share premium
Shares to be issued
Warrant reserve
Accumulated deficit
Total equity
Notes
2017
£’000s
2016
£’000s
11
12
21
13
14
24
24
17
46
131
66
178,249
178,492
100
86
80
16,569
16,835
195,327
1,599
–
1,599
18,566
20,165
175,162
287,829
–
4,090
(116,757)
175,162
37
157
89
62,456
62,739
129
70
2,545
41,782
44,526
107,265
2,175
986
3,161
16,455
19,616
87,649
135,667
223
4,459
(52,700)
87,649
The Company’s accumulated deficit includes loss for the year of £66.9 million (2016: £6.5 million) primarily due to an impairment
charge of £47.0 million in respect of the divestment of the Italian operations and £5.5 million exchange loss on intercompany
balances following the acquisition of OGIF’s licences by a subsidiary whose functional currency is US dollars.
The financial statements were approved by the Board and authorised for issue on 21 March 2018 and were signed on its behalf by:
James Parsons
Director
Richard Liddell
Director
60
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
GROUP AND COMPANY
STATEMENTS OF CHANGES
IN EQUITY
for the year ended 31 December 2017
Group
Notes
At 1 January 2017
Total loss for the year
Other comprehensive loss
Total comprehensive loss
Issue of share capital
Reclassification on share issue
Reclassification on debt settlement
Share based payments
At 31 December 2017
17
17
22
Share
capital
£’000s
6,651
–
–
–
3,490
18
–
–
10,159
Share
premium
£’000s
129,016
–
–
–
148,449
205
–
–
277,670
Shares to
be issued
£’000s
223
–
–
–
–
(223)
–
–
–
Accumulated
deficit
£’000s
(84,213)
(34,150)
–
(34,150)
–
–
369
2,486
(115,508)
Warrant
reserve
£’000s
4,459
–
–
–
–
–
(369)
–
4,090
Foreign
currency
reserves
£’000s
1,443
–
(5,361)
(5,361)
–
–
–
–
(3,918)
Foreign currency reserve attributable to the Italian operations amounted to £1,658,000 (gain) as at 31 December 2017.
Company
At 1 January 2017
Total loss for the year
Issue of share capital
Reclassification on share issue
Reclassification on debt settlement
Share based payments
At 31 December 2017
Group
Notes
17
17
22
Share
capital
£’000s
6,651
–
3,490
18
–
–
10,159
Share
premium
£’000s
129,016
–
148,449
205
–
–
277,670
Shares to
be issued
£’000s
223
–
–
(223)
–
–
–
Accumulated
deficit
£’000s
(52,700)
(66,912)
–
–
369
2,486
(116,757)
Warrant
reserve
£’000s
4,459
–
–
–
(369)
–
4,090
Notes
At 1 January 2016
Total loss for the year
Other comprehensive income
Total comprehensive loss
Issue of share capital
Share issue costs
Shares to be issued
Fair value of warrants issued with bonds
Share based payments
At 31 December 2016
17
17
22
Company
Share
capital
£’000s
5,039
–
–
–
1,612
–
–
–
–
Share
premium
£’000s
81,276
–
–
–
50,425
(2,685)
–
–
–
6,651 129,016
Shares to
be issued
£’000s
–
–
–
–
–
–
223
–
–
223
Accumulated
deficit
£’000s
(71,593)
(13,439)
–
(13,439)
–
–
–
–
819
(84,213)
Warrant
reserve
£’000s
369
–
–
–
–
–
–
4,090
–
4,459
At 1 January 2016
Total loss for the year
Issue of share capital
Share issue costs
Shares to be issued
Fair value of warrants issued with bonds
Share based payments
At 31 December 2016
Notes
17
22
Share
capital
£’000s
5,039
–
1,612
–
–
–
–
6,651
Share
premium
£’000s
81,276
–
50,425
(2,685)
–
–
–
129,016
Shares to
be issued
£’000s
–
–
–
–
223
–
–
223
Accumulated
deficit
£’000s
(46,983)
(6,536)
–
–
–
–
819
(52,700)
25655.04
4 April 2018 1:15 PM
Proof 26
Foreign
currency
reserves
£’000s
1,068
–
375
375
–
–
–
–
–
1,443
Warrant
reserve
£’000s
369
–
–
–
–
4,090
–
4,459
Total
equity
£’000s
57,579
(34,150)
(5,361)
(39,511)
151,939
–
–
2,486
172,493
Total
equity
£’000s
87,649
(66,912)
151,939
–
–
2,486
175,162
Total
equity
£’000s
16,159
(13,439)
375
(13,064)
52,037
(2,685)
223
4,090
819
57,579
Total
equity
£’000s
39,701
(6,536)
52,037
(2,685)
223
4,090
819
87,649
61
www.soundenergyplc.comFinancial Statements03 CONSOLIDATED CASH
FLOW STATEMENT
for the year ended 31 December 2017
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
Proceeds from derivative financial instruments
Net proceeds from debt
Net proceeds from equity issue
Repayment of debt
Interest payments
Net cash flow from financing activities
Net (decrease)/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 2017
Cash flow from operations reconciliation
Loss before tax from continuing operations
Loss before tax from discontinued operations
Total loss for the year before tax
Finance revenue
Impairment of goodwill
Exploration expenditure written off and impairment of producing assets
(Decrease)/increase in accruals and short term payables
Depreciation
Share based payments charge
Increase in drilling inventories
Loss/(gain) on derivative financial instruments
Finance costs and exchange adjustments
Decrease/(increase) in receivables and prepayments
Cash flow from operations
Notes
2017
£’000s
2016
£’000s
(11,849)
102
(11,747)
(478)
(23,482)
(23,960)
–
592
–
11,550
–
(1,293)
10,849
(24,858)
60
46,809
22,011
(2,826)
96
(2,730)
(945)
(10,882)
(11,827)
(14)
–
10,248
40,247
(5,435)
(1,108)
43,938
29,381
2,188
15,240
46,809
24
13
Notes
2017
£’000s
2016
£’000s
(12,339)
(21,866)
(34,205)
(102)
55
19,833
(5,783)
406
2,486
(430)
1,873
2,158
1,860
(11,849)
(4,705)
(10,478)
(15,183)
(1,364)
1,704
7,789
9,035
272
819
(331)
(583)
1,508
(6,492)
(2,826)
9
22
Non-cash transactions during the year included the issue of shares worth £138.8 million as the consideration for the acquisition of
OGIF’s interests in Morocco licences. The Company also issued shares worth £0.7 million as part settlement of the drilling services at
the Badile licence, onshore Italy. 9.6 million warrants of 10.4p per warrant were exercised in settlement of £1.0 million debt.
During the year, the Group provided a bank guarantee of $2.95 million (2016: $2.5 million) to the Moroccan Ministry of Petroleum to
guarantee the Group’s minimum work programme obligations. The cash is held in a bank account under the control of the Company
and as the Group expects to satisfy these commitments within 2018, on this basis the amount remains included as a liquid cash
equivalent. A guarantee of €0.7 million was provided for expenditure relating to Badile licence and is included in cash and cash
equivalents as it is expected to be released as soon as the commitment is fulfilled.
62
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
COMPANY CASH
FLOW STATEMENT
for the year ended 31 December 2017
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
Proceeds from derivative financial instruments
Net proceeds from equity issue
Repayment of debt
Interest payments
Net cash flow from financing activities
Net (decrease)/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 2017
Cash flow from operations reconciliation
Loss before tax
Impairment of investments in subsidiaries
Intragroup recharges
Finance revenue
Decrease/(Increase) in receivables and prepayments
(Decrease)/increase in accruals and short term payables
Depreciation
Share based payments charge
Loss/(gain) on derivative financial instruments
Finance costs and exchange adjustments
Cash flow from operations
Notes
2017
£’000s
2016
£’000s
(7,465)
23
(7,442)
(47)
(28,772)
(28,819)
–
592
11,550
–
(1,293)
10,849
(25,412)
199
41,782
16,569
(3,209)
35
(3,174)
(178)
(14,758)
(14,936)
10,248
–
40,247
(2,710)
(953)
46,832
28,722
772
12,288
41,782
13
Notes
2017
£’000s
2016
£’000s
11
22
(66,912)
46,973
(918)
(23)
13
(576)
86
2,486
1,873
9,533
(7,465)
(6,536)
–
(884)
(35)
(3)
962
54
819
(583)
2,997
(3,209)
Non-cash transactions during the year included the issue of shares worth £138.8 million as the consideration for the acquisition of
OGIF’s interests in Morocco licences. The Company also issued shares worth £0.7 million as part settlement of the drilling services at
the Badile licence, onshore Italy. 9.6 million warrants of 10.4p per warrant were exercised in settlement of £1.0 million debt.
63
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS
for the year ended 31 December 2017
1 Accounting policies
Sound Energy plc is a public limited Company registered and domiciled in England and Wales under the Companies Act 2006.
The Company’s registered office is 1st Floor, 4 Pembroke Road, Sevenoaks, Kent, TN13 1XR.
(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 2017 were authorised for issue by the
Board of Directors on 21 March 2018.
As at 31 December 2017 the Group had £21.2 million of available cash. Based on the current management plan, management
believes that the Group will remain a going concern for at least 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 22
March 2019) 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.
When considering whether E&E assets are impaired the Group first considers the IFRS 6 indicators set out in note 10. The making
of this assessment involves judgement concerning the Group’s future plans and current technical and legal assessments.
If those indicators are met a full impairment test is performed. During the year, and following unsuccessful exploration results, this
was performed for the Badile block as disclosed further in note 10. In combination with the write down of the intangible asset
the associated surface installations, recognised as property, plant and equipment, were also tested for impairment. Due to the
impairment of the Badile licence these assets no longer have a value in use to the Group and hence were written down to their fair
value. Consequently a provision of £0.2 million was made to write them down to £0.1 million, the best estimate of their fair value.
This estimate was based on an offer obtained from a third party.
64
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU 1 Accounting policies continued
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 10.
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 18).
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.
Significant judgement and estimation is also required in the determination of the fair value of warrants and bonds. In 2016, the
proceeds from the issue of the bonds were used to settle existing liabilities and therefore an element of judgement was required in
determining the portion of issues costs to be allocated to the old and new debt.
(b) Basis of consolidation
The Group financial statements consolidate the Income statements, Balance sheets, Cash flow statements and statements of
changes in equity and related notes of the Company and its subsidiary undertakings.
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. Costs of
acquisition are expensed during the period they are incurred.
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 Group also has subsidiaries whose functional currencies are euro
and US dollar. During 2017, a subsidiary of the Company changed its functional currency from Moroccan Dirham to US dollar
as significant amount of expenditure is incurred in US dollar. The effect of the change in functional currency has been applied
prospectively.
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, unless this is not a reasonable
approximation of the rates on the transaction dates. The resulting exchange differences are recognised in other comprehensive
income and held in a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in
equity relating to that foreign operation is recognised in the income statement.
65
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03 NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
1 Accounting policies continued
(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.
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 E&E assets.
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.
66
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU 1 Accounting policies continued
(e) Expenses recognition
Expenses are recognised on the accruals basis unless otherwise stated.
(f) Property, plant and equipment and land and buildings
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. Land and buildings relate to land which is not depreciated.
(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. The Directors consider that the cash
generating units to which the goodwill relates are each applicable licence held in the Group’s portfolio.
(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.
(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. Cash and cash equivalents also includes
restricted cash that has been placed as guarantee for commitments on the licences.
67
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03 NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
1 Accounting policies continued
(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 receivables and other receivables are classified as ‘loans and receivables’. Loans
and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is
recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be
immaterial. Cash and cash equivalents comprise cash on hand and demand deposits, restricted cash 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. Derivative financial instruments are measured at fair 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. Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and
are subsequently measured at amortised cost using the effective interest rate method. Warrants issued are measured at their fair
value on the date of issuance. 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 on issue and are not subsequently remeasured.
(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 exercise price, the share price at the date of issue,
volatility and the life of the option. The estimated fair value of the option is recognised as an 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.
(m) Derivative financial instruments
The Company has derivative financial instruments arising from the shares issued on the acquisition of the Sidi Moktar licence,
onshore Morocco. Derivative financial instruments are stated at their fair value. Gains and losses on the derivatives that do not
qualify for hedge accounting are taken directly to the income statement in the period.
(n) 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 most significant new standards are as follows:
IFRS 9 ‘Financial Instruments’ covers classification and measurements of financial assets and financial liabilities, impairment
methodology and hedge accounting and is effective for accounting periods beginning on or after 1 January 2018;
IFRS 15 ‘Revenue from Contracts with Customers’ provides a single model for accounting for revenue arising from contracts
with customers and is effective for accounting periods beginning on or after 1 January 2018. Natural gas revenue is currently
recognised on delivery to the customer pipeline and as Sound consider this to be the point at which the customer obtains control
of the gas this remains the appropriate revenue recognition point under IFRS 15;
IFRS 16 ‘Leases’ provides a new model for lease accounting in which all leases, other than short-term, will be accounted for by
recognition in the balance sheet of a right-to-use asset and a lease liability. The right-to use asset is initially measured at cost and
subsequently at cost less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability.
The lease liability is initially measured at present value of the lease payments that are not paid at that date. Subsequently, the
lease liability is adjusted for interest and lease payments as well as the impact of lease modifications, amongst others. IFRS 16 is
effective for accounting periods beginning on or after 1 January 2019.
68
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU 1 Accounting policies continued
The Company has no intention to recall the intercompany loans in the foreseeable future and therefore classifies them as
investments in the Company balance sheet. The adoption of IFRS 9 may have a material impact on the financial statements in
future periods as the Directors will need to assess whether these balances are impaired in accordance with IFRS 9. The Directors
will further assess and review the impact of IFRS 9 during 2018. IFRS 16 will require that the operating leases disclosed in note
23 be recognised in the balance sheet. The Directors’ assessment and review of the impact of IFRS 16 will be undertaken during
2018.
(o) 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.
(p) 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.
(q) Revenue recognition
Revenue associated with production sales of natural gas is recorded when title passes to the customer on delivery to the customer
pipeline.
(r) Discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally
through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale
are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly
attributable to the disposal of an asset (disposal group), excluding finance costs and income tax expense.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group
is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that
significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the
plan to sell the asset and the sale expected to be completed within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. Assets and
liabilities classified as held for sale are presented separately in the balance sheet.
A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is
classified as held for sale, and:
• Represents a separate major line of business or geographical area of operations
• Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as
profit or loss after tax from discontinued operations in the statement of comprehensive income. All other notes to the financial
statements include amounts for continuing operations, unless otherwise mentioned.
The Board considered the disposal of Italy operations met the criteria to be classified as held for sale as at 31 December 2017 for
the following reasons:
i. On 5 October 2017, the Company announced that it had entered into non-binding conditional heads of terms with Saffron
Energy plc (“Saffron”) and Po Valley Energy Limited under which the Company was to dispose of its portfolio of Italian
interests and permits through the sale of its subsidiaries, Sound Energy Holdings Italy and Apennine Energy SpA.
ii. Subsequent to the year end, the Company announced that it had entered into a binding agreement with Saffron and
expected to complete the disposal by April 2018.
69
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03 NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
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 2017 the Group’s exploration and appraisal activities were carried out in Italy and Morocco.
The Group’s reportable segments are based on internal reports about components of the Group which are regularly reviewed and
used by the Board of Directors, being the Chief Operating Decision Maker (“CODM”), for strategic decision making and resource
allocation, in order to allocate resources to the segment and to assess its performance.
Details regarding each of the operations of each reportable segment is included in the following tables.
Segment results for the year ended 31 December 2017:
Corporate
£’000s
Development
& Production
£’000s
Exploration
& Appraisal
£’000s
Administration expenses
Operating loss segment result
Interest receivable
Loss on derivative financial instruments
Finance costs and exchange adjustments
Loss for the period before taxation from continuing operations
(8,458)
(8,458)
23
(1,873)
(2,031)
(12,339)
–
–
–
–
–
–
–
–
–
–
–
–
The segments assets and liabilities at 31 December 2017 were as follows:
Non-current assets
Current assets
Liabilities attributable to continuing operations
The geographical split of non-current assets is as follows:
Fixtures, fittings and office equipment
Exploration and evaluation assets
Software
Total
Corporate
£’000s
372
21,701
(20,165)
Development
& Production
£’000s
Exploration
& Appraisal
£’000s
–
–
–
163,939
3,848
(5,002)
UK
£’000s
177
–
66
243
Total
£’000s
(8,458)
(8,458)
23
(1,873)
(2,031)
(12,339)
Total
£’000s
164,311
25,549
(25,167)
Morocco
£’000s
195
163,737
136
164,068
70
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
2 Segment Information continued
Segment results for the year ended 31 December 2016 were as follows:
Corporate
£’000s
Development
& Production
£’000s
Exploration
& Appraisal
£’000s
Other income
Administration expenses
Operating loss segment result
Interest receivable
Gain on derivative financial instruments
Finance costs and exchange adjustments
Loss for the period before taxation from continuing operations
–
(4,246)
(4,246)
96
583
(1,853)
(5,420)
715
–
715
–
–
–
715
–
–
–
–
–
–
–
Total
£’000s
715
(4,246)
(3,531)
96
583
(1,853)
(4,705)
Other income represents receipt during 2016 of $1.1 million Indonesian contingent consideration, triggered by the achievement
of various operational targets of the Bangkanai licence which was previously owned by the Group. A contingent asset was not
recognised when the licence was disposed of due to the uncertainty around the achievement of the conditions leading to the
payment.
The segments assets and liabilities at 31 December 2016 are as follows:
Non-current assets
Current assets
Liabilities attributable to continuing operations
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
342
48,730
(3,161)
Development
& Production
£’000s
Exploration
& Appraisal
£’000s
–
–
–
19,110
6,234
(25,374)
Total
£’000s
19,452
54,964
(28,535)
UK
£’000s
Morocco
£’000s
–
–
194
–
–
89
283
–
–
148
–
18,876
145
19,169
The segments assets and liabilities at 31 December 2016 excludes the assets and liabilities of the disposal group held for sale
(note 25).
71
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
3 Operating Loss
Operating loss is stated after charging:
Auditor’s remuneration
Depreciation
Employee costs
4 Auditor’s Remuneration
Fees payable to the 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
Other assurance services
Tax services
5 Employee Costs
Staff costs, including Executive Directors
Share based payments
Wages and salaries
Social security costs
Employee benefits
Employee costs capitalised to intangible assets
Total
Number of employees (including Executive Directors) at the end of the year
Technical and operations
Management and administration
Total
2017
£’000s
2016
£’000s
77
222
5,173
58
71
2,028
2017
£’000s
2016
£’000s
53
7
9
8
77
47
7
–
4
58
2017
£’000s
2016
£’000s
2,486
5,912
646
182
(4,053)
5,173
819
2,701
273
17
(1,782)
2,028
2017
Number
2016
Number
18
23
41
11
18
29
A proportion of the Group’s employee costs is capitalised to the cost of development, exploration and appraisal under the Group’s
accounting policy for these assets. During the year, approximately £4.1 million (2016: £1.8 million) of the employee costs was
capitalised.
6 Finance Revenue
Interest on cash at bank and short term deposits
2017
£’000s
2016
£’000s
23
23
96
96
72
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
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 credit 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 19.25% (2016: 20%)
Tax effect of:
Expenses not deductible for tax purposes
Temporary differences not recognised
Differences in overseas tax rates
Total tax (charge)/credit
2017
£’000s
2016
£’000s
–
–
–
–
–
–
2017
£’000s
(12,339)
2,375
(521)
(1,651)
(203)
–
–
–
–
–
–
–
2016
£’000s
(4,705)
941
(192)
(729)
(20)
–
8 Profit/(Loss) per Share
The calculation of basic profit/(loss) per Ordinary Share is based on the profit/(loss) after tax and on the weighted average number
of Ordinary Shares in issue during the period. Basic profit/(loss) per share is calculated as follows:
Loss after tax from continuing operations
Loss after tax from discontinued operations
Total loss for the year
Weighted average shares in issue
Basic and diluted loss per share from continuing operations
Basic and diluted loss per share from discontinued operations
25655.04
4 April 2018 1:15 PM
Proof 26
2017
£’000s
(12,339)
(21,811)
(34,150)
2017
million
799
2017
pence
(1.54)
(2.74)
(4.28)
2016
£’000s
(4,705)
(8,734)
(13,439)
2016
million
534
2016
pence
(0.88)
(1.64)
(2.52)
73
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
9 Property, Plant and Equipment
Development and production assets
Cost
At start of the year
Exchange adjustments
Additions
Reclassification to assets of disposal group held for sale (note 25)
At end of the year
Depreciation
At start of the year
Exchange adjustments
Impairment of assets
Charge for the year
Reclassified to assets of disposal group held for sale (note 25)
At end of the year
Net book amount
Fixtures, fittings and office equipment
Cost
At start of the year
Exchange adjustments
Additions
Reclassified to assets of disposal group held for sale (note 25)
At end of the year
Depreciation
At start of the year
Exchange adjustments
Charge for the year
Reclassified to assets of disposal group held for sale (note 25)
At end of the year
Net book amount
Total net book amount
2017
£’000s
2016
£’000s
15,968
51
–
(16,019)
–
14,752
–
27
97
(14,876)
–
–
815
7
386
(562)
646
302
5
309
(342)
274
372
372
14,297
785
886
–
15,968
8,906
187
5,455
204
–
14,752
1,216
377
33
405
–
815
210
24
68
–
302
513
1,729
During 2016, the Group 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 £5.5 million
to write-off the carrying value to the recoverable amount of £0.5 million, being the fair value less costs to sell of the plant and
equipment. The valuation was considered a Level 3 valuation (see note 19).
2017
£’000s
–
–
2016
£’000s
5,455
5,455
Italy- impairment
Total
74
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
10 Intangibles
Cost
At 1 January 2017
Additions
Exchange adjustments
Reclassified to assets of disposal group held for sale (note 25)
At 31 December 2017
Impairment
At start of the year
Charge for the year
Exchange adjustments
Reclassified to assets of disposal group held for sale (note 25)
At end of the year
Net book amount at 31 December 2017
Cost
At 1 January 2016
Additions
Exchange adjustments
At 31 December 2016
Impairment
At start of the year
Charge for the year
Exchange adjustments
At end of the year
Net book amount at 31 December 2016
Goodwill
£’000s
Software
£’000s
Exploration
& Evaluation
Assets
£’000s
2,202
–
64
(2,266)
–
1,769
55
64
(1,888)
–
–
282
92
(7)
(86)
281
42
117
3
(83)
79
202
39,902
165,670
(6,043)
(35,792)
163,737
12,515
19,018
(152)
(31,381)
–
163,737
Goodwill
£’000s
Software
£’000s
Exploration
& Evaluation
Assets
£’000s
1,992
–
210
2,202
–
1,704
65
1,769
433
106
176
–
282
6
36
–
42
240
18,100
21,176
626
39,902
10,628
1,819
68
12,515
27,387
2017
£’000s
42,386
165,762
(5,986)
(38,144)
164,018
14,326
19,190
(85)
(33,352)
79
163,939
2016
£’000s
20,198
21,352
836
42,386
10,634
3,559
133
14,326
28,060
Goodwill
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 development and exploration and evaluation assets. During 2016, impairment charges were
recognised for the Casa Tonetto and Strombone licences, which led to £1.7 million that was linked to these licences being
impaired.
Exploration and evaluation assets
Additions during the year primarily related to acquisition of OGIF’s interests in Tendrara, Anoual and Martaka licences, onshore
Morocco, for £138.8 million and expenditure on drilling of wells in Italy and Morocco.
During the year, the Group had capitalised interest costs of approximately £1.6 million (2016: £1.5 million).
75
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
10 Intangibles continued
Details regarding the geography of the Groups E&E assets is contained in note 2.
The Directors assess for impairment when facts and circumstances suggest that the carrying amount of an E&E asset may exceed
its recoverable amount. In making this assessment the Directors have regard to the facts and circumstances noted in IFRS 6
paragraph 20. In performing their assessment of each of these factors at 31 December 2017 the Directors have:
a. reviewed the time period that the Group has the right to explore the area and noted no instances of expiration, or licences that
are expected to expire in the near future;
b. determined that further E&E expenditure is either budgeted or planned for all licences;
c. not decided to discontinue exploration activity due to there being a lack of quantifiable mineral resource; and
d. not identified any instances where sufficient data exists to indicate that there are licences where the E&E spend is unlikely to be
recovered from successful development or sale.
On the basis of the above assessment, the Directors are not aware of any facts or circumstances that would suggest the carrying
amount of the E&E asset may exceed its recoverable amount, with exception of Badile. See below and note 1a.
During 2017, following sub-commercial well results, the E&E asset related to the Badile licence, Italy, was fully impaired; resulting
in charge of £19.0 million. During 2016, the impairment charge of £1.8 million related to the Strombone licence, Italy, as the
current and forecast operational spend had significantly decreased due to an application for a time extension on the licence being
rejected.
11 Investment in Subsidiaries
At 1 January
Advances to Group companies
Impairment charge for the year
At 31 December
2017
£’000s
62,456
162,766
(46,973)
178,249
2016
£’000s
35,450
27,006
–
62,456
The subsidiary companies of the Company at 31 December 2017, which are all 100% owned by the Company, are:
Name
Incorporated
Principal Activity
Registered Addresses
Sound Oil International Limited
British Virgin Isles Holding Company
Sound Oil Asia Limited
British Virgin Isles Holding Company
Mitra Energia Citarum Limited*
Mauritius
Exploration Company
Sound Energy Holdings Italy Limited UK
Italy
Apennine Energy SpA
Sound Energy Morocco SARL
Morocco
Sound Energy Morocco East Limited UK
Sound Energy Morocco South Limited UK
UK
Sound Energy Meridja Limited
UK
Sound Oil Limited
Holding Company
Exploration, Development
and Production Company
Exploration Company
Exploration Company
Exploration Company
Exploration Company
Dormant
* The investment in Mitra Energia Citarum Limited is held indirectly via Sound Oil International Limited.
PO Box 173, Kingston,Chambers
Road,Tortola,VG 1110, British Virgin Islands
PO Box 173, Kingston,Chambers
Road,Tortola,VG 1110, British Virgin Islands
Fifth Floor,Ebene, Esplanade, 24
Cybercity,Ebene, Mauritius
4 Pembroke Road, Sevenoaks,TN13 IXR, UK
Via,XXV, Aprile 5,
SAN DONATO MILANESE (MI) 20097
Angle Av. Mehdi, Benbarka et Rue Euginia,
2éme étage Hay Riad Rabat
4 Pembroke Road, Sevenoaks,TN13 IXR, UK
4 Pembroke Road, Sevenoaks,TN13 IXR, UK
4 Pembroke Road, Sevenoaks,TN13 IXR, UK
4 Pembroke Road, Sevenoaks,TN13 IXR, UK
Increase in advances to Group companies was primarily related to acquisition of OGIF’s interests in Tendrara, Anoual and Martaka
licences, onshore Morocco, for £138.7 million. Impairment charge for the year is attributable to a write down of the carrying value
of the investment in Sound Energy Holdings Italy Limited to the expected recoverable value upon disposal of the Italian operations.
76
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
11 Investment in Subsidiaries continued
The investment in Apennine Energy SpA is held indirectly through Sound Energy Holdings Italy Limited.
Sound Energy Holdings Italy Limited is directly funded through non-current, non-interest bearing loans from Sound Energy plc.
Given that Sound Energy plc has no intention to call in the loans in the foreseeable future, the loans are treated as “permanent
as equity”. As a result, Sound Energy plc has classified these loans as investments which represent the carrying value of the
investment in Sound Energy International, Morocco subsidiaries 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
Place of incorporation
Place of operation
2017
2016
Gas exploration and production Italy
UK
Gas exploration
UK
Holding companies
UK
Dormant
British Virgin Isles
Holding companies
Mauritius
Holding companies
Morocco
Gas exploration
12 Other Receivables
Group
Italy
Morocco
UK
UK
British Virgin Isles
Mauritius
Morocco
Italian VAT (note 25)
UK VAT
Morocco VAT
Other receivables
Currency Analysis
US dollar
Euro
GBP sterling
Moroccan dirham
Company
UK VAT
Other receivables
Currency Analysis
GBP sterling
Total
25655.04
4 April 2018 1:15 PM
Proof 26
1
3
2
1
2
1
1
2017
£’000s
–
83
665
2,778
3,526
2017
£’000s
2,555
–
100
871
3,526
1
3
2
1
2
1
1
2016
£’000s
2,445
110
296
5,926
8,777
2016
£’000s
5,607
2,603
129
438
8,777
2017
£’000s
2016
£’000s
83
17
100
2017
£’000s
100
100
110
19
129
2016
£’000s
129
129
77
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
13 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
Total
2017
£’000s
1,764
19,434
21,198
9,420
4,407
7,160
211
21,198
2016
£’000s
1,056
45,753
46,809
7,845
11,865
25,089
2,010
46,809
For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise the following as at 31 December
2017.
2017
£’000s
21,198
813
22,011
2017
£’000s
25
16,544
16,569
4,983
4,395
7,191
16,569
2017
£’000s
3,910
157
2,534
6,601
2016
£’000s
46,809
–
46,809
2016
£’000s
25
41,757
41,782
5,819
10,874
25,089
41,782
2016
£’000s
3,514
231
8,859
12,604
Cash and short term deposits
Cash and short term deposits attributable to discontinued operations
Total
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
14 Trade and Other Payables
Group
Trade payable
Payroll taxes and social security
Accruals
78
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
14 Trade and Other Payables continued
Currency Analysis
US dollar
Euro
Sterling
Moroccan dirham
Total
Company
Trade payable
Payroll taxes and social security
Accruals
Total
Currency Analysis
Sterling
Euro
Total
15 Deferred Tax Liabilities
1 January
Derecognised on impairment of licences
Exchange adjustments
Reclassified to liabilities of disposal group held for sale (note 25)
31 December
2017
£’000s
4,049
553
1,287
712
6,601
2017
£’000s
741
126
732
1,599
2017
£’000s
1,085
514
1,599
2017
£’000s
433
(55)
–
(378)
–
2016
£’000s
7,216
1,510
1,681
2,197
12,604
2016
£’000s
998
83
1,094
2,175
2016
£’000s
1,681
494
2,175
2016
£’000s
1,992
(1,744)
185
–
433
Deferred tax assets have not been recognised in respect of tax losses available due to the uncertainty of utilisation of those assets.
Unrecognised tax losses as at 31 December 2017 were estimated to be approximately £6.9 million (2016: £4.7 million).
16 Provisions for Abandonment
At 1 January
Discount unwind
Additions during the year
Released during the year
Exchange adjustments
Reclassified to liabilities of disposal group held for sale (note 25)
At 31 December
25655.04
4 April 2018 1:15 PM
Proof 26
2017
£’000s
2,049
131
749
(410)
(49)
(2,470)
–
2016
£’000s
1,138
133
786
(188)
180
–
2,049
79
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
17 Capital and Reserves
Group and Company
Ordinary shares – 1p
At 1 January
Issued during the year for cash
Non-cash share issue
At 31 December
2017
Number
of shares
1,015,869,699
£’000s
10,159
2016
Number
of shares
665,069,037
2017
Number
of shares
£’000s
6,651
2016
Number
of shares
665,069,037
66,550,042
284,250,620
1,015,869,699
503,898,868
118,147,455
43,022,714
665,069,037
Non-cash transactions during the year included the issue of 272.0 million shares worth £138.8 million as the consideration for
the acquisition of OGIF’s interests in Morocco licences. The Company also issued 0.8 million shares worth £0.7 million as part
settlement of the drilling services at the Badile licence, onshore Italy, and 9.6 million warrants of 10.4p per warrant were exercised
in settlement of £1.0 million debt. 1.8 million shares were issued for which cash had been received in the prior year as a result of
share options exercise.
Share option schemes
Options to subscribe to the Company’s shares were granted to executives and certain employees in 2017 and 2016.
Share issues
During the year ended 31 December 2017, the Company issued 58,700,042 shares following warrant exercises at exercise prices
in the range of 10.4p to 30p per share.
On 7 February 2017, the Company announced the issue of 830,565 shares at a price of 82p per share in respect of drilling
services at the Badile licence in Italy.
On 13 February 2017, the Company announced that it would issue 9,615,384 shares as a result of warrants exercise. The
exercise price of the warrants totalling £1.0 million (10p per warrants) was satisfied by settlement of a £1.0 million loan to the
warrant holder (see note 24).
On 1 August 2017, the Company announced the issue of 2,050,00 shares following the exercise of share options by a non-board
member of the Company at a price of 8p per share.
On 12 September 2017, the Company announced that it would issue 272,000,000 shares as consideration for the acquisition of
OGIF’s interests in Tendrara, Anoual and Martaka licences, onshore Morocco.
On 21 September 2017, the Company announced the issue of 3,350,000 shares following the exercise of share options by a
Director of the Company at a price of 8p per share. The gain on exercise is disclosed in the statement of Directors remuneration.
During 2017, the Company issued 4,254,671 shares as a result of share options exercises by non-board members of the
Company. 1,804,660 of the shares were issued to satify option excercises that occured in December 2016 and as result, the
shares to be issued reserve was fully utilised. The shares were issued at prices in the range of 8p to 25p per share.
18 Related Party Disclosures
The financial statements include the financial statements of Sound Energy plc (the parent) and the subsidiaries (note 11).
Terms and conditions of transactions with related parties
There were no sales or purchases to or from related parties (2016: none). Advances to subsidiaries are disclosed in note 11. There
have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 2017,
the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2016: none) and is not owed
or owes amounts to/from any related parties. Impairment on investment in subsidiaries is disclosed in note 11.
80
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
18 Related Party Disclosures continued
Key management
As at 31 December 2017, there were seven key management personnel other than Directors of the Company (2016: six). Details
of the Directors’ remuneration are set out in the Report of Directors’ Remuneration. The table below show the total remuneration of
key management personnel, including the executive Directors.
Salaries and employee benefits
Share based payments
2017
£’000s
3,043
1,914
4,957
2016
£’000s
2,922
748
3,670
Directors’ interest in employee share options
At 31 December 2017, the Chairman had 1,000,000 share options in the Company. The other non-executive Directors held a total
of 500,000 options in the Company. Share options held by non-executive members of the Board of Directors at 31 December
2017 have the following expiry dates and exercise prices:
2016
Expiry
Date
Exercise
price Pence
2017
Number
2016
Number
2021
60p
1,500,000
1,500,000
Share options held by the executive members of the Board of Directors at 31 December 2017 have the following expiry dates and
exercise prices:
2014
2015
2016
2016
2017
Expiry
Date
Exercise
price Pence
2017
Number
2016
Number
2019
2020
2021
2021
2022
8.0p
14.25p
16p
84p
67p
–
1,250,000
3,000,000
1,500,000
1,500,000
3,350,000
1,250,000
3,000,000
1,500,000
1,500,000
Key management’s (excluding Directors) interest in employee share options
2014
2015
2015
2015
2016
2016
2017
2017
2017
2017
2017
Expiry
Date
Exercise
price Pence
2017
Number
2016
Number
2019
2020
2020
2020
2021
2021
2022
2022
2022
2022
2022
8.0p
14.25p
14.20p
14.07p
16p
84p
67p
70p
65p
52.25p
48p
–
2,150,000
1,250,000
1,250,000
4,000,000
–
4,000,000
1,500,000
500,000
500,000
4,000,000
4,500,000
2,150,000
1,250,000
1,250,000
5,250,000
3,000,000
–
–
–
–
–
Other expenses
During 2017 three Directors of the Company were also Directors of Echo Energy plc (‘‘Echo’’), a company listed on the London
stock exchange. The Company recharged and was paid by Echo £24,381 in respect of travel expenses that had been paid by
the Company on behalf of Echo. As disclosed in note 25, the Company has entered into an agreement with Saffron Energy plc
(‘‘Saffron’’), a company listed on the London stock exchange in respect of divestment of its Italian operations. Two Directors of the
Company were appointed as non-executive Directors of Saffron in December 2017. The Company has recharged Saffron £21,398
in respect of travel expenses paid by the Company on behalf of Saffron.
81
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
19 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, loans and borrowings, receivables, cash
and short term deposits. 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 12 (Other Receivables), note 13 (Cash and Cash Equivalents), note 14 (Trade and Other payables) and note 24
(Loans and Borrowings).
The table below sets out the Group’s accounting classification of its financial assets and liabilities.
Financial assets
Cash and short term deposits
Other receivables
Derivative financial instruments at fair value
Financial liabilities
Trade and other payables
Loans and borrowings held at amortised costs
2017
£’000s
2016
£’000s
21,198
3,526
80
24,804
6,601
18,566
25,167
46,809
8,777
2,545
58,131
12,604
17,441
30,045
The Company classifies the fair value of the financial instruments according to the following hierarchy, based on the amount of
observable inputs used to value the instrument. The three levels of the fair value hierarchy are as follows:
• Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
• Level 2 – inputs to the valuation methodology are derived from quoted prices for identical assets or liabilities in active markets,
and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility
factors, which can be substantially observed or corroborated in the marketplace.
• Level 3 – inputs to the valuation methodology are not based on observable market data.
Derivative financial instruments are classified as Level 2.
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.
Market risk
As the derivative financial instruments are linked to the share price, the movement in the Company’s share price has an impact
on the value of the derivative financial instruments. The Group continues its exploration and production activities and selective
acquisitions to increase shareholder value through capital growth.
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.
82
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
19 Financial Instruments Risk Management continued
The Group monitors capital on a short and medium term view. 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
2017
£’000s
(18,566)
21,198
2,632
10,159
277,670
172,493
2016
£’000s
(17,441)
46,809
29,368
6,651
129,016
57,579
20 Foreign Currency and Other Risks
As a result of the majority of the Group’s operations being denominated in US dollar (USD) and Euros (EUR) , the Group’s balance
sheet can be impacted by movements in these exchange rates against sterling (GBP). 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 GBP cost of the assets being acquired with the USD or EUR 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 USD, EUR or MAD 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.
Increase in USD/GBP exchange rate
Increase in EUR/GBP exchange rate
Increase in MAD/GBP exchange rate
Decrease in USD/GBP exchange rate
Decrease in EUR/GBP exchange rate
Decrease in MAD/GBP exchange rate
Increase/
(decrease) in
exchange rate
%
2017
Effect on
profit or loss
before tax
£’000s
2016
Effect on
profit or loss
before tax
£’000s
5%
5%
5%
(5%)
(5%)
(5%)
(396)
(193)
(19)
396
193
19
(312)
(62)
(13)
312
62
13
Share price risk
The derivative financial instruments are linked to the Company’s share price. The effect on the Group’s loss for the year of a 10%
movement in the share price is shown below.
Increase in share price
Decrease in share price
2017
Effect on
loss before
tax/(decrease)/
Increase
£’000s
2016
Effect on
loss before
tax/(decrease)/
Increase
£’000s
(80)
80
(784)
784
Increase/
(decrease) in
share price
%
10%
(10%)
83
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
20 Foreign Currency and Other Risks continued
Credit risk
The Group currently has sales to one customer. The maximum credit exposure at the reporting date of each category of financial
assets 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 cash calls to partners are paid within one month 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 24.
21 Financial Instruments
(i) Derivative financial instruments
Derivative on shares issued on acquisition of Sidi Moktar licence
2017
£’000s
80
2016
£’000s
2,545
In March 2016, the Company signed a binding agreement to acquire PetroMaroc’s 50% working interest in, and operatorship
of, the Sidi Moktar Licences. The terms of the acquisition included the issue by the Company of 21,258,008 ordinary shares to
PetroMaroc as consideration. In September 2016, the agreement with PetroMaroc was amended such that should PetroMaroc
dispose of the shares issued, the proceeds of the share price above 50 pence would be shared equally between the Company
and PetroMaroc. The value of this derivative as at 31 December 2017 was £80,000 (2016: £2.5 million) using the Company’s
closing share price of 51p (2016: 74p).
During 2017, the Company recognised a loss of £1.9 million (2016: £0.6 million, gain) in the income statement as a result of
movement in the share price during the year. PetroMaroc sold 5,314,502 shares during the year and the Company received
£592,000, being its share of the proceeds in line with the agreement.
Subsequent to the end of the year, PetroMaroc notified the Company, and the Company acknowledged, that PetroMaroc had
transferred 11,608,411 shares at a deemed price of 48.38p per share to Debentureholders and as a result, there were no
proceeds to be shared in respect of the said shares.
(ii) Cash and short term deposits
2017
Sterling
Euro
US dollar
Moroccan dirham
2016
Sterling
Euro
US dollar
Moroccan dirham
Floating
rate
£’000s
Fixed
rate
£’000s
Interest-
free
£’000s
4,135
888
–
–
5,023
25,064
992
–
–
26,056
3,000
–
4,447
211
7,658
–
–
–
2,010
2,010
25
3,519
4,973
–
8,517
25
10,873
7,845
–
18,743
Weighted
average
rate %
0.26
0.60
0.57
3.75
0.01
0.05
0.00
3.75
Total
£’000s
7,160
4,407
9,420
211
21,198
25,089
11,865
7,845
2,010
46,809
Euro cash balances have been converted at the exchange rate of €1.12631: £1.00 (2016: €1.17288: £1.00). Moroccan dirham
cash balances have been converted at the exchange rate of MAD12.6280: £1.00 (2016: MAD12.4979: £1.00). US dollar cash
balances have been converted at the exchange rate of US$1.3493: £1.00 (2016: US$1.23412: £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.
84
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
22 Share Based Payments
The Group has a Long Term Incentive Plan under which share options have been granted to the Directors and key staff. The
Group’s policy is to award options to employees on appointment and periodically thereafter. Options are issued at market price on
the grant date and have vesting periods of up to three years. The options expire after five years if they remain unexercised and are
forfeited if the employee leaves the Group before the options vest except at the discretion of the Board.
The expense recognised for employee services in the Consolidated Income Statement is as follows:
Group and Company
Expense arising from equity-settled share options
2017
£’000s
2,486
2016
£’000s
819
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.
2017
Total
2016
Total
Granted
8,800,000
1,500,000
800,000
500,000
4,000,000
15,600,000
9,050,000
600,000
1,500,000
3,300,000
300,000
300,000
15,050,000
Period
(years)
Price
(pence)
5
5
5
5
5
5
5
5
5
5
5
67
70
65
52.25
48
16.00
17.13
60.00
84.00
75.00
76.50
The expected life of the options is based on the maximum option period and is not necessarily indicative of exercise patterns
that may occur. Expected volatility is determined by reference to the historical volatility of the Company’s share price over a three
year period. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may
not necessarily be the actual outcome. The valuations assumed an expected life of five years and used the following additional
assumptions for options granted during the year:
• Weighted average share price as of grant date: 61.84 pence (2016: 37.72 pence)
• Average risk free interest rate: 0.39% (2016: 0.52%)
• Expected volatility: 60.69% (2016: 60.35%)
• Assumed forfeitures: 0% (2016: 0%)
• Expected dividends: nil (2016: nil)
No other features of options grant were incorporated into the measurement of fair value. The weighted average fair value of the
options granted was 31.38p (2016: 19.17p).
85
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
22 Share Based Payments continued
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
Weighted
average
exercise
price
(pence)
24.59
61.84
56.80
8.00
41.04
2016
£’000s
20,348,886
15,050,000
(350,000)
(5,648,886)
29,400,000
Weighted
average
exercise
price
(pence)
11.19
37.72
10.27
15.85
24.59
2017
£’000s
29,400,000
15,600,000
(3,750,000)
(7,850,000)
33,400,000
The weighted average share price at the date of exercise for share options exercised during the year ended 31 December 2017
was 46.39p (2016: 69.37p). The weighted average remaining contractual life of the options outstanding at 31 December 2016 was
3.5 years (2016: 3.8 years).
There were no exercisable options at the end of the year. If all equity share options were exercisable immediately, new ordinary
shares equal to approximately 3.3% (2016: 4.4%) of the shares currently in issue, would be created.
23 Commitment and Guarantees
At 31 December 2017, the Group’s minimum capital expenditure on its licences was approximately £2.1 million primarily for the
exploration and appraisal activities in the Group’s licences in Morocco. The Group provided $2.95 million as guarantee to the
Moroccan Oil Ministry for the minimum work commitments on its licences.
As at 31 December 2017, the Group had the following operating leases:
Due within one year
After one year but within two years
After two years but within five years
After five years
As at 31 December 2016, the Group had the following operating leases:
Due within one year
After one year but within two years
After two years but within five years
After five years
Premises
£’000s
Vehicles
£’000s
Total
£’000s
382
386
307
–
1,075
99
–
–
–
99
Premises
£’000s
483
341
344
–
1,168
Vehicles
£’000s
179
100
–
–
279
481
386
307
–
1,174
Total
£’000s
662
441
344
–
1,447
86
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
24 Loans and Borrowings
Group and Company
Current liabilities
Other loans
Non-current liabilities
5 year secured bonds
At 1 January/on recognition
Amortised finance charges
Interest payments
Exchange adjustments
2017
£’000s
2016
£’000s
–
986
16,455
2,706
(1,263)
668
18,566
14,777
1,367
(592)
903
16,455
On 21 June 2016 the Company announced that Greenberry S.A (‘‘Greenberry’’) had subscribed for 5-year non-amortising secured
bonds with an aggregate issue value of €28.8 million (the “Bonds”). Alongside the Bonds, the Company issued 70,312,500
warrants to subscribe for new ordinary shares in the Company at an exercise price of 30 pence per ordinary share and an exercise
period of approximately five years, concurrent with the term of the Bonds, to Greenberry (the “Warrants”). The Bonds were secured
over the share capital of Sound Energy Holdings Italy Limited (‘‘SEHIL’’) but subsequent to year-end, the security on the share
capital of SEHIL was released and replaced by security on the share capital of Sound Energy Morocco South Limited. The Bonds
have a 5% coupon and were issued at a 32% discount to par value. A total cash fee of €1.1 million was paid by the Company.
The Warrants were recorded within equity at fair value on the date of issuance and the proceeds of the notes net of issue costs
were recorded as non-current liability. Part of the Bonds’ proceeds were used to settle an existing Reserve Based Lending
facility with Greenberry of €7.0 million at a discount of 50%. The Company also settled £7.0 million debt that had been issued
to Continental Investment Partners in 2014 as part of the re-financing. The coupon rate of 5% for the Bonds ensures that the
Company’s ongoing cash out-flow on interest payments remains low, conserving the Company’s cash resources. The effective
interest rate is approximately 16.3%. The 5-year secured Bonds are due in June 2021.
The £7.0 million settled was the debt issued to Continental Investment Partners with an annual coupon of 8% on 28 July 2014,
which was issued alongside £1.0 million of debt to Simon Davies, with an annual coupon of 10%. The total issue of £8.0 million,
with a three year term, was combined with equity and warrants which also had a three year term. Each warrant was convertible
into equity at a price of 10.4p per share during that three-year term. The fair value of the warrants at issue is included within
warrant reserve.
During 2017, the Company settled £1.0 million debt due to Simon Davies through the exercise of 9.6 million warrants at 10.4p per
share.
Liability component at 1 January
Interest and amortised issue costs
Interest paid
Debt paid
Reconciliation of liabilities arising from financing activities
Non-cash changes
Loan
repayment in
shares
£’000
Cash flows
£’000
(1,263)
(30)
(1,293)
–
(1,000)
(1,000)
Amortised
finance
charges
£’000
2,706
44
2,750
1 January
2017
£’000
16,455
986
17,441
Long-term borrowings
Short-term borrowings
Total liabilities from financing activities
2017
£’000s
986
44
(30)
(1,000)
–
2016
£’000s
7,118
1,413
(545)
(7,000)
986
Exchange
adjustments
£’000
31 December
2017
£’000
668
–
668
18,566
–
18,566
87
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
NOTES TO THE FINANCIAL
STATEMENTS CONTINUED
for the year ended 31 December 2017
24 Loans and Borrowings continued
Reconciliation of external interest costs
Amortised finance charges- long-term borrowings
Amortised finance charges- short-term borrowings
Accelerated bond costs amortisation on debt settlement
Less capitalised interest
Exchange adjustments
Total external interest for the year
2017
£’000
2,706
44
–
2,750
(1,618)
(15)
1,117
2016
£’000
1,367
1,413
2,353
5,133
(1,455)
19
3,697
25 Discontinued Operations
On 5 October 2017, the Company announced that it had entered into non-binding conditional heads of terms with Saffron Energy
plc (“Saffron”) and Po Valley Energy Limited under which it is proposed that Company disposes of its portfolio of Italian interests
and permits through the sale of Sound Energy Holdings Italy (‘‘SEHIL’’) and Apennine Energy SpA (‘‘APN’’) (the “disposal”). The
consideration for the disposal would be fully satisfied through the issue of 185,907,500 new ordinary shares in Saffron which would
be distributed directly to SOU shareholders valued at approximately £8.1 million using the share price of Saffron of 4.38 pence
per share being the closing mid-market price per Saffron ordinary share before the announcement was made. Subsequent to the
year end, the Company announced that it had entered into a binding agreement with Saffron for the disposal and is expected to
complete the disposal by April 2018. At 31 December 2017, the Italian operations were classified as a disposal group held for sale
and as discontinued operations. With the classification as discontinued operations, the Italian operations have been excluded from
the segment note (note 2).
The results of the Italian operations for the year are presented below:
Revenue
Operating costs
Impairment of producing assets
Impairment of goodwill
Impairment of intangible assets
Exploration costs
Gross loss
Administrative expenses
Operating loss from discontinued operations
Finance revenue
Foreign exchange gain
Finance costs
Loss for the year before taxation from discontinued operations
Deferred tax credit
Loss for the year after taxation from discontinued operations
2017
£’000s
708
(697)
–
(55)
(19,018)
(761)
(19,823)
(1,995)
(21,818)
79
4
(131)
(21,866)
55
(21,811)
2016
£’000s
833
(1,110)
(5,455)
(1,704)
(1,819)
(515)
(9,770)
(1,995)
(11,765)
2,054
94
(861)
(10,478)
1,744
(8,734)
88
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU
25 Discontinued Operations continued
The major classes of assets and liabilities of the Italian operations classified as held for sale as at 31 December 2017 are as follows:
Assets
Property, plant and equipment
Intangible assets
Land and buildings
Inventories
Other receivables
Prepayments
Cash and short term deposits
Assets of disposal group held for sale
Liabilities
Trade and other payables
Deferred tax liabilities
Provisions
Liabilities of disposal group held for sale
Net assets
The net cash flows of the Italian operations were as follows:
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Net cash outflow
2017
£’000s
(2,513)
(13,962)
–
(16,475)
2017
£’000s
1,363
4,792
1,598
133
3,527
66
813
12,292
1,644
378
2,470
4,492
7,800
2016
£’000s
(1,810)
(2,468)
(2,894)
(7,172)
26 Post Balance Sheet Events
On 22 January 2018, the Company announced that it had entered into a binding conditional sale and purchase agreement (the
“Binding Agreement”) with Saffron Energy Plc (“Saffron”) under which it is proposed that Saffron acquires Sound Energy’s portfolio
of Italian interests and permits through the acquisition by Saffron of the entire issued share capital of the Company’s wholly owned
subsidiary, Sound Energy Holdings Italy Limited (“SEHIL”). SEHIL holds all of Sound Energy’s Italian oil and gas interests through
its own wholly owned subsidiary, Apennine Energy SpA (“APN”). It is proposed that Saffron will be renamed Coro Energy plc. The
consideration for the disposal of SEHIL will be fully satisfied through the issue of 185,907,500 new ordinary shares of £0.001 each
in the capital of Saffron (the “Consideration Shares”), subject to any rounding of fractional entitlements. The Consideration Shares
would be paid directly to the Company’s shareholders on completion which is expected to be in April 2018. The Company was
granted a court order on 13 March 2018 approving a capital reduction following cancellation of the share premium account and
transferring £277.7 million to distributable reserves.
On 23 January 2018, the Company announced that it had received the final results of the resources certification in relation to the
TE-5 horst core volumes at the Company’s Tendrara asset, onshore Morocco (the “Final Certification”). The Final Certification, was
entirely consistent with and confirmed the preliminary results of the certification announced by the Company on 20 December
2017. The Company also announced that Stephen Whyte, the Company’s Non-Executive Chairman, had stepped down from the
Board and his position would be assumed by Richard Riddell, a Non-Executive Director of the Company.
On 31 January 2018, the Company announced the appointment of Macquarie Capital (Europe) Limited as joint broker to the
Company. Macquarie Capital (Europe) Limited will act alongside RBC Capital Markets, joint broker, and Smith & Williamson
Corporate Finance Limited, continue as the Company’s nominated adviser.
On 12 February 2018, the Company announced it had been granted, subject to Moroccan Energy and Finance Ministry approval,
a petroleum agreement covering Sidi Moktar (the “Petroleum Agreement”). The Petroleum Agreement, has been granted to
the Company by L’Office National des Hydrocarbures et des Mines (“ONHYM”), the Moroccan state regulator for petroleum
operations, and will come into force on approval of the Moroccan Energy and Finance Ministries. The petroleum agreement is for
an 8 year period.
On 7 March 2018, the Company provided an update on the Italy divestment and noted that the divestment was expected to
complete on or around 9 April 2018.
89
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.comFinancial Statements03
LIST OF LICENCES
AND INTERESTS
Licence
Rapagnano
San Lorenzo
Fonte San Damiano
Carità
Torrente Alvo
Carità
Badile
S.Maria Goretti
Villa Gigli
Monte Negro
D-R74-AP
D503 BR-CS
Posta Del Giudice
Solfara Mare
Costa Del Sole
Torre del Ferro
Tendrara2
Anoual3
Matarka4
Sidi Moktar5
Key Project or Prospect
Status1
Name
Type
Concession Casa Tonetto
Concession
Concession
Concession
Permit
Permit
Permit
Permit
Permit
Permit
Permit
Application
Application
Application
Application
Application
Permit
Permit
Permit
Permit
Rapagnano
Casa Tiberi
Marciano
Gas production
Gas production
Abandonment
in process
Awaiting
abandonment
Oil discovery
Appraisal
Prospect
Appraisal
Oil discovery
–
Gas discovery
Gas discovery
–
–
Oil discovery
–
Prospect
Prospect
Matarka Reconnaissance
Prospect
Strombone
Nervesa
Badile
T.Tesino
Musone
–
Laura
Dora/Dalla
–
–
Manfria
–
Tendrara
Anoual
Sidi Moktar
WI
(%)
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
47.5
47.5
47.5
75
Area
(km2)
8.5
4.9
23.7
4.2
Operator
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
84.3
529.8
154.5
101.3
100.9
287.7
65.2
82.6
113.6
337
41.5
118.0
9,335.6
8,873.3
5,223.3
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Apennine Energy
Sound Energy Morocco East
Sound Energy Meridja
Sound Energy Morocco East
4,499 Sound Energy Morocco South
Notes:
1.
Italy
A Concession in Italy (licences operated by Apennine Energy) 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. The conversion of an application to a full permit requires the approval of an Environmental
Impact Assessment.
Morocco
An Exploration Permit in Morocco (licences operated by Sound Energy Morocco and Sound Energy Morocco South) allows
hydrocarbon exploration and is valid for up to 8 years. Exploration Permits are granted by the Energy Ministry and published in
the Bulletin. The initial term is not dictated by law and is defined in the Petroleum Agreement. The Petroleum Agreement is to
be entered into between ONHYM and the permit holder, which must be approved by a joint decree of the Energy Ministry and
the Finance Ministry.
2. The Company’s interest in the permit is 75%, of which 27.5% is shared with Schlumberger resulting in the Company’s net
effective interest of 47.5%.
3. The Company’s interest in the permit is 75%, of which 27.5% is shared with Schlumberger resulting in the Company’s net
effective interest of 47.5%. The Reconnaissance covering previously relinquished Tendrara acreage.
4. The Company’s interest in the permit is 75%, of which 27.5% is shared with Schlumberger resulting in the Company’s net
effective intere to final approvalst of 47.5%.
5. Subject to final approval.
90
25655.04
4 April 2018 1:15 PM
Proof 26
Sound Energy plc Annual Report for the year ended 31 December 2017Stock code: SOU SHAREHOLDER
INFORMATION
Dealing Information
Stock code – SOU.LN
Financial Calendar
Meetings
Annual General Meeting – May 2018
Announcements
2018 Interim – September 2018
2018 Preliminary – March 2019
Addresses
Registered Office
Sound Energy plc
4 Pembroke Road
Sevenoaks
Kent
TN13 1XR
Business Address
Sound Energy plc
4 Pembroke Road
Sevenoaks
Kent
TN13 1XR
Company Secretary
A Bateman
Amba Co Sec Ltd
12 Clifton Park
Caversham
Reading
Berkshire
RG4 7PD
Website
www.soundenergyplc.com
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Auditor
Crowe Clark Whitehill LLP
St Bride’s House
10 Salisbury Square
London
EC4Y 8EH
Stockbrokers
RBC Capital Markets
Riverbank House
2 Swan Lane
London
EC4R 3BF
Macquarie Capital (Europe) Ltd
Ropemaker Place
28 Ropemaker Street
London
EC2Y 9HD
Nominated Advisers
Smith & Williamson Corporate Finance
Limited
25 Moorgate
London
EC2R 6AY
25655.04
4 April 2018 1:15 PM
Proof 26
www.soundenergyplc.com Sound Energy plc
1st Floor
4 Pembroke Road
Sevenoaks
Kent
TN13 1XR
United Kingdom
S
o
u
n
d
E
n
e
r
g
y
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
D
e
c
e
m
b
e
r
2
0
1
7