SOUND ENERGY PLC
ANNUAL REPORT & ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2023
Company Number 05344804
Table of Contents
Page
STRATEGIC REPORT .............................................................................................................................................................................2
Chairman’s Statement ................................................................................................................................................................................... 2
Our Marketplace ............................................................................................................................................................................................ 5
Our Strategic Partnerships .............................................................................................................................................................................. 7
Business Model ............................................................................................................................................................................................. 9
Reserves and Resources .............................................................................................................................................................................12
Our Strategy ..................................................................................................................................................................................................15
Portfolio Review ...........................................................................................................................................................................................16
Micro LNG Project Review ...........................................................................................................................................................................21
Financial Review ...........................................................................................................................................................................................23
S172 statement .............................................................................................................................................................................................25
Sustainable and Responsible Business......................................................................................................................................................27
Principal Risks and Uncertainties ...............................................................................................................................................................31
CORPORATE GOVERNANCE .............................................................................................................................................................. 35
Chairman’s Corporate Governance Statement ............................................................................................................................................35
QCA Code Principles....................................................................................................................................................................................36
Board Overview ............................................................................................................................................................................................38
Board of Directors ........................................................................................................................................................................................39
Board Activities ............................................................................................................................................................................................41
Health, Safety, Security & Environment Committee ...................................................................................................................................43
Audit Committee Report ..............................................................................................................................................................................45
Nominations and Remuneration Committee Report ..................................................................................................................................47
Directors’ Remuneration Report ..................................................................................................................................................................48
Directors’ Report ..........................................................................................................................................................................................53
Statement of Directors’ Responsibilities ....................................................................................................................................................55
Independent Auditor’s Report .....................................................................................................................................................................56
FINANCIAL STATEMENTS ................................................................................................................................................................... 61
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 .....................................61
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2023 ...............................................................................................................62
COMPANY BALANCE SHEET AS AT 31 DECEMBER 2023 ........................................................................................................................63
GROUP AND COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 .................................64
GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 ...........................................................................66
COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 ......................................................................67
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 ......................................................................68
LIST OF PERMITS AND INTERESTS .................................................................................................................................................... 96
SHAREHOLDER INFORMATION .......................................................................................................................................................... 97
STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
STRATEGIC REPORT
Chairman’s Statement
Introduction
2023 was a year of continued progress, advancing the Tendrara concession development on all fronts: the
Phase 1 Micro LNG (mLNG) development, the Phase 2 Pipeline development and funding, and the
announcement of our potential asset partner, in Eastern Morocco.
Phase 1 of the development, the mLNG project, progressed with equipment fabrication, site preparation and
construction works undertaken. Materials were purchased, contracts awarded and the two well recompletion
preparation work commenced.
Fabrication of equipment and site preparation for the Phase 1 mLNG facility proceeded, delivery and
installation work slowed in the second half of 2023 due to the main contractor (Italfluid Geoenergy S.r.l
(“Italfluid”)) experiencing cost increases and supply chain issues. Italfluid took steps to mitigate its financing
obligations and phase its expenditures. The updated schedule shows that the LNG storage tank erection
work remains on the critical path and that mechanical completion and commissioning of the processing
equipment should occur in 2024 and LNG sales thereafter. Sound Energy is evaluating temporary LNG
storage facilities to facilitate LNG sales.
The Phase 2 pipeline gas project requires financing to be arranged and finalised prior to taking a Final
Investment Decision (FID). In October 2023, the Company announced an extension to its approximately
$235 million debt funding term sheet with Attijariwafa bank, Morocco’s largest bank, subject to certain key
conditions being concluded. At year end whilst project debt financing, a gas sales agreement and an equity
partner had been identified and matured, the associated legal documentation and/or conditions precedent
had not been completed or satisfied. 2024 requires that these key agreements are finalised and are
unconditional such that financing of the pipeline project can be concluded. During 2024, the Company also
plans to refresh the FEED (front end engineering design) that was completed in 2019 before tendering for
Phase 2 engineering, procurement and construction (EPC) services in readiness for FID. The Company also
announced an extension to the conditional gas sale and purchase agreement with ONEE (Office National
de l’Electricité et de l’Eau potable).
As part of our wider efforts to bring funding into our plans for Phase 2, it was announced in June, that the
Company had identified Calvalley as a partner for the Tendrara Production Concession and the surrounding
Grand Tendrara exploration permits. As at year end, the definitive contractual documentation with Calvalley
had not concluded although the process was advancing. The transaction would see Calvalley enter the
Concession and Grand Tendrara exploration permits in exchange for development and exploration
financing. Returning to exploration offers the near-term opportunity to expand the Company’s resource base
and unlock its significant basin potential.
It was agreed with ONHYM that all exploration permits were either extended or advanced into the first
Complementary Period (at year end we are awaiting the various Authorities final approval of the agreed
licences amendments).
We were pleased that the long-running dispute with the Moroccan authorities over tax was settled mid-year,
with modest payments phased over a six-year period. The removal of this tax overhang helped unlock
financing and partnering opportunities at Tendrara, smoothing the pathway towards Phase 2 FID and,
hopefully, further exploration success.
Corporate
In June, we successfully raised £2.5 million through a convertible equity issue, which was priced at 2.25
pence per share (a premium to the prevailing share price at the time), with the funds earmarked for pre-FID
activities on Phase 2, new ventures activities and corporate G&A. In line with the terms of debt issue, the
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Company issued shares following the conversion of £2.25 million into shares during the second half of the
year. In December, the Company successfully gained noteholders’ support to modify the Euro bond
amortisation obligation (in respect of its Company's Luxembourg listed EUR 28.8m 5.0% senior secured
notes), such that the bond will now not be fully redeemed until December 2027 rather than partially from
December 2023. This, in turn, improved the Company’s working capital position as it moves towards first
gas and first revenue, on its Phase 1 project.
Preparing key elements for Phase 2 documentation for the Final Investment Decision, has taken longer than
expected, but we anticipate the final stages to be completed in 2024. We have appreciated the ongoing
support of our stakeholders and investors throughout the process.
ESG and keeping our people safe sits at the heart of our business and, as operations continued, we have
actively monitored and taken timely action on safety or environmental issues, reports or alerts, as they have
arisen. The Company has a robust health and safety management system in place and works hand in hand
with our contractors and under the umbrella of our corporate environmental and safety standards. Thanks
to strong monitoring and constant improvement of working practices, we have had no serious accidents over
the year. Any environmental issues are also recorded and monitored. Finally, we engage proactively with
our local communities and have taken steps not only to employ locals where we can, but to keep relevant
stakeholders and communities in Morocco informed about our activities. Good corporate governance is
maintained at all levels in particular, we note the new amendments to the QCA governance code and will
implement these in due course.
The Company continues to manage its financial resources prudently whilst making significant capital
investments in pursuing its strategy. The bridge to fund the company until first revenues from Phase 1 is
always under review and a variety of working capital sources evaluated.
Board
During 2023, the Board continued to meet regularly and oversee effective implementation of the Company’s
strategy. A review of the Board’s effectiveness was conducted in 2022. Scope for improvement was
identified, and with many resultant initiatives implemented in the Board‘s 2023 activities. For example, the
Board undertook a focused strategy review session during 2023 reviewing all aspects of the Company
business, reflecting on its position in the market, risk profile, asset opportunity, structuring, and scenario
planning.
We welcomed Simon Ashby-Rudd as new independent director as Marco Fumagalli stepped down. Simon
brings a wealth of knowledge, financial skills and deal-making experience to the Company. We thank Marco
for his 9 years of valued service, advice, and support to the Company.
Summary
Whilst substantial progress had been made in advancing mLNG and the financial foundations for Phase 2,
execution and closing of documentation experienced delays. However, timely conclusion of the proposed
partnering arrangement and bank debt financing in 2024 will facilitate progress on the pipeline development
at Tendrara, as well as funding for further exploration on Grand Tendrara.
The micro-LNG development at Tendrara construction has suffered from supplier delays and is now
expected to be ready to receive gas into the plant by the end of 2024 with LNG sales thereafter. The
Company continues to uphold strong ESG values and deliver our work in a manner commensurate with our
principles. We are pleased to have settled our outstanding tax matters such that we can optimise our
resources on field development.
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We have enjoyed a supportive working relationship with ONHYM, the Ministry and our various contractors
in Morocco, and, most importantly, we continue to benefit from the hard work and dedication of our own
staff. We will continue to work diligently to deliver value and progress for all our stakeholders during 2024
and beyond, as we focus on delivering material developments in transition energy.
Graham Lyon
Executive Chairman
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Our Marketplace
Gas and the Energy Transition
The market opportunity
As the global community progresses the deployment of capital and technology to deliver the energy
transition, the two weeks at the United Nations COP28 concluded with a consensus to accelerate climate
action. The urgency the world faces in securing fewer carbon-intensive fuels as part of the energy mix and
transitioning away from all fossil fuels in energy systems in “a just, orderly and equitable manner” has
genuine international momentum. Gas is firmly seen as bridge to a future lower carbon energy mix.
Coupled with that, Sound Energy’s combined position of having the largest discovered onshore gas resource
in Morocco and extensive unrisked muti-TCF exploration potential across Eastern Morocco and Sidi Moktar,
positions us favourably to capture a significant foothold in the Moroccan gas market – a market that is both
short on discovered indigenous gas resources and that offers significant growth potential across its industrial
sector, its gas-to-power sector and, potentially, the European gas market via the Gazudoc-Maghreb Europe
(GME) gas pipeline.
Gas and the opportunity for Sound Energy
Transitioning away from carbon-intensive energy supply requires the replacement of high carbon density
fuel stocks such as coal to fuels with relatively lower carbon emissions such as Liquified Natural Gas (LNG)
or piped gas. This is the opportunity for Sound Energy to connect industrial and power users to gas
resources previously seen as isolated from gas market supply or reliant on foreign imports. The gas market
that Sound Energy seeks to service and develop throws up considerable opportunity:
• Spanish natural gas consumption in 2022 was 31.5 BCM (1.1 Tcf)1, more than 30 times larger than
Morocco’s. In 2022, over 99% of Spanish gas demand1 is met by imports, from countries including USA,
Algeria, Nigeria, Russia France, Qatar and Egypt
• Following the cessation of gas exports to Morocco from Algeria in November 2021, the case for
enhanced supply security and indigenous gas production has become even greater. Our proposed
Phase 2 gas development to produce for the gas-to-power market is a key element of Morocco’s energy
strategy. Clearly, with the significant exploration potential within Sound Energy’s portfolio, we are very
well-positioned to meet Morocco’s heightened and growing need for gas should the company discover
further gas resources.
•
In the Moroccan National Energy Strategy, Sound Energy has been referred to as important in plugging
the supply demand imbalance for gas as it becomes the replacement fuel for coal in Morocco.
• As Morocco continues to grow both industrially and domestically, and as other fuel sources become
more scarce in-country, there is a further opportunity to supply more of the energy mix.
• Morocco’s imports of natural gas from Spain through the GME pipeline rose by a 403% during 2023. In
2022 Spain exported only about 1,881 GWh (0.16 BCM, 5.8 Bcf) of natural gas to Morocco, 2023 exports
climbed to about 9,472 GWh (0.82 BCM, 29 Bcf)2.
• Moroccan LPG market demand ranks top globally and is equivalent to 3.3 BCM (116 bcf) p.a. of
natural gas. Commencing in April 2024, the Moroccan Government intends to reduce subsidies on LPG to
ease the financial burden on the State, which provided in excess of US$ 2 Billion of LPG subsidies in
20223.
Our Phase 1 mLNG project is the means to for the Company to generate strong and stable revenue in the
short term. There is strong and growing demand for our LNG within Morocco. For shareholders this is a key
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phase for the business and will allow us to be less reliant on external sources of funding, through long term
revenue generation in a low (hydrocarbon) taxation country.
Building on Phase 1, the Phase 2 pipeline gas project will allow the company to layer on growth, generate
increased revenues whilst servicing the burgeoning gas market.
1 https://www.cores.es/en/estadisticas (Natural gas consumption data)
2 https://www.cores.es/en/estadisticas (Corporación de Reservas Estratégicas de Productos Petrolíferos data 2023)
3 OPIS, a Dow Jones Company, 19 December 2023 Interview with Mohammed Rachid Idrissi Kaitouni, President of the Energy Federation in
Morocco
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Our Strategic Partnerships
Our key partners allow Sound Energy to achieve more than we could do alone. Our partners support us
from investment funding to project execution and delivery.
Afriquia Gaz
Phase 1
Funding/offtaker/investor
The partnership commits SEMEL (Sound Energy Morocco East Ltd) on behalf of the Concession Joint
Venture, under a binding Gas Sales Agreement (GSA) to produce, process, liquefy and sell, to Afriquia Gaz,
an annual contractual quantity of not less than 171,000 cubic metres of LNG per year (approximately 100
million cubic metres a year of gas) for 10 years from first gas. SEMEL commits to providing Afriquia a daily
quantity of between 475 and 546 cubic metres of LNG, and Afriquia will commit to an annual minimum "Take
or Pay" quantity of 475 cubic metres per day of LNG for 360 days of each year over the term of the GSA.
Afriquia Gaz underpinned its partnership with Sound Energy plc by acquiring a 9.8% shareholding through
a £2 million placing in 2021 and entered into a $18 million loan note agreement with the Company, also in
2021, which meets the capital funding requirements of Sound Energy’s Joint Venture Concession
participants to bring the Phase 1 project onstream. As at 31 December 2023, Afriquia Gaz had an interest
in, approximately, 8.996% of Sound Energy’s current issued share capital.
Italfluid Geoenergy S.r.l
Phase 1
Design/construct/commission/operate/maintain and fund
In 2022, Sound Energy Morocco East Limited (SEMEL) entered into a binding contract with Italfluid S.R.L.
in which Italfluid will design, construct, install, commission, operate, maintain and lease to SEMEL, a gas
processing and liquefaction plant over a 10-year period.
Italfluid is an international integrated service Company, which provides certain upstream petroleum services,
including the design, construction, commissioning and maintenance of process plants and hydrocarbon
processing, including gas liquefaction to produce liquified natural gas. It has been operating in the oil and
gas industry for over 30 years. Its previous clients include Total, Edison, British Gas and Eni.
Italfluid, through a vendor financing financial structure with Sound Energy, is aligned with delivering plant
operation and maintenance services to the Phase 1 mLNG Project, such that LNG deliveries are guaranteed
to market as required Take or Pay, and Send or Pay, contractual obligations.
Micro LNG Plant is to be designed, constructed, commissioned, operated and maintained by Italfluid with
contractual obligations for plant operability and performance.
Oil and Gas Investment fund
Investment
In January 2017, Sound Energy acquired the Eastern Morocco portfolio of Oil and Gas Investment Fund
(“OGIF”), and introduced OGIF as a second cornerstone investor:
• Consolidated interest in Eastern Morocco’s prospective acreage.
• Strengthened Sound Energy’s position in Morocco: OGIF is a Moroccan fund, owned by the seven
largest Moroccan financial institutions.
• As at 31 December 2023, OGIF had an interest in, approximately, 13.52% of Sound Energy’s current
issued share capital.
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National Office of Hydrocarbons and Mines
Permits/funding
• The National Office of Hydrocarbons and Mines (“ONHYM”) is another key partner for Sound Energy.
The department was established in August 2005 by the merger of the Bureau of Research and Mining
Participations (“BRPM”) and the National Office for Research and Petroleum Explorations (“ONAREP”).
• ONHYM is a public institution with legal personality and financial autonomy under state supervision and
is responsible for the monitoring of permits for exploration and for funding the development jointly with
private partners in Morocco.
• Sound Energy has a good relationship with ONHYM through 4 Joint Ventures with ONHYM formalised
through the 4 Petroleum Agreements (PA) below:
1. Tendrara-Lakbir PA which rules Tendrara Concession JV
2. Grand Tendrara PA which rules the exploration work over Grand Tendrara exploration permits area
3. Anoual which rules the exploration work over Anoual exploration permits area
4. Sidi Mokhtar which rules the exploration work over Sidi Mokhtar exploration permits area
Office National de l'Electricité et de l'Eau Potable (ONEE)
Phase 2
Offtaker
The Company is maturing the second phase of pipeline led development of the Tendrara Production
Concession (Phase 2 development).
The joint venture partners entered into a binding GSA in respect of the Phase 2 development with Morocco's
state-owned power Company ONEE for the sale of natural gas from the Tendrara Production Concession
over a 10-year period. Under the GSA, the joint venture partners conditionally committed to producing,
processing and delivering gas from the Tendrara Production Concession, in accordance with required ONEE
gas specifications, to the GME Pipeline, for an annual contractual volume up to 350 million cubic meters of
natural gas per year for a period of 10 years, with an annual take or pay volume of 300 million cubic meters
at a fixed sales price.
As part of Phase 2 development financing the joint venture partners are re-negotiating the GSA with ONEE
under the auspices of the Ministry of Energy.
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Business Model
Delivering sustainable value through the energy transition.
Fuelling the energy transition
As the world continues its ambitious journey towards lower carbon, sustainable energy solutions and a
greener planet, Sound Energy is committed to delivering its part in this journey. Access to energy improves
lives and stimulates growth in society. Sound Energy is committed to this aspiration and has a strategy
focused on developing a portfolio of opportunities to deliver business growth whilst serving consumer needs.
Relationships and partnering
Strategic relationships
Sound Energy recognises that it can achieve more than we can alone by developing high-impact and
sustainable strategic industry relationships. These relationships allow us to leverage technical, financial, and
commercial expertise to enhance our business and deliver on our objectives, whilst de-risking our
opportunities and accessing capital to fund our operations. We believe the creation of mutually beneficial
partnerships allows us and our partners to enhance, and deliver, our business strategies.
Governmental relationships
Having strong and well-developed relationships with host governmental bodies is key to delivering Sound
Energy’s aspirations. The Company invests time, expertise, and resources to engage with governmental
agencies to build trust and understanding around its strategy and operations.
Investors
The support of Sound Energy’s investors, lenders and shareholders provides us with a firm financial
foundation to deliver our strategy. We regularly engage with our shareholders, and we collaborate with our
investors who bring insight, knowledge and business skills, which offers an additional layer of value to help
us achieve success within the business. The Company’s growth focused strategy is centred on:
Short-term Organic growth
• Tendrara Phase 2 gas development
• Tendrara Phase 1 and Phase 2 expansions, more LNG and 2C resources gas sold
• Commercialising known discoveries (e.g. SBK-1, TE-4 Horst)
• Exploration potential surrounding the developments
Medium and Long-term Inorganic growth
• Renewables
Solar
−
Wind (own use in Eastern Morocco, expansion for grid)
• Gas storage
−
• Corporate actions where accretive• Opportunistic asset acquisitions
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A sustainable business model with ESG at its core
EVALUATE
DEVELOP
• Evaluate our existing portfolio focusing on value
extraction via a variety of sustainable energy
transition strategies, including partnerships, farm
outs and revenue producing opportunities
• Screen and assess opportunities for revenue
generation
PRODUCE
• Advance development strategies with efficient use of
financial resources
• Move discoveries through the development phase at
pace
•
Innovative relationships with strategic partners which
can deploy capital and/or technical solutions
RECYCLE AND GROW
• Natural gas production via Micro LNG or larger
projects at advantaged pricing to generate cash
and value for shareholders
• Recycle cash and leverage portfolio to fuel growth
• Leverage technical, financial and commercial skill sets
to build the portfolio
GOVERNANCE AND ETHICS
PEOPLE
• Committed to strong corporate governance to
• Keeping our people safe
strengthen our business and serve our
stakeholders
• LSE growth market listed entity observing the
QCA code
• Developing our people
• Promoting positive behaviours
• Training of Moroccan nationals
SOCIAL RESPONSIBILITY
ENVIRONMENT
• Creating local employment in developing countries
•
• LNG and piped gas development displacing coal and
LPG to lower Morocco’s carbon footprint and increase
security of supply
• Respecting our environment and upholding high
environmental standards
Partnering through the Value Chain
Phase 1
Micro liquified natural gas development plan for the TE-5 Horst Development
Micro LNG Value
Chain
Sound Energy
Italfluid
Afriquia Gaz
Production
Production
Development drilling
• Design
• Commission
• Operate and maintain
Small-scale LNG
production
Transport via
truck
Local storage &
regasification
Distribution
Marketing &
sales
Sound Energy plc
Small-scale LNG production
• Design
• Commission
• Operate and maintain
Transport via truck
Local storage&
regasification
Distribution
Marketing & sales
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Progress
• 10-year Gas Sales Agreement signed with Afriquia Gaz
•
Italfluid Geoenergy Srl selected as contractor to engineer, procure, construct, operate and maintain the
micro-LNG Plant based on a lease contract structure
• Contract for civil works for the micro-LNG facilities awarded (via Italfluid) and works commenced with
the construction of the LNG storage tank and processing units’ foundation pads
• Detailed design engineering within primary subcontractors progressing
• Commenced TE-6 and TE-7 well-works ahead of replacement of tubing and trees in 2024
Next steps
• Finalise engineering of flowlines and associated equipment, engage with suppliers and place purchase
order(s) for supply
• Complete construction of LNG storage tank
• Site installation of gas processing and liquefaction train
• Hook-up, integration and tie-ins
• Field commissioning and testing
Phase 2
Full field development plan centred around the development of a 120km pipeline and central
processing facility
Full field Value
Chain
Production
Gas
processing
Transport via
pipeline
Sound Energy
ONEE
Production
Gas processing
Transport via Spurline
Transport via GME pipeline
Distribution
Distribution
Marketing and sales
Purchaser
Marketing
and sales
Progress
• Gas Sales Agreement signed with ONEE for supply of minimum 0.3 bcm/year gas-for-power generation
(transit via GME pipeline) subject to certain CPs
Next steps
• Finance, engage with potential suppliers for the design and build of the CPF, undertake FID
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Reserves and Resources
Resources
The Company’s volumes and risk factors are presented in accordance with the updated and revised June
2018 SPE/WPC/AAPG/SPEE/SEG/SPWLA/EAGE Petroleum Resource Management System (“PRMS”).
Contingent Resources are those quantities of petroleum1 estimated, at a given date, that are potentially
recoverable from known subsurface accumulations, but the applied project(s) are not yet considered mature
enough for commercial development due to one or more contingencies.
The Tendrara Production Concession contains Contingent Resources2. In late 2017, Sound Energy
undertook a resource evaluation exercise for the Tendrara discovery. This exercise was conducted by a
leading independent technical consultancy, RPS Energy Consultants Ltd (“RPS”). The results of the
resource evaluation were presented in a Competent Persons Report (“CPR”). The table below summarises
the Discovered Gas Originally in Place and the Contingent Resources2 for the Tendrara TE-5 Horst within
the Concession certified by RPS, as announced by the Company on 20 December 2017 and 23 January
2018, and the net interest to the Company3.
Segment
Name
TE-5 Horst
(TAGI 1 & 2)
Discovered Gas
Initially In Place (Bcf)
Contingent Resources
(Bcf)2
Contingent Resources
(Bcf)2
Gross (100%) basis
Gross (100%) basis
Net to Company (75%) basis
Low
Mid
High
1C
2C
3C
1C
2C
3C
349
651
873
197
377
533
148
283
400
Summary table showing the range of Discovered Gas Initially In Place and Contingent Resources, gross, for
the Tendrara TE-5 Horst accumulation (TAGI Reservoir), within the Tendrara Production Concession.
1.
2.
3.
Petroleum is a naturally occurring mixture consisting of, but not limited to, hydrocarbons in the gaseous, liquid or solid phase. Petroleum
may also contain non-hydrocarbon compounds, common examples of which are carbon dioxide, nitrogen, hydrogen sulfide, and sulfur.
Contingent Resources are technical volumes, i.e. no economic limit test applied
Under the principal terms of a Profit Sharing Deed, the Company, together with its subsidiaries, will pay to Schlumberger Holdings II
Limited, an amount equivalent to between 8% and 11% of total net profits (after costs, taxes and other applicable deductions) arising
from the Concession over a period of 12 years from first commercial production from the Concession
At the point of the Final Investment Decision (“FID”) for each phase of the Tendrara TE-5 Horst development
project, it is permissible that a portion of these Contingent Resources can be converted into Reserves
(although the Company has not yet elected to do so following FID on Phase 1). Projects that are classified
as Reserves will meet the following criteria:
• a technically mature and feasible development plan
•
financial appropriations either being in place or having a high likelihood of being secured to implement
the project
• a reasonable timeframe for development
• a reasonable assessment that the development projects will have positive economics and meet defined
investment and operating criteria; a reasonable expectation that there will be a market for forecast sales
quantities of the production. There should also be similar confidence that all produced streams can be
sold, stored, re-injected, or otherwise appropriately disposed
the necessary production and transportation facilities are available or can be made available
legal, contractual, environmental, regulatory, and government approvals are in place, or will be
forthcoming, together with resolving any social and economic concerns
•
•
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Exploration Potential for Eastern Morocco (Grand Tendrara and Anoual permit)
Prospective Resources are those quantities of petroleum estimated, as of a given date, to be potentially
recoverable from undiscovered accumulations, assuming the application of future development projects.
Prospective Resources have an associated geological chance of success (“CoS”) applied. CoS is the
estimated probability that drilling activities will confirm the existence of a significant accumulation of
petroleum and for them to be tested to flow to the surface. 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 defined an exploration inventory, a series of features internally classified as either
prospects, leads or concepts, based on their technical maturity. The term “exploration potential”, as used
herein, is intended to encompass all quantities of undiscovered petroleum (recoverable and unrecoverable)
and presented as Gas Initially In Place (“GIIP”). GIIP is the total quantity of gaseous petroleum that is
estimated to exist originally in naturally occurring reservoirs, as of a given date. Petroleum may also contain
non-hydrocarbon compounds, common examples of which are carbon dioxide, nitrogen, hydrogen sulfide,
and sulfur.
Sound Energy has internally estimated exploration potential for the Grand Tendrara and Anoual permits.
These estimates are presented as GIIP (gas initially in place) unrisked without an associated geological CoS
and on a gross basis. The total volume of exploration potential is constrained by a basin modelling study
undertaken by a leading independent petroleum systems analysis consultancy (IGI Ltd), as communicated
by RNS on 29 June 2018.
The output of the basin modelling has allowed Sound Energy to update the estimated exploration potential
of the permit and Production Concession as 20 Tcf gas equivalent, mid case, unrisked GIIP. The basin
model further defines a possible range of estimated exploration potential across the entire permit area, with
a 7 Tcf low case of unrisked gas initially in place and, if all the key elements of the petroleum system’s model
are present, an upside case of 34 Tcf of unrisked Gas Initially In Place.
The range of unrisked gas initially in place volume estimates from the basin model has been used to
constrain and consolidate the exploration inventory of features across the permit in addition to the resources
of the Tendrara Production Concession. The volumes are spread across a portfolio of prospects, leads and
concepts with varying degrees of technical maturity. The portfolio includes an estimate of volumes for
features identified from previous operators’ studies, plus new volumes identified by Sound Energy from
geophysical data acquisition, processing and interpretation exercise, including the recent evaluation of the
TE-4 Horst, SBK-1 Structure and M5 Prospect. These are all potential near term subsalt drilling
opportunities within the Trias Argilo-Gréseux Inférieur ("TAGI") gas reservoir, the proven reservoir of the
Tendrara TE-5 Horst gas accumulation within the Tendrara Production Concession.
Both SBK-1 and TE-4, drilled in 2000 and 2006 respectively, encountered gas shows in the TAGI reservoir.
SBK-1 flowed gas to surface during testing in 2000 at a peak rate of 4.41 mmscf/d post acidification but was
not tested with mechanical stimulation. TE-4 was tested in 2006 but did not flow gas to the surface.
Mechanical stimulation has proven to be a key technology to commercially unlock the potential of the TAGI
gas reservoir in the TE-5 Horst gas accumulation and, accordingly, the Company believes this offers
potential to unlock commerciality elsewhere in the basin.
Commercial discoveries in the Grand Tendrara and Anoual Exploration Permits would have the potential to
be commercialised through the proposed development infrastructure centred on the Tendrara TE-5 Horst,
with sufficient capacity in the planned Tendrara Export Pipeline or as standalone projects.
. The table below summarises the exploration potential in these three planned drilling targets, expressed as
Gas Initially In Place.
Sound Energy plc
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Target name
Unrisked Volume Potential Gas
Initially-In-Place (Bcf)
Gross (100%) basis
Chance of
success
TE-4 Horst Appraisal
SBK-1 Appraisal
M5 Exploration
Low
153
71
332
Best
260
130
800
High
408
225
1728
Mean
273
140
943
36%
50%
21%
Summary table showing the range of Unrisked Gas Initially In place, gross, for the Prospects TE-4 Horst, SBK-1
Structure and M5 with the corresponding geological Chance of Success.
Sound Energy plc
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Our Strategy
Today
FOCUSED
Moroccan gas development and monetisation strategy
COMPELLING
Case for gas in Morocco and Europe, leading to advantaged pricing
DEVELOPING
A major discovered gas resource with strategic partners (e.g. Afriquia Gaz and ONEE), with follow-on
potential
FINANCED
Phase 1 gas development via Micro LNG with Afriquia Gaz and Italfluid, unlocking cash flow
PHASE 2
Pipeline gas-to-power generation providing an alternative to coal use. Financing solutions progressing
GAS EXPLORATION
Portfolio offers potential for transformational growth
STRONG ESG
Lower carbon footprint fuel, strong corporate governance, track record of supporting our local communities
The future
TRANSITION ENERGY
Delivering secure, affordable and sustainable energy, replacing imported LPG, coal and Algerian gas
PORTFOLIO DIVERSIFICATION
By asset class and geography to spread risk and open growth opportunities
SHAREHOLDER RETURNS
Delivered through sustainable cash generation and capital growth
Sound Energy plc
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Portfolio Review
A blended portfolio of gas assets
Eastern Morocco
Tendrara Production Concession
Permit Area
Located proximate to Gazoduc Maghreb Europe (“GME”) pipeline, approximately 120 kilometres to the
North. The 522 kilometre-long Moroccan section is owned by the Moroccan State and operated by ONHYM.
The pipeline connects Morocco to Spanish/Portuguese gas grids as well as Moroccan gas-fired power
stations.
Geology
The gas is trapped within the Triassic TAGI1 reservoir within the structural fault block, termed the Tendrara
TE-5 Horst, and sealed by the overlying salt. Reservoir characteristics are significantly enhanced by
application of proven hydraulic stimulation techniques to increase gas flow rates.
Ongoing and Planned Developments
Planned development of our discovered TE-5 gas to address gas demand in a phased manner is
progressing, with Phase I being the implementation of a micro-LNG development scheme (currently
underway) and a future Phase 2I being the development of a larger scale central processing facility (“CPF”)
and gas export pipeline to GME.
Phase 1
Supply of LNG displacing higher carbon footprint energy (such as heavy fuel, petcoke or imported
LPG)
Phase 1 Micro LNG Development – Funding arranged to meet Sound Energy’s share of sanctioned
pre first gas development costs
Deployment of field gas treatment, processing, liquefaction and storage facilities to deliver mobile LNG to
buyer at site. The LNG buyer will distribute and sell on to its growing Moroccan industrial consumers within
the domestic gas market. Supplies of LNG are to be an annual contractual quantity equivalent to
approximately 100 million Normal cubic metres of gas (approximately 3.5 billion standard cubic feet of gas
per year) over a ten-year period.
Binding gas sales agreement and associated funding are in place with Afriquia Gaz, one of the largest LPG
distributor in Morocco. A ten-year commitment from first gas to sell annual contractual quantity of 100 million
Normal cubic metres per annum with take or pay agreement priced at $6–$8.346 per mmBTU ex plant.
Development utilises the existing wells TE-6 and TE-7, with the drilling of one new well, as required, to
maintain the ten-year period of production at the plateau.
LNG Central Processing Facility is under construction by Italfluid
Micro LNG Plant to be designed, constructed, commissioned, operated and maintained by Italfluid with
guarantees for plant operability and delivery.
Lease structure (with option to buy):
• Minimal LNG tank construction capital payments at and from FID, and following successful completion
of Micro LNG Plant commissioning (including production build-up)
• Leasing solution substantially lowers capital investment requirements of Phase 1 development
• Daily rental payment paid to Italfluid on guaranteed daily volume only
• Performance guarantees on plant availability
Sound Energy plc
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Phase 2- Tendrara TE-5 Development
Concept – Processed gas as a transition fuel flowing to the GME pipeline:
• 20 inch, 120km Tendrara Gas Export Pipeline (“TGEP”)
• Tie-in to existing GME pipeline (Station M04), approved by the GME operator ONHYM, which took over
the GME operatorship at the end of Q4 2021
• Pipeline EIA permit approved and pipeline corridor fully secured. Lease agreements signed with the
landowners and the first lease payments have been paid
• CPF EIA permit approved
• Gas Sales Agreement (“GSA”) with ONEE (Office National de l’Electricité et de l’Eau potable) signed
November 2021 for domestic power plants for gas-to-power generation (transit via GME line), minimum
volume of 0.3 bcm/year (approximately 10.5 billion standard cubic feet of gas per year) at a fixed sale
price over a ten-year term. Extended in 2023.
• Up to six horizontal wells planned to achieve First Gas (Phase 2)
• Exclusive partnership with Attijariwafa Bank (which is one of the top banks in Morocco and in Africa and
which is part of the Moroccan King’s holding MADA) acting as Lead Debt Arranger in order to fund a
substantial part of Phase 2 project. Technical and Legal Due Diligence completed.
Exploration
Grand Tendrara – two Triassic TAGI1 discoveries
Permit Details
Area
Status
Effective date
Term
Resource Potential
14,411 km2
Petroleum Agreement: Exploration
1 October 2018
8 years
Exploration potential in the Triassic TAGI reservoir of 7.52 Tcf gross/5.64 Tcf net
(arithmetical sum of mid-case un-risked GIIP) identified in sub-salt concepts,
leads and prospects.
Permit Area
Surrounds the Tendrara Production Concession.
Located for access to Gazoduc Maghreb Europe (“GME”) pipeline approximately 120 kilometres to the north.
The 522 kilometres long Moroccan section is owned and operated by the Moroccan State. The pipeline
connects Morocco to the Spanish/Portuguese gas grids as well as the Moroccan gas-fired-power stations.
Geology
Only eight wells drilled across the entire area, all encountered evidence of a petroleum system. The primary
reservoir is the Triassic TAGI1 charged from Palaeozoic petroleum source rocks and sealed by the overlying
Triassic salt, which is present across much of the basin. This petroleum play is regionally extensive and
extends into Morocco from Algeria.
Sound Energy plc
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Two Triassic TAGI1 gas discoveries exist within the permit area:
• SBK-1 tested by the previous permit holder at a peak rate of 4.41 mmscf/d in July 2000
• TE-10 flowed gas at non-commercial rates in May 2019
Exploration potential in the Triassic TAGI1 reservoir of 7.52 Tcf gross/5.64 Tcf net (mid-case unrisked GIIP)
identified in sub-salt concepts, leads and prospects.
Future Developments
A number of targets are available for near-term drilling with two features, the SBK structure and the TE-4
Horst, high-graded for drilling. Both these structures were drilled by SBK-1 and TE-4, in 2000 and 2006,
respectively, and both encountered gas shows in the TAGI reservoir. SBK-1 flowed gas to surface during
testing in 2000 at a peak rate of 4.41 mmscf/d post acidification but was not tested with hydraulic stimulation.
TE-4 was tested in 2006 but did not flow gas to the surface. Hydraulic stimulation has proven to be a key
technology to commercially unlock the potential of the TAGI gas reservoir in the Tendrara TE-5 Horst gas
accumulation and, accordingly, the Company believes this offers potential to develop commercial operations
elsewhere in the basin.
The gross exploration potential of these high-graded structures, expressed as GIIP2, is as follows:
Unrisked Volume Potential Gas Initially in Place (Bcf)
Gross (100%) basis
Target name
TE-4 Horst Structure
SBK-1 Structure
Low
153
71
Best
260
130
High
Mean
Chance of
Success
408
225
273
140
36%
50%
A discovery in either structure would have the potential to be commercialised through the proposed
development infrastructure centred on the TE-5 Horst, with sufficient capacity in the planned Tendrara
Export Pipeline or as standalone mLNG projects.
Subject to approval by the Ministry of Energy and Ministry of Finance, the Company has elected to enter the
voluntary first Complementary period, which commenced mid-October 2022 with one well commitment to
be drilled before October 2024. A well drilled on either the SBK structure or the TE-4 Horst would satisfy this
commitment.
1.
2.
Trias Argilo-Gréseux Inférieur (“TAGI”) are sandstones deposited in a fluvial-alluvial environment and are significant oil and gas reservoirs across
Algeria, extending into Morocco
Internal exploration potential estimates, arithmetical sum of mid-case unrisked Gas Initially In Place (“GIIP”)
Anoual
Permit Details
Area
Status
8,873 km2
Petroleum Agreement: Exploration
Effective date
8 September 2017
Term
Resource
Potential
Sound Energy plc
10 years
Exploration potential in the Triassic TAGI reservoir of 11.51 Tcf gross/8.63 Tcf
net (mid-case un-risked GIIP2) identified in sub-salt concepts, leads and
prospects
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Permit Area
Located for access to Gazoduc Maghreb Europe (“GME”) pipeline approximately 120 kilometres to the
North. The 522 kilometre-long Moroccan section is owned and operated by the Moroccan State. The pipeline
connects Morocco to the Spanish/Portuguese gas grids as well as the Moroccan gas-fired power stations.
Geology
Only one well drilled across the entire area. The primary reservoir is the Triassic TAGI1 charged from
Palaeozoic petroleum source rocks and sealed by the overlying Triassic salt, which is present across much
of the basin. This petroleum play is regionally extensive and extends into Morocco from Algeria. Committed
geophysical surveying completed with a single well commitment remaining. Exploration potential in the
Triassic TAGI reservoir of 11.51 Tcf gross/8.63 Tcf net (mid-case un-risked GIIP2) identified in sub-salt
concepts, leads and prospects.
Future Developments
“M5” prospect high graded for drilling a TAGI1 target, operational planning is progressing. The Company’s
estimation of the gross exploration potential of the M5 exploration prospect, a possible candidate for the
exploration well, expressed in GIIP2, is as follows:
Target name
M5 Exploration
Unrisked Volume Potential Gas Initially In Place (Bcf)
Gross (100%) basis
Low
332
Best
800
High
1728
Mean
943
Chance of
Success
21%
1.
2.
Trias Argilo-Gréseux Inférieur (“TAGI”) are sandstones deposited in a fluvial-alluvial environment and are significant oil and gas reservoirs
across Algeria, extending into Morocco
Internal exploration potential estimates, arithmetical sum of mid-case unrisked Gas Initially In Place (“GIIP”)
Sidi Mokhtar
Permit Details
Area
Status
Effective date
Term
Resource Potential
4,712 km2
Petroleum Agreement: Exploration
April 2018
10 years
Unrisked exploration potential of 8.9 Tcf mid-case unrisked GIIP2 following interpretation
of the historical 2D seismic
Permit Area
The permit in which Sound Energy has a 75% interest is located onshore on the Atlantic seaboard of
Morocco, approximately 100 kilometres to the west of Marrakech.
In July 2017, the Company reported the results of the re-entry, completion, perforation and flow testing of
the existing Koba-1 well, with a focus on previously producing relatively shallow gas reservoir.
Strategically, the Company has shifted its focus on the Sidi Mokhtar area towards what it believes has the
potential to be the most significant opportunity amongst the deeper Triassic TAGI1 and Palaeozoic gas plays
in the region already demonstrated by the gas and condensate producing adjacent Meskala Field operated
by our partner ONHYM.
Sound Energy plc
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In June 2018, the Company was awarded a new eight-year Petroleum Agreement and is now actively
seeking a partner to participate in a geophysical survey programme focused on these deeper objectives.
In December 2020, the Company announced a further one-year extension to the initial period of the Sidi
Mokhtar permit and that the work programme for the initial period of the Sidi Mokhtar permit remained
unchanged.
Geology
There is initial un-risked exploration potential of up to 8.9 Tcf gross gas following interpretation of the
historical 2D seismic. The Company believes the pre-salt plays have been overlooked in the region with
limited drilling to specifically target these deeper successions.
The sub-salt plays are underexplored with more than 60 historical exploration wells focused on shallower
objectives in the Jurassic post-salt carbonate successions. The few historical sub-salt tests were drilled on
poor sub-salt seismic imaging. Recent improvements in seismic acquisition and processing technologies
are expected to provide enhanced imaging of the sub-salt structure and geology.
Future Developments
Our next step is to mature the identified leads to drillable prospects with improved seismic imaging. We aim
to acquire new, high-quality 2D seismic data, focused on improving the sub-salt imaging. This work is hoped
to lead to an exploration well targeting a high-impact gas prospect.
1.
2.
Trias Argilo-Gréseux Inférieur (“TAGI”) are sandstones deposited in a fluvial-alluvial environment and are significant oil and gas reservoirs
across Algeria, extending into Morocco
Internal exploration potential estimates, arithmetical sum of mid-case unrisked Gas Initially In Place (“GIIP”)
Sound Energy plc
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Micro LNG Project Review
Progress in 2023
Sound Energy is a pioneer in Morocco in establishing an onshore small scale LNG solution providing gas to
the local market in Africa, assisting Moroccan industry in energy transition, reducing the use of more polluting
fuels and CO2 emissions.
The micro LNG project involves three main parties:
• Afriquia Gaz, are responsible for taking the LNG produced by the facility to customers located in
Morocco. This will be achieved by the use of a dedicated fleet of LNG transport trucks. The majority of
customers are located on the Atlantic seaboard of Morocco some 1000 km to the west of the Tendrara
field.
•
Italfluid GeoEnergy (Italfluid), are responsible for the construction, commissioning, operation and
maintenance of the gas processing and liquefaction plant through a lease arrangement.
• Sound Energy and its Concession partners including ONHYM, are responsible for the delivery of the
following aspects of the project. Firstly, the raw gas gathering system from the wells TE-6 and TE-7 to
the mLNG facility, including the re-completion and upgrade of the wells. Secondly, the construction of
the access road to the facility for the LNG transport trucks. Thirdly, the drilling of a third production well
(TE-112) to be scheduled post first gas production.
On behalf of the Concession partners, Sound Energy released the Notice to Proceed (NtP) to Italfluid on 15
February 2022. The original target is to start LNG production in 2024. Since the NtP there have been
significant supply chain disruptions and cost escalation due to the events, principally the war in Ukraine and
Middle East, global inflation as a result of the COVID pandemic and the resultant effect on global supply
chains. These combined factors have placed significant scheduling and cost pressures on the contractor
Italfluid and the project delivery.
Sound Energy has worked with its project partners to mitigate the effects of external global events to ensure
that the project can progress promptly. The components of the mLNG facility are being manufactured and
shipped from the USA, Asia and Europe by multiple subcontractors which has posed significant challenges.
These challenges have now been mostly overcome but resulted in a slip in the fully commissioned project.
In Q1 2023 Italfluid completed the work on the LNG storage tank foundations and its subcontractor
CryoSpain completed the manufacturing the main components of the outer and inner LNG storage tank.
Sound Energy advanced construction of the access road in in Q3 2023 which is scheduled for completion
in 2024.
The production wells of TE-6 and TE-7 require specialised metallurgy for the production completions prior
to gas production due to the corrosive composition of the raw gas. This requires replacement of the carbon
steel production tubing with corrosion resistant Cr13 steel. The procurement of equipment related to the TE-
6 and TE-7 well upgrade operation was started in Q2 2023.
The initial well work over operation of setting packers in each well was successfully completed in Q4 2023
to enable the re-completion work to go ahead safely in 2024. The Cr13 steel tubing was delivered to site in
late 2023. Star Valley Drilling were contracted in Q4 2023 to perform the well workovers in 2024.
Sound Energy plc
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Operational progress
2024 is a key year for the project when all of the equipment packages are to be delivered to site from the
different manufactures around the world for installation and commissioning by Italfluid.
With the challenges of 2023 mostly behind us progress continues to be made with several major project
milestones scheduled for completion in 2024. Notwithstanding the current disruption to supply chain shipping
routes caused by the conflicts in the Middle East the following significant activities are scheduled for 2024:
1. Recompletion of TE-6 and TE-7:
Replacement of the carbon steel production tubing replacement with Cr13 Steel.
2. LNG storage tank erection work: Italfluid have contracted LNG storage tank manufacturer to erect
the tank.
3. Delivery and installation of mLNG plant processing packages: Equipment packages,
gas processing, power generation and refrigeration plant components will be delivered to Tendrara for
installation on the completed site foundations. These deliveries are subject to approval for import from
the Ministry of Energy, including derogation to make some pressure tests in the manufacturers’ premises
in a safe environment. Sound Energy is working with the Ministry to facilitate the importation of the
equipment. Italfluid have contracted LNG storage tank manufacturer to erect the tank.
4. Engineering, procurement and installation of the raw gas gathering system, to connect the
two production wells to the mLNG plant: Sound Energy has selected Gas to Liquid Equipment (GLE)
on an EPCM basis to supply the first raw gas to the mLNG plant.
5. Commissioning of all equipment with live hydrocarbons and commencement of LNG
sales thereafter.
Sound Energy plc
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STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Financial Review
Income Statement
The pre-tax loss for the year from continuing operations was £7.2 million (2022: £6.6 million, profit). Results
of an impairment test on the Tendrara Production Concession carrying amount indicated that no impairment
charge was required (2022: £5.7 million impairment reversal). The discount rate and forecast gas price are
the significant estimates used by the Company to determine the recoverable amount when undertaking
impairment testing of the Company’s Tendrara Production Concession.
Administrative costs at £2.4 million were lower than 2022 administration costs (£3.2 million) as no nil cost
options were issued to staff in 2023, as was the case in 2022.
Foreign exchange losses primarily related to intra-Group loans, which were partially offset by exchange
gains in US dollar and Euro-denominated borrowings. Foreign exchange gains and losses arising from
intercompany loans that originated on acquisition of Moroccan permits are recognised in the other
comprehensive income section of the statement of comprehensive income.
Cash Flow/Financing
During 2023, proceeds from borrowings were approximately £4.4 million (2022: £7.2 million) net of issue
costs. There were no proceeds from equity issues during the year (2022: £3.7 million).
Financing costs during the year were £2.0 million (2022: £1.4 million), primarily due to the amortised costs
of the Company’s Euro denominated loan notes, the US dollar Afriquia loan note facility and Convertible
Bonds facility drawdowns, net of interest capitalised to the development and exploration permits of £0.3
million (2022: £0.1 million). The increase in finance costs arose due to a further $2.5 million drawdown from
the Afriquia facility and £2.5 million drawdown from a convertible loan note facility that was entered into
during the year. The convertible loan note facility has a term of five years with interest of 15% per annum,
payable bi-annually in cash or capitalised to the principal, at the Company's election. The first
tranche of the Convertible Notes comprised £2.5 million with a fixed conversion price of 2.25 pence
per ordinary share, a premium of approximately 28% to the closing price of 1.76 pence per ordinary
share on 12th June 2023. In connection to the drawdown of the first tranche, the Company issued
33,333,333 warrants (to the investors) to subscribe for new ordinary shares in the Company at an
exercise price of 2.25 pence per ordinary share with a term of three years. The Company successfully
restructured its Euro denominated loan notes leading to removal of 5% semi-annual partial repayment of
the principal amount that was due to commence in December 2023.
The Group spent £2.9 million (2022: £6.2 million) on investing activities during 2023 primarily related to the
Group’s Micro-LNG project with the balance relating to expenditure on the Group’s exploration permits in
Morocco and capitalised general and administrative expenses. As part of the 2018 Italy divestment
agreement, the Company was entitled to receive the proceeds, upon sale, of land associated with the former
Badile onshore Exploration Permit (‘‘Badile land’’). The sale of the remaining area of Badile land completed
in Q2 2023 and the Company received net proceeds of approximately €153,000 (£134,000).
Balance Sheet
As at 31 December 2023, the carrying amount of property, plant and equipment was £157.9 million (2022:
£163.4 million), primarily related to the development and production assets in Morocco with a carried value
of £157.8 million (2022: £163.1 million) after taking account of impairment reversal, additions and foreign
exchange movement.
Intangible assets, with a carrying amount of £35.0 million (2022: £36.0 million), primarily relates to the
Group’s investment in its exploration permits in Morocco.
Sound Energy plc
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The addition of £0.7 million to intangible assets primarily consisted of capitalised general and administrative
expenses and £1.8 million foreign exchange movement recognised.
Non-current prepayments of £5.1 million (2022: £4.3 million) relate to the Group’s Phase 1 mLNG project.
Other receivables, amounting to £0.9 million (2022: £2.8 million), primarily related to receivables from our
partners in Morocco permits and recoverable VAT in Morocco.
Trade and other payables amounting to £2.5 million (2022: £1.9 million) primarily related to payables and
accruals for the operations in the Group’s permits in Morocco, where the Group, as operator, recognises
100% of the liability and receives funds from partners to pay the partners’ share.
During 2023, the Company issued 114,420,005 ordinary shares which were all non-cash share issues. The
primary non-cash share issues related to 99,9999,994 new shares issued following the conversion of £2.25
million of Convertible bonds into shares.
Going Concern
As detailed in note 1 on page 68, the Company’s cash flow forecasts, for the next twelve-month period to
April 2025, indicate that additional funding will be required to enable the Company to continue to meet its
obligations. This condition indicates the existence of a material uncertainty regarding the Company’s ability
to continue as a going concern.
Garry Dempster
Chief Financial Officer
Sound Energy plc
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S172 statement
Directors’ Statement under Section 172 (1) of the Companies Act 2006
Section 172 (1) of the Companies Act 2006 obliges the Directors to promote the success of the Company
for the benefit of the Company’s members as a whole.
The section specifies that the Directors must act in good faith when promoting the success of the
Company and, in doing so, have regard (amongst other things) to:
a.
the likely consequences of any decision in the long term;
b.
the interests of the Company’s employees;
c.
the need to foster the Company’s business relationship with suppliers, customers and others;
d.
the impact of the Company’s operations on the community and environment;
e.
the desirability of the Company maintaining a reputation for high standards of business conduct; and
f.
the need to act fairly as between members of the Company.
The Board of Directors is, collectively, responsible for the decisions made towards the long-term success of
the Company and details of how the strategic, operational and risk management decisions have been
implemented throughout the business are included in the Strategic Report on pages 2 to 34.
Employees
Our employees are a primary asset of our business, and the Board recognises that our employees are the
key resource that enables the delivery of the Company’s vision and goals. Annual pay and benefit reviews
are carried out to determine whether all levels of employees are benefitted equally, and to retain and
the business. The Remuneration Committee oversees and makes
encourage skills vital
recommendations for Executive remuneration and long-term share awards. The Board encourages
management to improve employee engagement and to provide necessary training in order to use their skills
in the relevant areas in the business. The Board, periodically, reviews the Health, Safety, Security and
Environmental measures implemented in the business premises and improvements are recommended for
better practices.
for
Employees are informed of the results and important business decisions and are encouraged to feel
engaged and to improve their potential.
Suppliers, customers and regulatory authorities
The Board acknowledges that a strong business relationship with suppliers and customers is a vital part of
growth. Whilst day to day business operations that consider suppliers and customers are delegated to the
Executive management, the Board sets directions and evaluates policies with regard to new business
ventures and investing in research and development. The Board upholds ethical business behaviour and
encourages management to seek comparable business practices from all suppliers and customers doing
business with the Company. We value the feedback we receive from our stakeholders, and we take every
opportunity to ensure that, where possible, their wishes are duly considered.
Community and the Environment
The Board upholds high standards of care towards the community and environment and is conscious of the
fact that the nature of the Company’s business requires strong measures to protect the environment. At its
meetings, the Board receives HSSE updates from the HSSE Committee and considers the impact of the
Company’s operations on the environment and the neighbouring Community. The Company provides
training and employment opportunities to members of the communities in the areas in which it operates.
Sound Energy plc
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Maintaining High Standards of Business Conduct
The Company is incorporated in the UK and governed by the Companies Act 2006. The Company has
adopted the Quoted Companies Alliance Corporate Governance Code 2018 (the “QCA Code”) and is aware
of the updates to the QCA code made in 2023 which will apply to the Company from 1 January 2025. The
Board recognises the importance of maintaining a good level of corporate governance, which, together with
the requirements to comply with the AIM Rules, ensures that the interests of the Company’s stakeholders
are safeguarded. Anti-corruption and anti-bribery training are compulsory for all staff and contractors, and
the anti-bribery statement and policy are contained in the Company’s Employee Manual. The Company’s
expectation of honest, fair and professional behaviour is reflected by this and there is zero tolerance for
bribery and unethical behaviour by anyone related to the Company.
The importance of making all staff feel safe in their environment is maintained and a Whistleblowing policy
is in place to enable staff to confidentially raise any concerns freely, and to discuss any issues that arise.
Strong financial controls are in place and are well documented.
Shareholders
The Board places equal importance on all shareholders and recognises the significance of transparent and
effective communications with its investors. As an AIM listed Company, there is a need to provide fair and
balanced information in a way that is understandable to all stakeholders and, particularly, our shareholders.
The primary communication tool with our shareholders is the Regulatory News Service (“RNS”) on regulatory
matters and matters of material substance. The Company’s website provides details of the business,
investor presentations, and the Board and Board Committees, changes to major shareholder information,
QCA Code disclosure and updates under AIM Rule 26. Changes are promptly published on the website to
enable the shareholders to keep abreast of the Company’s affairs. The Company’s Annual Report and
Notice of Annual General Meetings (“AGM”) are available to all shareholders. The Interim Report and other
investor presentations are also available for the last six years and can be downloaded from our website.
There are opportunities throughout the year for shareholders to meet with the Board and members of the
Executive team, through general meetings, investor events and the Company’s Q&A sessions as well as e-
mail directed questions.
The Board acknowledges that encouraging effective two-way communication with shareholders encourages
mutual understanding and better connection with them. The benefits include improved transparency of
information on the business and its performance, appropriate consideration of all shareholders’ views, and
instilling trust and confidence to allow informed investment decisions to be made by the Board.
Sound Energy plc
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Sustainable and Responsible Business
Sound Energy are committed to the principles of an environmental, social and governance
framework.
We have a range of policies, processes and procedures embedded within our integrated management
systems that demonstrate our commitment to Environmental, Social and Governance requirements,
expectations and performance.
In 2023 we defined the metrics we measure to demonstrate our commitment to the outcome of the ESG
materiality assessment we undertook in 2022 against the United Nations Sustainable Development Goals.
Those metrics are defined as:
1. CO2 Emissions
2. Environmental Impact Assessment compliance monitoring
3. Local Content
4. Stakeholder Engagements
5. Community Grievances
6. Local Community Monitoring
7. Compliance Training and Compliance Risk Assessments
We began gathering the data for the defined metrics in Q2 2023 and are seeking to continually improve our
systems to better inform future decision making.
Environmental
CO2 Emissions
117.76 m3 of diesel was used within our operations in 2023, which corresponds to 317.83 tCO2e. Our diesel
consumption was primarily from heavy plant and equipment used in the mLNG facility civil construction /
ground works, dozers, graders, compactors and concreting equipment.
We expect our carbon impact to increase as we move towards being fully operational on site but are
committed to monitoring our output and continually searching for ways to reduce our emissions. For
example, we are exploring the opportunity to capture and monitise the CO2 emissions that will result from
the removal of CO2 from the gas processed by the mLNG plant in the production phase of the project. We
work with carbon accounting and measurement company Redigo: www.redigocarbon.com
Environmental Impact Assessment Monitoring
Our Tendrara mLNG development project is has an Environmental and Social Impact Assessment and
PSSE (Program de Surveillance et de Suivi Environnmental) approved by the Moroccan Ministry of Energy,
Mines and the Environment (now the Ministry of Energy Transition and Sustainable Development). Our
environmental consultant in Morocco, Resing, conduct monthly compliance audits of the approved
environmental management plan.
Social
Local Content
Our workforce in Morocco including subcontractors are over 98% Moroccan nationals. We try and use local
labour and supply chains wherever we can. We have developed an approved hiring process with the local
authorities in Maatarka and Bouafa to ensure any opportunities for local employment and contracts are
Sound Energy plc
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divided between the communes. Our current contractors TIEC and Italfluid have both hired personnel from
the local community in 2023.
We supported the training in the NEBOSH International General Certificate for one of our Field HSSE
Advisors in 2023.
Stakeholder Engagement
We record the number of stakeholder engagements with the local authorities and representatives in the area
in which are impacted by our operations. Regular updates, briefings and feedback sessions occur.
We donated fire extinguishers and provided training in their use to a local school in 2023.
Community Grievances
We received no grievances from the local community in which we operate in 2023. If any grievances were
to occur, we a have a process involving the local authorities to ensure a satisfactory resolution.
Local Community Monitoring
As the area in which we operate is inhabited by semi-nomadic herders we regularly monitor the movements
of the local population to ensure our operations are not having a detrimental effect on the local population.
Governance
Compliance Training and Compliance Risk Assessments
We conduct regular compliance training with our staff covering:
• Whistle Blowing Policy
• Securities Dealing Code
• Statement of Ethics
• Anti Bribery and Corruption
All of our contracts include clauses that require the highest ethical behavior form our contractors.
Health, Safety, Security and Environment
2023 Overview
2023 saw a significant increase in operational activity at Tendrara.
Italfluid finalised the foundations for the mLNG plant processing packages and the significant foundation
required for the 6200m3 insulated LNG storage tank, which involved excavations and the pouring of
reinforced concrete.
TIEC started work on the construction of the site access road which will join the mLNG processing facility
with the R604 and N19 national roadwork. This involved constructing reinforced bridges and culverts prior
to laying a subbase and finally black topping the 8km road to permit the LNG transport tankers to access
the site.
Schlumberger were contracted to conduct packer setting operations on production wells TE6 and TE7 prior
to running the production tubing in Q1 2024 in readiness for gas production operations.
Sound Energy plc
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Health
Field medical support continued to be our focus ensuring the constant presence of a doctor and ambulance
at our fully equipped emergency medical clinic at Tendrara to cover our remote area operations. Medical
fitness for work certificates are required for all personnel working in Tendrara.
Safety
We place constant focus of the safety aspects of our operations at Tendrara. The greatest risk we faced in
2023 and will continue to face in 2024 are associated with land transport and mechanical lifting operations.
There were no land transport related incidents in 2023. All Sound Energy vehicles are fitted with IVMS
(internal vehicle monitoring systems) and satellite tracking. We did suffer a high potential near miss incident
involving a concrete bucket and an excavator when the bucket dropped to the ground. The results of the
incident investigation revealed that the personnel involved were found to have violated Sound Energy’s Life
Saving Rules associated with mechanical lifting and faced disciplinary action.
In October 2023 we unfortunately had a Lost Time Incident occur when a contractor was removing nails
from concrete shuttering. A nail released from the shuttering more easily than the worker anticipated and
his elbow hit a wooden board behind where he was positioned resulting in a minor fracture. The worker
received 10 days sick leave. This incident resulted in a Lost Time Frequency Rate of 6.45 at the end of
2023. The incident was not indicative of unsafe behavior, lack of work planning or control and so did not
indicate a system failure.
Security
2 security review visits were conducted in 2023. Frequent liaison with local security authorities in the area
is conducted and we have day and night access control and overwatch of our assets in Tendrara. The
security situation in Morocco remains stable with no threats to Sound Energy assets in country.
HSSE Reporting Data
Sound Energy is aligned to similar operators in the International Oil and Gas Producers Association (“IOGP”)
database. We gather a range of HSSE related data to enable us to compare our performance against IOGP
peers, both internationally and regionally.
Total Man-hours 2023 – 155553 (2022: 116403)
Sound Energy & Contractors
1. Lagging Indicators
Fatality
Lost Time Injury
Restricted Work Case
Medical Treatment Case
First Aid Case
Property Damage
Environmental Incident
Near Miss
High Potential Incident
Lost Workdays
Sound Energy plc
2023
2022
0
1
0
0
2
2
0
2
1
10
0
0
0
0
0
2
0
2
1
0
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Lagging indicators show similar results to 2022 despite having worked 25% more hours. We are committed
to improving in 2024.
2. Leading indicators
Audits & Inspections
HSSE Meetings
Inductions
Emergency Drills
Job Safety Analysis
Toolbox Talks
SHOC Cards
Management Tours
Leading indicators showed a significant improvement in 2023 in comparison to 2022.
3. Environmental Data
Diesel Consumed (m3)
Water Consumed (m3)
Total Barrels Spilled
CO2 Produced (tCO2e)
2023
284
24
86
9
2022
86
10
73
2
540
160
372
209
3
200
110
3
2023
2022
117.76
275.9
13,740.3
725.6
0
0
317.83
101.9
No environmental incidents occurred in 2023 and the increased levels of consumption are associated with
the increase activity at site.
Sound Energy plc
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Principal Risks and Uncertainties
Risk management is a key component of the Company’s Control Framework and is a cornerstone element
in enabling the delivery of the Group’s strategy and delivering long-term value to shareholders. The Board,
its Committees and the Executive team are actively engaged in assessing the Company’s 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’s operational and commercial activities and
support functions, or they can arise externally, from third parties such as joint venture partners, suppliers,
regulators, competitors and from the economic environment or 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 in which staff actively identify and respond to risks and opportunities; and
•
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 through which 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 monthly
reporting to the Senior Leadership team and bi-annual 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.
Changes to Risks in the Year
Several factors have impacted the Company risk register through 2023, including changes in the global
economic and business landscape and progression of the TE-5 Horst development project.
Removed or Changed:
Requirement to pay substantial Moroccan Tax Demand
Agreement reached with Moroccan tax authority in May 2023 to settle tax dispute by way of a phased payment
schedule of approximately US$2.5 million, back ended over 6 years as a full and final settlement against a
claim of approximately US$23.95 million.
Sound Energy plc
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Risk
Impact
Control measure
Owner
• Company investment profile and
ability to generate cash is
impaired as a consequence
equity financing (gas buyers)
options
1 Limited diversification
• Profitability and cash flow
•
Increased risk profile
• Limited platform for growth
• Reduced appetite for investment
in the Company
The Company operates
in a single country and
thus the business may be
significantly adversely
impacted by political,
fiscal and regime
changes. The Company
portfolio is not currently
balanced across the oil
and gas lifecycle
2 Facilities funding
Inability/delay in securing
funding for Project
development of the
Tendrara TE-5 Horst
results in delays or
inability to take FID
3 Reservoir uncertainty • Exploration 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 the
exploration potential across our
exploration permits
• Reservoir distribution and
effectiveness, hydrocarbon
saturation and H2S risk in
respect of Jurassic carbonate
reservoirs in Sidi Moktar
Chairman
• Build strong relationships with
partners, advisors,
governments, local
authorities, local population
and other stakeholders
• Active new business
development programme
• Working with financial advisor
to screen opportunities
• Mature vendor financing,
Chairman
• Progress senior debt funding
proposal with Attijariwafa
Bank
• Mature permit partnering
options
• Comprehensive geophysical
surveying, data analysis, and
modelling integrated with
geological and reservoir
engineering studies to
improve reservoir
understanding throughout the
basin
•
Independent resources
certification
Chairman
4 Share price weakness • Vulnerability to hostile takeover
• Difficulty raising finance to
support and grow business
• Strengthen investor appetite
and share price through
delivery of business plan,
diversification and growth
Chairman
Sound Energy plc
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Risk
Impact
Control measure
Owner
5 Major HSSE event
• Loss of life or injury to personnel
• Highly skilled, competent, and
Chairman
• Environmental impact
• Reputational damage
• Exposure to litigation
• Financial and operational losses
qualified personnel and
subcontractors. Training
provided as required
• Management and Board
commitment. Experienced
corporate HSSE Manager
• Robust operational HSSE
processes and procedures
• HSSE Committee reviews and
regular HSSE meetings and
engagements
•
Insurance cover
6 Loss of, or inability to
secure, key personnel
• Loss of shareholder confidence
• Lack of direction and leadership
within the Company
• Loss of expertise and knowledge
• Competitive remuneration
package in place for key
Executives, benchmarked
relative to the market
• Succession planning
Chairman
7 Insufficient funds to
operate and sustain the
business
• Unable to secure required
expertise to deliver the work
programme
• Programme to identify and
source additional expertise as
and when required
• Resourcing partnership
models with key suppliers e.g.
drilling services
• Capital constraints due to
• Active engagement with
Chairman
insufficient funding of work
programme, potential impact to
long-term viability of business
•
Insufficient working capital to
sustain the business as a going
concern
capital markets and financing
streams to raise capital
• Long-term cash flow
management
• Finances are controlled
through annual planning
process with regular forecast
updates. Monthly MI
measures performance
against plan
• Risk transfer through farm-ins,
joint ventures and/or
partnering funding
arrangements
• Active contract management
and tracking for main
contracts
Sound Energy plc
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Risk
Impact
Control measure
Owner
8 Capital project cost
inflation
• Delay in implementation of
Phase 1 and Phase 2
• Monitor and maintain
Chairman
contractual arrangements
developments
• Diminution in value of capital
projects due to cost escalation
and additional project
management
• Apply disciplined cost control
and project management
• Explore contingent funding
options
9 Failure of proposed
Eastern Morocco farm-
out
Funding gap for equity component
of Phase 2 capital funding leads
to project delay
Manage due diligence
process and contractual
negotiations effectively
Chairman
Funding gap in executing potential
Anoual and Grand Tendrara
exploration and appraisal
Maintain optionality with
alternatives farminees
10 Delayed execution of
Phase 1
• LNG SPA exposure due to late
delivery (potential penalties)
• Regular monthly reporting and
COO
contract management
• Delayed revenues due to delayed
• Close collaboration with gas
buyer and key suppliers
gas sales
11 Failure to satisfy
Exploration permit
commitments
• Delay or inability to unlock
exploration and appraisal
potential within Moroccan
portfolio
• Penalties for inability to satisfy
permit commitments
• Effective project management
in place
• Active farm-out discussions
ongoing to seek a partner
COO
• Close collaboration with
ONHYM to extend or amend
permit terms
• Effective project management
in place
12 Escalation of
tensions with Algeria in
border area
• Potential for escalation to reduce
• Actively monitor geopolitical
COO
investment appetite, delay
projects, harm people
events
• Emergency evacuation plan in
place and communicated to
key personnel
The Strategic Report was approved by the Board of Directors on 23 April 2024 and signed on its behalf by:
Graham Lyon
Executive Chairman
Sound Energy plc
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
CORPORATE GOVERNANCE
Chairman’s Corporate Governance Statement
Dear shareholders
As Executive Chair of the Company, it is within my role to ensure that standards of governance are
maintained. It is my responsibility to work with my fellow Board members to support such standards of
corporate governance instilling a culture across the Company and throughout the business, delivering strong
values and behaviours. My role as Executive Chair is to provide leadership of the Board and ensure its
effectiveness. The Board has an effective, robust and fit-for-purpose corporate governance framework
across the business, cascading from Executive level throughout the business. 2023, much like the previous
two years, has again been a challenging year due to external global events, however, the Company has
continued to work hard to drive forward its strategy to transition the business towards becoming a cash
generative Company.
This report, together with the reports of the Audit, HSSE and Remuneration & Nomination Committees,
seeks to demonstrate our commitment to high standards of governance.
The Company adopts the Quoted Companies Alliance Corporate Governance Code 2018 (the ‘QCA Code’)
which it believes to be the most appropriate recognised corporate governance code for the Company with
shares admitted to trading on the AIM market of the London Stock Exchange. It is believed that the QCA
Code provides the Company with the framework to help ensure that an appropriate level of governance is
maintained, enabling the Company to embed the governance culture that exists within the organisation as
part of building a successful and sustainable business for all its stakeholders. The Board noted that the QCA
published a revised QCA Corporate Governance Code (QCA Code 2023) in November 2023 which will first
apply to the Company for the financial year commencing on 1 January 2025. The Company is working
towards preparing for the adoption of the revised principles during the next financial year and will report
progress in the 2024 Annual Report.
The importance of a united Board working to ensure that the Group continues to deliver for its shareholders
whilst maintaining high standards of employee welfare, safety, corporate governance and commitment to
environmental issues is imperative to the continuing success of the business. We value our shareholders
and look forward to our interactions with them. The Board strives to ensure that there are opportunities for
investors to engage with both the Board and Executive Directors and we balance our engagement using
both virtual and in-person sessions. During the year we held two live question and answer sessions,
recorded video interviews and held a face to face meeting with shareholders after the AGM with around 50
shareholders attending.
We enjoyed meeting with our shareholders and stakeholders in person at our AGM and look forward to doing
this again in 2024.
Graham Lyon
Executive Chairman
Sound Energy plc
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
QCA Code Principles
Introduction
The Board of Directors of the Company recognises the importance of good corporate governance and
applies the Quoted Companies Alliance Corporate Governance Code (2018) (the “QCA Code”), which they
believe is the most appropriate recognised governance code for a Company with shares admitted to trading
on the AIM market of the London Stock Exchange. It is believed that the QCA Code provides the Company
with the framework to help ensure that a sound level of governance is maintained, enabling the Company
to embed the governance culture that exists within the organisation as part of building a successful and
sustainable business for all its stakeholders.
The QCA Code applicable for 2023 has ten principles of corporate governance that the Company has
committed to apply within the foundations of the business. These principles are:
QCA
Code Required disclosure
Reference
1
2
3
4
5
6
7
8
Establish a strategy and business model that promotes long-term value
for shareholders.
See pages 9 and 15 of
2023 Annual Report.
Seek to understand and meet shareholder needs and expectations.
Explain the ways in which the Company seeks to engage with
shareholders.
Take into account wider stakeholder and social responsibilities and their
implications for long-term success.
Explain how the business model identifies the key resources and
relationships on which the business relies. Explain how the Company
obtains feedback from stakeholders.
See website disclosures:
Principle Two under AIM
Rule 26.
See website disclosures:
Principle Three under
AIM Rule 26.
Embed effective risk management, considering both opportunities and
threats, throughout the organisation.
See pages 31 to 34 of
2023 Annual Report.
Maintain the Board as a well-functioning balanced team led by the Chair. See pages 39 to 40 of
Ensure that, between them, the Directors have the necessary up-to-date
experience, skills and capabilities.
Evaluate Board performance based on clear and relevant objectives,
seeking continuous improvement.
A description of the Board performance evaluation process.
Promote a corporate culture that is based on ethical values and
behaviours.
Explain how the Board ensures that the Company has the means to
determine ethical values and behaviours.
2023 Annual Report.
See pages 39 to 40 of
2023 Annual Report. See
website disclosures:
Principle Six under AIM
Rule
See pages 41 to 42 of
2023 Annual Report. See
website disclosures:
Principle Seven under
AIM Rule 26.
See website disclosures:
Principle Eight under AIM
Rule 26.
Sound Energy plc
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QCA Code Principles (continued)
QCA
Code
9
Required disclosure
Maintain governance structures and processes that are fit for purpose
and support good decision making by the Board.
Roles and responsibilities of the Chair, CEO and other Directors with
commitments. Describe the roles of the Committees.
10
Communicate how the Company is governed and is performing by
maintaining a dialogue with shareholders and other relevant
stakeholders.
Outcomes of votes cast by shareholders to be disclosed in a clear and
transparent manner. If a significant number of votes were cast against a
resolution put to a general meeting (20%) explain the reasons behind the
votes cast.
Reference
See website disclosures:
Principle Nine under AIM
Rule 26.
See pages 26 to 30 of
2023 Annual Report. See
website disclosures:
Principle Ten under AIM
Rule 26.
Sound Energy plc
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Board Overview
Leadership
The Company remains committed to achieving high standards in all we do. Our business and processes are
aligned around a robust governance framework. The Company applies and seeks to adhere to the ten
principles of the QCA Code, and the requirements of the AIM market of the London Stock Exchange. The
Board is aware of the changes recently made to the QCA code and will work to adopt the revised principles
during the next financial year and will report on how it complies in the 2024 Annual Report.
The Directors develop policies and procedures in line with the QCA Code and these policies and procedures
are monitored on a regular basis.
While building a solid 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.
Health, Safety, Security and
Environment Committee
The Committee is primarily
focused on ensuring that the
HSSE policies are adopted and
applied across the Group.
It also ensures that incidents that
occur are dealt with correctly and
lessons learnt, and exercises are
carried out to prevent repeats.
Audit Committee
The main responsibility of the Audit
Committee is 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.
The Committee is mindful of the
guidance from the QCA with respect
to the function and duties of the Audit
Committee within the business.
Remuneration and Nominations
Committee
The Committee is responsible for
all material elements of
remuneration policy, including
Directors’ remuneration and
assessing Directors’ performance.
The Committee will consider
recruitment of Board members
and members of the Executive
team, together with consideration
of succession planning.
The Committee assesses
Executive Directors’ performance
based on an annually approved
scorecard.
Executive Committee
The Executive team supports the Executive Chair and Board’s 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.
Sound Energy plc
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Board of Directors
1) Graham Lyon- Executive Chair
Appointed to Board
25 February 2020
Background
Graham Lyon was appointed Executive Chairman on 25 February 2020. Graham is an experienced oil and
gas energy Executive with 40 years’ experience across technical, operational, commercial and leadership
roles. Graham has chaired or sat on the board of AIM, TSX, ASX and AQSE growth companies. Graham
holds a BSc (Eng) Hons from Imperial College in Petroleum Engineering.
Current external commitments
•
•
•
•
•
Clarion Petroleum Limited
Soncer Limited
Soncer Bel BV
Soncer Cvp Limited
Sea Lion Power (pvt) Ltd
2) Mohammed Seghiri- Chief Operating Officer
Appointed to Board
23 January 2020
Background
Before joining Sound Energy, Mohammed Seghiri had over 20 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 hired by Sound Energy in February 2017 as Vice President
Commercial before the Board designated him as Country Managing Director in Morocco, supervising all the
operations in country in June 2017. In November 2019, the Board requested him to carry out the role of
acting CEO until Graham Lyon was appointed as Executive Chair in February 2020. Mohammed formally
joined the Board in January 2020 and has been in the role of Chief Operating Officer since April 2020, while
he continues to manage all the subsidiaries in Morocco.
Mohammed is a graduate from the School of Mines in Nancy, France.
Current external commitments
les Vergers De Targa
•
3) Christian Bukovics- Director (Senior Independent Non-Executive)
Appointed to Board
2 December 2021
Background
Christian Bukovics joined Sound Energy as a Senior Non-Executive Director on 2 December 2021. Christian
is a senior oil and gas sector Executive with 40 years of international experience across a variety of roles.
Since 2013, he has worked as founder, advisor and Non-Executive Director in small-cap oil and gas
companies and was part of the Board of LSE premium listed JKX Oil and Gas plc. Prior to this, he held
several senior positions with Shell, including VP Exploration Russia and FSU, VP Commercial in Global
Exploration and GD of Shell Temir (Kazakhstan).
Sound Energy plc
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Christian holds a doctorate in experimental Physics from the University of Vienna.
current external commitments
• Director – CB Exploration Limited
• Director- Irbis Energy Group Limited
4) David Blewden-Director (Independent Non-Executive)
Appointed to Board
1 July 2020
Background
David Blewden joined the Board as a Non-Executive Director in July 2020. David is a senior oil and gas
sector Executive with 40 years of international experience working as a petroleum engineer, an energy
investment banker and in energy industry finance roles. He is currently CFO of Sunny Hill Energy Limited,
a UK private E&P company (formerly Petroceltic International), and in recent years, has been a Non-
Executive Director of Gulf Marine Services plc, an LSE premium listed oil services company and New Age
(African Global Energy) Limited, a private E&P company. From 2010 to 2016, he was CFO of Sterling
Resources Ltd, a TSX-V listed Canadian E&P company. David holds an MA in Natural Sciences from the
University of Cambridge.
Current external commitments
•
•
•
Director – Philipshill Consulting Limited
Director – Hodgemoor Investments Limited
CFO – Sunny Hill Energy Limited
5) Simon Ashby- Rudd -Director (Independent Non-Executive)
Appointed to Board
26 June 2023
Background
Simon Ashby-Rudd joined the Board as a Non-Executive Director in June 2023. Simon is an international
energy banking specialist with more than 35 years of experience spanning the globe. His career includes 30
years in investment banking roles with both large financial institutions. Mr Ashby-Rudd's career has focused
on corporate strategy and capital structuring. In 2020, Mr Ashby-Rudd established Treyford Energy Limited
which today provides independent advice to growth orientated energy companies both in the traditional
hydrocarbon space and increasingly in the emerging energy transition sector. Simon holds a B.Sc. in
Economics from University College London.
Current external commitments
• Director - Treyford Energy Limited
• Director – Europa Oil & Gas (Holdings) plc
6) Marco Fumagalli- Director (Non-Executive) – During 2023, Marco Fumagalli resigned from
the Board after joining in 2014.
Sound Energy plc
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Board Activities
Effectiveness
The Board retains full and effective control over the Company and holds regular meetings at which financial,
operational and other reports are considered and, where appropriate, voted upon. The Board is responsible
for the Group’s strategy and key financial and compliance issues.
The key matters reserved for the Board:
• 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 of 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 the 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
• Reviewing the effectiveness of the Board and its Committees.
The Board delegates matters not reserved for the Board, concerning the management of the Group’s
business, to the Executive team.
Composition and independence of the Board:
As at 31 December 2023, the Board comprised of the Executive Chair, three Independent Non-Executive
Directors and one Executive Director.
The current Board has a good level of industry, financial, banking, public markets and governance
experience, possessing the necessary mix of experience, skills, personal qualities and capabilities to deliver
the strategy of the Company for the benefit of the shareholders over the medium term. The Company has
an Executive Chair who provides a bridge of the Chair and Chief Executive Officer role. The Company has
a good balance of Executive and Non-Executive Directors, with a strong level of independence within the
Board.
The Executive Chair is responsible for leading the Board and Executive team, ensuring that the Board
discharges its responsibilities; the Chair is also responsible for facilitating full and constructive contributions
from each member of the Board in the determination of the Group’s strategy and overall commercial
objectives. Without a Chief Executive Officer, the Executive Chair, with the support of the Chief Operating
Officer and other members of the Executive team, leads the business, ensuring that strategic and
commercial objectives set by the Board are met. He is accountable to the Board for the operational and
financial performance of the business. The Board continues to believe, given the current stage of the
business, that the continuation of the Executive Chair is right for the Company. At present, there is no Chief
Executive Officer; however, with three independent Non-Executive Directors, it is believed there is a strong
voice of independence. The situation is under review for 2024.
Sound Energy plc
Page 41 of 97
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Board Composition
Attendance at Meetings:
A schedule of the Board and Board Committee meetings held during the year ended 31 December 2023 is
noted below. Key Executives and advisors have attended these meetings, where appropriate, to present
and provide feedback on actions throughout the year.
Year ended 31 December 2023
Board meetings
Name of the Director
Scheduled
Ad hoc1
Total number of meetings held
Graham Lyon (Executive Chair)
Mohammed Seghiri (COO)
5
5
5
15
15
12
David Blewden
*Marco Fumagalli
5
14
3
9
Christian Bukovics
5
13
**Simon Ashby-Rudd
2
4
Remuneration
and
Nominations
Committee
Audit
Committee
HSSE
3
N/A
N/A
3
1
N/A
2
2 4
N/A
N/A
2
1
2
1
N/A
4
N/A
N/A
4
N/A
1 Ad hoc meetings: Additional meetings called for a specific business matter or of a more general administration nature, not
necessarily requiring full Board attendance.
*Marco Fumagalli resigned during the year
**Simon Ashby-Rudd was appointed during the year
What the Board did in 2023
Governance and Risk – 20%
Strategy – 20%
Investor Engagement – 15%
• Ongoing consideration of the
Quoted Companies Alliance
Corporate Governance Code
and a review of the
requirements of the Code
• AIM training carried out by the
Company’s Nominated
Advisor to Directors to ensure
that the Board is up to date
with regard to their regulatory
requirements
• Appointed a new Independent
Non-Executive Director
• Updates from Board
Committees following every
Committee meeting
• Board Evaluation progress
Review
• Updates from the Group
Auditor via the Audit
Committee
Sound Energy plc
• Held a dedicated Strategy day
• Attend shareholders relations
• Reviewed Corporate scenarios
meetings in person
• Close liaising with the Company’s
major shareholders.
• AGM proxy figures counted and
disclosed
People, Visions, Values – 15%
Performance Monitoring – 30%
• Reviewed Staffing levels
• Assed staff performance
• Benchmarked Corporate values
• Updates from the Chairman of the
Audit, Remuneration and HSSE
Committees
• Weekly reports received by the
Board
• Approval full and half-year results
Page 42 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Health, Safety, Security & Environment Committee
Committee Members and Participants
During 2023, the HSSE Committee comprised of Christian Bukovics (Chair) and Mohammed Seghiri. Those
within the business responsible for matters pertaining to HSSE, are invited to join and present to the
Committee as appropriate.
Health, Safety, Security & Environment (HSSE) Committee Activities
During the year under review, the Committee met on four occasions to discuss matters pertaining to Health,
Safety, Security and Environmental issues. The Committee is primarily focused on ensuring that
comprehensive and fit-for-purpose HSSE policies are adopted and applied consistently across the Group.
A full report of the activities of the HSSE Committee can be found on pages 28 to 30.
2023 Activities
• The Sound Energy plc HSSE Committee met on 4 occasions in 2023, January, March, September
and November.
• Each meeting follows a set agenda where HSSE performance, progress on annual objectives and any
required adjustment to strategy are discussed. Specific issues and challenges are discussed as they
arise, and appropriate responses recommended.
• Key focus was placed upon safe operations and the avoidance of any environmental damage during
civil construction activities. This was done by ensuring full time safety supervision at Tendrara and
monthly evaluation of conformance with our environmental impact assessment. The activity leading
to most accidents in the oil and gas industry, road transport, received continuing attention.
• Continual reviews were completed to ensure safe working measures were implemented both within
the UK and Morocco.
• An HSSE Plan and HSSE KPIs were developed to ensure the tracking of Company goals for 2023
and reporting back to the Committee.
• A specific problem arose when the subcontractor selected by the main micro-LNG contractor ITF for
erection of the LNG tank turned out to be unable to execute this task in a safe and efficient way.
Eventually Sound and ITF agreed to assign full responsibility for the erection of the LNG tank to its
manufacturer Cryospain.
• The above efforts were rewarded with a good safety performance during the full year in 2023. In
total,155553 man-hours were worked by Sound Energy Plc staff, contractors and sub-contractors,
without only one recorded minor injury. 209 Safety Hazard Observation Cards, 540 JSAs and 372
Toolbox Talks were completed at site.
2024 Looking Forward
• The Committee has developed KPIs relevant to the 2024 works scope at Tendrara, which includes
well-related work utilising a drilling rig, LNG storage tank construction under Cryospain supervision
and the arrival and installation of mLNG procession packages which will involve multiple mechanical
lifting operations. The Committee will continue to focus on supporting the Sound organisation to
secure sufficient own capabilities and capacities to manage the main contractors and to ensure that
these contractors in turn mobilise fit-for-purpose project organisations capable of delivering the project
in a safe and efficient manner.
Sound Energy plc
Page 43 of 97
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
• Continuously monitor the effectiveness of Company Safety programs to ensure they are relevant to
Company activities and understood by all Company Employees and Contractors. Ensure tracking for
the closure of Action items raised during HSSE Committee meetings.
• HSSE management system and resources to be kept under review.
• Ensure ongoing transparent reporting to the HSSE Committee with updates provided to the Board.
• Continuing to proactively monitor and adjust strategy throughout 2024.
Christian Bukovics
Chairman of the Health, Safety, Security & Environment Committee
Sound Energy plc
Page 44 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Audit Committee Report
Committee Members and Participants
During 2023, the Company’s Audit Committee comprised David Blewden (Chair), Marco Fumagalli (until
June 2023) and Simon Ashby-Rudd (from June 2023 onwards). The CFO and Group Financial Controller
are also invited to attend parts of most meetings and the external auditor is invited to attend parts of meetings
regarding preparation and approval of financial reporting.
Audit Committee Activities
The Audit committee met on three occasions in 2023 regarding financial reporting, audit and risk
management.
Responsibilities
The main responsibilities of the Audit Committee are to monitor the integrity of the Group’s financial
statements and other formal announcements relating to financial performance. The Committee approves
the risk management policy, strategic risks and mitigation actions allocated to the Executive team. Follow-
up reviews are 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.
2023 Review
•
Approved audited and interim financial statements, 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 UK LLP, including fee
structure.
• Review of the Company’s principal risks and uncertainties.
• Ongoing monitoring of the going concern status of the business.
• Ensured that necessary financial controls were in place and had been tested.
2024 Looking Forward
• Keep under review the Company’s existing control framework.
• Ensure continued risk management procedures and controls
are appropriate.
• Ongoing monitoring of the Company’s going concern status.
• Continue to consider the recommendations of the Quoted Companies
Financial and Business Reporting
Based on the financial statements, the Audit Committee reviews and evaluates whether the Company is a
going concern and communicates to the Board its findings and recommendations. 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 note 1 to the financial statements on page 68.
Sound Energy plc
Page 45 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Risk and Controls
The Board, taking into account the recommendations of 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 pages 31 to 34.
Conflicts of Interest
Under the Companies Act 2006, a Director must avoid a situation in which a direct or an indirect conflict of
interest may occur. The Company has in place procedures to deal with any situation in which a conflict may
be perceived.
Auditor
While Crowe UK LLP has been the Group’s statutory auditor for 14 years, the Committee are comfortable
that their audit remains independent.
David Blewden
Chairman of the Audit Committee
Sound Energy plc
Page 46 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Nominations and Remuneration Committee Report
The Committee and the wider Board recognise the importance of attracting, retaining and motivating talent
within the Board and wider Executive team to promote the successful growth of the Group. As Sound Energy
continues to develop, the Company’s remuneration policy and framework has evolved to ensure that
Directors and Executives are rewarded for achieving strategic targets and creating value for shareholders.
We have created a remuneration framework that is appropriately aligned, both to our business and to the
interests of our shareholders. The Committee ensures that the policy is fit for purpose and transparent.
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 the 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 proportion of remuneration is performance related; and
• Take into consideration the views of shareholders and best practice guidelines.
As set out in last year’s Annual Report, the Remuneration Committee revised the Company’s remuneration
policy in 2022 which ensured alignment of Executives’ rewards for delivery of the success of the business
with shareholders. The framework of the policy incentivises and drives the Executive team to strive for
success, but also aligns them clearly with the aspirations of shareholders for capital growth and ultimately
long-term value to the business for all stakeholders.
Fixed remuneration comprises salary, pension and benefits. Variable pay includes the potential for an annual
bonus and a longer-term incentive plan. As was reported in last year’s Annual Report, the Committee
assessed the ongoing use of the previously existing Restricted Stock Option (RSU) scheme and replaced it
with a LTIP (Long-Term Incentive Plan) scheme, which was considered more appropriate. The Committee
continues to recognise 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. However, no such discretion was exercised in 2023.
Christian Bukovics
Chairman of the Nominations and Remuneration Committee
Sound Energy plc
Page 47 of 97
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Directors’ Remuneration Report
Remuneration Policy
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 and advice from
external remuneration advisor.
Reflects individual experience,
skills and role.
Provide the basis for a
competitive
remuneration
package.
Paid monthly.
Reviewed annually.
There are performance
measures in place, and the
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 Executive
Directors, considering:
•
increase in
responsibility,
particularly as the
Company grows and
expands
• development and
performance in the
role
• alignment to the
market level
Pension
Provide a level of
pension provision that
is compliant with
regulation and allows
staff to build long-term
retirement savings.
Benefits
Protect against risks
and provide other
benefits reflecting the
international aspects
of roles.
Bonus Awards
Defined contribution based on
a percentage of salary.
Executives may elect to take
part of their pension
contribution as salary.
4.5% of base salary.
No element other than salary
is pensionable.
None. Pension contribution is
set at the commencement of an
individual’s contract.
Private medical and dental
insurance in the UK,
permanent health insurance
and life assurance cover.
Set at a level that provides
sufficient benefit.
None.
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
An 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.
The value of any bonus is at
the discretion of the
Remuneration Committee.
Performance is assessed using
specific metrics set by the
Remuneration Committee,
including the delivery of the
Company scorecard and the
share price performance.
The payment of bonus
awards is in form of nil stock
options, which replaced the
restricted stock unit plan.
Any cash payments made
by the Company is made at
the sole discretion of the
Remuneration Committee.
Sound Energy plc
Page 48 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Purpose Operation Maximum Opportunity Performance measures
Long-Term Incentive Plan (LTIP)
Reward execution of
Group strategy and
growth in shareholder
value over a multiple-
year period.
LTIP awards are made by the
Committee for the CEO and
for Executives by the
Committee based on CEO
recommendations.
The opening price, against
which the performance is
measured, and the below
multiples were chosen, is the
price at 30 April 2022 (2.40) p
Long-term
performance
measurement
discourages excessive
risk-taking and
inappropriate short-
term behaviours and
aligns Executive
interests with those of
shareholders.
The LTIP is designed
to retain Senior
Executives over the
performance period of
the awards.
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 in
control of the Company,
decisions relating to the extent
to which any vesting
conditions have been fulfilled
and the level of vesting will be
taken by the Committee, as
constituted immediately prior
to the date on which control
passes.
Chairman and Non-Executive Director Fees
Provide an appropriate
reward to attract and
retain high calibre
individuals.
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.
Set at a level that 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.
Vesting of the LTIP Options
will be subject to: (a) the
Company’s share price on the
third anniversary of the date of
grant (the “Performance
Testing Date”); and (b) to the
grantee remaining an
executive employee of the
Company on the Performance
Testing Date. Actual vesting of
the LTIP Options, the number
of which is determined on the
Performance Testing Date, will
then occur in three tranches
on the third (25%), fourth
(35%) and fifth (40%)
anniversaries of grant. The
number of LTIP Options
vesting on the Performance
Testing Date will be calculated
as follows, with a linear
relationship between vesting
thresholds:
In the event the LTIP Options
vest, in whole or in part, then
they will be exercisable at a
price of 2.4 pence per new
ordinary share.
Share price
on
Performance
Testing Date
% Options
Vesting
5.38p
50%
10.75p
≥
100%
≥
Benchmarked externally from
time to time as appropriate.
Sound Energy plc
Page 49 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
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 that are outside the
standard policy.
Director Shareholding Guidelines
Executive Directors and Senior Managers will be expected to build up, over a period not exceeding five
years, and retain a personal shareholding in the company equivalent to 70% and 30%, respectively, of their
base annual salary.
Vested shares awarded under an LTIP may be taken into account for the purposes of determining whether
the required shareholding has been achieved.
The Committee has discretion to change the shareholding targets.
Executive Director Employment Contracts and Termination Payments
The Executive Chairman has an employment contract and the COO an employment contract, 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 that the Executive Chairman must obtain agreement from the Board before
accepting additional commitments that might affect the time, he is able to devote as Chair of the Company.
Remuneration Policy for the Chairman and Non-Executive Directors
The Non-Executive Directors are appointed under employment contracts with a notice period for termination
of six months. The Service Contracts 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 occurring during their employment, Mohammed Seghiri,
COO, has the option to give notice and receive a lump sum equivalent to six months’ salary.
All of the Company’s current share plans contain provisions relating to a change of control. In the event of
a change in control of the Company, decisions relating to the extent to which any vesting conditions of the
LTIP have been fulfilled and the level of vesting will be taken by the Remuneration Committee, as constituted
immediately prior to the date on which control passes.
Sound Energy plc
Page 50 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Summary of Actual Remuneration of Directors
Salary
£’000
Bonus
£’000
Company
pension
£’000
Benefits in
Kind
£’000
Total
2023
£’000
Total
2022
£’000
Executive Chairman
& Executive Director
Graham Lyon
Mohammed Seghiri
Non-Executive Directors
Marco Fumagali (i)
David Blewden
Christian Bukovics
Simon Ashbury-Rudd (ii)
261
209
18
45
45
24
19
–
–
–
–
–
Total for all Directors
602
19
(i)
(ii)
Marco Fumagali retired during the year
Salary from the date of appointment
–
3
–
–
–
–
3
1
8
–
–
–
–
9
281
220
18
45
45
24
441
649
44
44
44
–
633
1,222
In 2022, the Company adopted a new long term incentive plan (the ‘‘LTIP’’), designed to reward, incentivise
and retain the Company’s executives and senior management to deliver sustainable growth for
shareholders.
LTIP Awards
Graham Lyon
Mohammed Seghiri
Date of grant Exercisable date
03.05.22 03.05.25–03.05.32
03.05.22 03.05.25–03.05.32
Acquisition
price
Options held at
per share
(pence)
2.4
2.4
Options held at
1 January 2023
12,218,879
7,331,327
31 December
2023(i)
12,218,879
7,331,327
(i) The LTIP Awards include 1,250,000 awards each qualifying under HMRC’s tax advantaged Company Share Option Plan
(CSOP).
Directors’ Shareholdings and Interests in Shares
Directors who held office at the end of the financial year had the following interests in the ordinary shares of
the Company as at 31 December 2023:
Graham Lyon (Chairman)
Mohammed Seghiri (COO)
David Blewden
Christian Bukovics
Simon Ashby-Rudd
Nil cost options
Graham Lyon
Mohammed Seghiri
Sound Energy plc
No. of shares
2,066,962
11,083,316
1,676,471
500,000
–
Date of grant Exercisable date
03.05.22 03.05.22–03.05.27
03.05.22 03.05.22–03.05.27
Nil cost options
held at 1 January
2023
7,740,943
4,308,017
Nil cost options
held at 31
December
2023
7,740,943
4,308,017
Page 51 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Nil cost options to Executives and staff were granted in 2022 in settlement of 2020 and 2021 bonus awards.
Movements in Share Price During the Year
The Company’s share price at the end of the financial year was 0.715 pence and the range of mid-market
prices during the year was between 0.670 pence and 2.05 pence.
Advice Received by the Committee
The Committee has access to advice when it is considered appropriate. The Committee engages a
consultant to review the existing Company’s Directors’ remuneration when necessary. In 2023, no amount
was paid for such consultancy for services provided (2022: £600).
This Remuneration Report was approved by a duly authorised Committee of the Board of Directors on 23
April 2024 and signed on its behalf by:
Christian Bukovics
Chairman of the Nominations and Remuneration Committee
Sound Energy plc
Page 52 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Directors’ Report
Other Disclosures
Pages 39 to 55 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 UK 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 transition energy focused companies whose
principal activities are currently the exploration, appraisal and development of gas assets. The Group’s
current principal area of activity is Morocco and has recently pivoted its monetisation strategy from
exploration towards development of its existing discovery in Eastern Morocco. A review of the performance
and future development of the Group’s business is contained on pages 2 to 34 and forms part of this report.
Results and Dividends
The loss for the year after tax was £7.0 million (2022: £5.0 million). The Directors do not recommend the
payment of a dividend.
Going Concern
Disclosure on going concern is included in note 1 to the financial statements. See page 68.
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 UK LLP, has indicated its willingness to continue in office, and a resolution that they be
reappointed will be proposed at the Annual General Meeting.
Political Donations
No political donations were made during the year (2022: £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 51.
Board of Directors
The names of the present Directors and their biographical details are shown on pages 39 to 40.
The Directors who served during the year were as follows:
• Graham Lyon
• David Blewden
• Marco Fumagalli
• Mohammed Seghiri
• Christian Bukovics
• Simon Ashby-Rudd
Sound Energy plc
Page 53 of 97
Annual Report 2023
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
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 2023 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 a
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.
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 2023, the Company had 1,963,122,679 ordinary shares in issue as shown in note 18 to the
consolidated financial statements. There are no restrictions on the transfer of the Company’s ordinary shares
other than certain restrictions that 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 Shareholding
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 2023 and up to the date of this report.
Oil & Gas Investment Fund SAS of Morocco holds 265,508,651 shares, representing a 13.52% interest.
Financial Instruments
The information relating to the Group’s financial assets and its financial risk management can be found in
note 20 to the consolidated financial statements.
Subsequent Events
See note on page 95.
Graham Lyon
Executive Chairman
23 April 2024
Sound Energy plc
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Statement of Directors’ Responsibilities
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 UK adopted international
accounting standards 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; and
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 to 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.
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 are prepared in accordance with
applicable law in the United Kingdom.
The maintenance and integrity of Sound Energy plc’s 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.
Graham Lyon
Executive Chairman
23 April 2024
Sound Energy plc
Page 55 of 97
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
Independent Auditor’s Report
to the members of Sound Energy plc
Opinion
We have audited the financial statements of Sound Energy plc (the “Company”) and its subsidiaries (the “Group”) for
the year ended 31 December 2023, which comprise:
•
•
•
•
•
the Group statement of comprehensive income for the year ended 31 December 2023;
the Group and Company balance sheets as at 31 December 2023;
the Group and Company statements of changes in equity for the year then ended;
the Group and Company statements of cash flows 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 UK-adopted international accounting standards.
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 2023 and of the Group’s loss for the year then ended;
the group and company financial statements have been properly prepared in accordance with UK-adopted
•
international accounting standards;
•
the financial statements have been prepared 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.
Material uncertainty in relation to going concern
We draw attention to Note 1 in the financial statements. The Group’s cash flow for the next twelve-month period to
April 2025, indicate that additional funding will be required to enable the Group to meet its obligations.
As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material
uncertainty exists that may cast significant doubt on the Group’s ability to continue as going concern. Our opinion is
not modified in respect of this matter.
In auditing the financial statements, we have concluded that the directors use of the going concern basis of accounting
in the preparation of the financial statements is appropriate. Our evaluation of the director’s assessment of the group
and company’s ability to continue to adopt the going concern basis of accounting included:
- Assessing the cash flow requirements of the Group and Company over the duration of the assessment period
based on budgets and forecasts.
- Understanding what forecast expenditure is committed and what could be considered discretionary.
- Considering potential downside scenarios and the resultant impact on available funds.
-
Testing the mathematical accuracy of the forecasts
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Sound Energy plc
Page 56 of 97
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
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 £2.0m (2022: £2.2m) and the overall materiality for the parent company is £1.9m (2022: £1.6m), based on 1% of
assets.
We determined that for other account balances, classes of transactions and disclosures not related to the balance
sheet, a misstatement of less than materiality for the financial statements as a whole could influence the economic
decisions of the users. We determined that materiality for these areas should be £350,000.
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 of £1.2m (2022: £1.2m) 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 £40,000 (2022: £44,000). 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.
The Group also has operations in Morocco which has a separate accounting function. We have performed a remote
audit of the accounting systems operating locally in Morocco in order to perform the required audit work.
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 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.
In addition to going concern which is described in the Material uncertainty in relation to going concern section, we have
determined the matters described below to be the key audit matters to be communicated in our report. 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 and
evaluation assets
The Group’s primary focus is on exploration
activities in Eastern and Southern Morocco.
Exploration expenditure in the current year
was significant and
totalled £0.7m. The
carrying value of
the exploration and
evaluation assets was £35m at 31 December
2023 (note 11).
Management are required to assess these
We reviewed management’s assessment which concluded that
there are no facts or circumstances that indicate the carrying
amount of the assets exceeds the recoverable amount.
In considering this assessment we performed the following:
• Challenged management’s assessment with respect to
the indicators of impairment as outlined under IFRS 6
• Reviewed
the board minutes, budgets and other
operational plans setting out the Group’s current plans
for
the continued commercial appraisal of each
exploration asset
• Obtained evidence of continued legal title
Sound Energy plc
Page 57 of 97
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
assets for impairment under IFRS 6 which
requires significant management judgement
and various assumptions. As these amounts
are material and the group are still developing
these assets with their recoverability subject
to a number of factors, there is a risk that they
could be impaired.
Impairment of development and
production assets
The Group has a significant amount of
development and production assets which
totalled £157.8m at 31 December 2023 (note
10).
for
impairment which
Management are required to assess these
assets
requires
significant management
judgement and
various assumptions. As these amounts are
material and the group are still developing
these assets with their recoverability subject to
a number of factors, there is a risk that they
could be impaired.
• Reviewed current well and licence reserve appraisals
• Discussed and critically analysed plans and intentions
with management
We reviewed management’s assessment which included their
internal model, including the consideration of whether the assets
are impaired and concluded that there are no facts or
circumstances that indicate the carrying amount of the assets
exceeds the recoverable amount.
In considering this assessment we performed the following:
• Obtained management’s
carried out during the year
impairment assessment
• Challenged management’s inputs into the valuation
model to available market data and other sources of
evidence. This included the assessment of:
•
•
•
the discount rate;
implicit oil price and;
reserves
• Reviewed
the board minutes, budgets and other
operational plans setting out the Group’s plans in regard
to the exclusivity award
• Discussed and critically analysed plans and intentions
with 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 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 the 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 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.
Sound Energy plc
Page 58 of 97
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
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 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 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 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below however
the primary responsibility for the prevention and detection of fraud lies with management and those charged with
governance of the company.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and the
procedures in place for ensuring compliance. The most significant identified were the Companies Act 2006 and UK
and Moroccan taxation legislation. Our work included, reviewing board and relevant committee minutes and
inspection of correspondence and HSE reports.
• As part of our audit planning process we assessed the different areas of the financial statements, including
disclosures, for the risk of material misstatement. This included considering the risk of fraud where direct enquiries
were made of management and those charged with governance concerning both whether they had any knowledge
of actual or suspected fraud and their assessment of the susceptibility of fraud. We considered the risk was greater
in areas involve significant management estimate or judgement. Based on this assessment we designed audit
procedures to focus on the key areas of estimate or judgement, including impairment, this included specific testing
of journal transactions, both at the year end and throughout the year.
• We used analytics to identify any unusual transactions or unexpected relationships, including considering the risk
of undisclosed related party transactions.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have properly planned and performed our audit in
accordance with auditing standards. We are not responsible for preventing non-compliance and cannot be expected
to detect non-compliance with all laws and regulations.
Sound Energy plc
Page 59 of 97
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
These inherent limitations are particularly significant in the case of misstatement resulting from fraud as this may involve
sophisticated schemes designed to avoid detection, including deliberate failure to record transactions, collusion or the
provision of intentional misrepresentations.
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.
Leo Malkin (Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Statutory Auditor
London
23 April 2024
Sound Energy plc
Page 60 of 97
Annual Report 2023
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023
Continuing operations
Revenue
Other income
Reversal of impairment on development assets and exploration costs
Gross profit
Administrative expenses
Group operating (loss)/profit from continuing operations
Finance revenue
Foreign exchange (loss)/gain
Finance expense
(Loss)/profit for the year before taxation
Tax expense
(Loss)/profit for the year after taxation
Other comprehensive income
Items that may subsequently be reclassified to the profit and loss
account
Foreign currency translation (loss)/gain
Total comprehensive (loss)/profit for the year
(Loss)/profit for the year attributable to:
Owners of the Company
Notes
2023
£’000s
2022
£’000s
3
4
7
25
8
–
42
–
42
–
43
5,678
5,721
(2,396)
(3,175)
(2,354)
42
(2,846)
(1,994)
(7,152)
2,546
13
5,462
(1,446)
6,575
(8)
(1,602)
(7,160)
4,973
(6,555)
13,373
(13,715)
18,346
(13,715)
18,346
Notes
2023
Pence
2022
Pence
Basic and diluted (loss)/profit per share for the year attributable to the
equity shareholders of the parent (pence)
9
(0.38)
0.28
Sound Energy plc
Page 61 of 97
Annual Report 2023
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2023
Non-current assets
Property, plant and equipment
Intangible assets
Prepayments
Interest in Badile land
Current assets
Inventories
Other receivables
Prepayments
Cash and short-term deposits
Total assets
Current liabilities
Trade and other payables
Tax liabilities
Lease liabilities
Loans and borrowings
Non-current liabilities
Lease liabilities
Tax liabilities
Loans and borrowings
Total liabilities
Net assets
Capital and reserves
Share capital and share premium
Shares to be issued
Accumulated surplus
Warrant reserve
Convertible bond reserve
Foreign currency reserve
Total equity
Notes
2023
£’000s
2022
£’000s
10
11
12
26
14
15
16
8
17
25
17
8
25
157,927
35,002
5,092
–
163,362
36,007
4,272
637
198,021
204,278
915
924
1,342
3,016
6,197
963
2,815
139
3,861
7,778
204,218
212,056
2,495
199
121
–
2,815
–
1,410
33,285
34,695
37,510
1,868
126
162
1,121
3,277
121
1,505
29,068
30,694
33,971
166,708
178,085
39,898
374
122,443
2,071
28
1,894
38,621
404
129,004
1,607
–
8,449
166,708
178,085
The financial statements were approved by the Board and authorised for issue on 23 April 2024 and were signed on
its behalf by:
Graham Lyon- Director
The accounting policies on pages 68 to 74 and notes on pages 68 to 95 form part of these financial statements.
Sound Energy plc
Page 62 of 97
Annual Report 2023
FINANCIAL STATEMENTS
COMPANY BALANCE SHEET AS AT 31 DECEMBER 2023
Non-current assets
Property, plant and equipment
Right of use assets
Software
Interest in Badile land
Investments in subsidiaries
Current assets
Other receivables
Prepayments
Cash and short-term deposits
Total assets
Current liabilities
Trade and other payables
Leases liabilities
Loans and borrowings
Non-current liabilities
Leases liabilities
Loans and borrowings
Total liabilities
Net assets
Capital and reserves
Share capital and share premium
Shares to be issued
Accumulated surplus
Warrant reserve
Convertible bond reserve
Total equity
Notes
2023
£’000s
2022
£’000s
10
26
13
14
15
16
17
25
17
25
4
101
18
–
190,149
5
274
–
637
197,132
190,272
198,048
59
29
233
321
67
26
1,521
1,614
190,593
199,662
421
121
–
542
–
33,285
33,285
33,827
765
162
1,121
2,048
121
29,068
29,198
31,237
156,766
168,425
39,898
374
114,395
2,071
28
38,621
404
127,793
1,607
–
156,766
168,425
The Company’s accumulated surplus includes a loss for the year of £14.0 million (2022: profit of £18.6 million).
The financial statements were approved by the Board and authorised for issue on 23 April 2024 and were signed on
its behalf by:
Graham Lyon – Director
Sound Energy plc
Page 63 of 97
Annual Report 2023
FINANCIAL STATEMENTS
GROUP AND COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023
Group
Share
capital
£’000s
Share
premium
£’000s
Shares to be
issued
£’000s
Accumulated
surplus
£’000s
Warrant
reserve
£’000s
Notes
Convertible
Bond
reserve
£’000s
Foreign
currency
reserves
£’000s
Total
equity
£’000s
18,487
–
20,134
–
404
–
129,004
(7,160)
1,607
–
At 1 January 2023
Total loss for the year
Other comprehensive
loss
Total comprehensive
loss
Issue of share capital
on conversion of bond
Other share capital
issues
Transfer to share
capital on issue of
shares
Fair value of warrants
issued during the year
Equity component of
convertible bond
Cost of issue allocated
to equity component
Transfer to
accumulated surplus
on bond conversion to
shares
–
–
25
1,000
18
114
18
30
–
–
–
–
–
–
–
46
87
–
–
–
–
–
–
–
–
–
–
(30)
–
–
–
–
–
–
(7,160)
–
–
–
–
–
–
360
239
–
–
–
–
–
464
–
–
–
–
–
–
–
–
–
–
–
–
562
(174)
(360)
–
28
8,449
–
178,085
(7,160)
(6,555)
(6,555)
(6,555)
(13,715)
–
–
–
–
–
–
–
–
1,046
201
–
464
562
(174)
–
239
1,894
166,708
Share-based payments
23
At 31 December 2023
19,631
20,267
374
122,443
2,071
Company
Share
capital
£’000s
Share
premium
£’000s
Shares to be
issued
£’000s
Accumulated
surplus
£’000s
Notes
Warrant
reserve
£’000s
Convertible
bond
reserve
£’000s
At 1 January 2023
Total loss for the year
Issue of share capital on
conversion of bond
Other issue of share capital
Transfer to share capital on issue
of shares
Fair value of warrants issued
during the year
Equity component of convertible
bond
Cost of issue allocated to equity
component
Transfer to accumulated surplus
on bond conversion to shares
Share-based payments
23
18,487
20,134
404
127,793
1,607
–
1,000
114
30
–
–
–
–
–
–
46
87
–
–
–
–
–
–
–
–
–
(30)
–
–
–
–
–
(13,997)
–
–
–
–
–
–
360
239
–
–
–
–
464
–
–
–
–
At 31 December 2023
19,631
20,267
374
114,395
2,071
Total
equity
£’000s
168,425
(13,997)
1,046
201
–
464
–
–
–
–
–
–
562
562
(174)
(174)
(360)
–
28
–
239
156,766
Sound Energy plc
Page 64 of 97
Annual Report 2023
FINANCIAL STATEMENTS
GROUP AND COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023
Group
Notes
Share capital
£’000s
Share
premium
£’000s
Shares to be
issued
£’000s
Accumulated
surplus
£’000s
Warrant
reserve
£’000s
Foreign
currency
reserves
£’000s
Total
equity
£’000s
At 1 January 2022
16,292
18,281
Total profit for the year
Other comprehensive income
Total comprehensive income
–
–
–
–
–
–
Issue of share capital
2,195
2,246
Share issue costs
Fair value of warrants issued
during the year
Vested nil options bonus
awards
Share-based payments
23
–
–
–
–
(393)
–
–
–
At 31 December 2022
18,487
20,134
–
–
–
–
–
–
–
404
–
404
123,872
1,534
(4,924) 155,055
4,973
–
4,973
–
–
–
–
159
–
–
–
–
–
73
–
–
–
4,973
13,373
13,373
13,373
18,346
–
–
–
–
–
4,441
(393)
73
404
159
129,004
1,607
8,449 178,085
Company
Notes
Share capital
£’000s
Share
premium
£’000s
Shares to be
issued
£’000s
Accumulated
surplus
£’000s
Warrant
reserve
£’000s
Total
equity
£’000s
At 1 January 2022
Total profit for the year
Issue of share capital
Share issue costs
Fair value of warrants issued
during the year
Vested nil options bonus awards
Share-based payments
23
16,292
18,281
–
2,195
–
–
–
–
–
2,246
(393)
–
–
–
At 31 December 2022
18,487
20,134
–
–
–
–
–
404
–
404
109,053
1,534
145,160
18,581
–
–
–
–
159
–
–
–
73
–
–
18,581
4,441
(393)
73
404
159
127,793
1,607
168,425
Sound Energy plc
Page 65 of 97
Annual Report 2023
FINANCIAL STATEMENTS
GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023
Cash flow from operating activities
Cash flow from operations
Interest received
Tax paid
Net cash flow from operating activities
Cash flow from investing activities
Capital expenditure
Exploration expenditure
Prepayment for Phase 1 the mLNG project
Receipt from interest in Badile land
Net cash flow from investing activities
Cash flow from financing activities
Net proceeds from equity issue
Net proceeds from borrowings
Interest payments
Lease 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
Note to Statement of Cash Flows
for the year ended 31 December 2023
Cash flow from operations reconciliation
(Loss)/profit for the year before tax
Finance revenue
Decrease/(increase) in drilling inventories
Decrease/(increase) in receivables and prepayments
(Decrease)/increase in accruals and short-term payables
Reversal of impairment on development assets and exploration costs
Impairment of interest in Badile land
Depreciation
Share-based payments charge and remuneration paid in shares
Finance expense and exchange adjustments
Cash flow from operations
Notes
2023
£’000s
(1,403)
42
(134)
2022
£’000s
(3,928)
13
(7)
(1,495)
(3,922)
25
15
(1,600)
(660)
(820)
134
(2,946)
–
4,442
(441)
(180)
3,821
(620)
(225)
3,861
3,016
2023
£’000s
(7,152)
(42)
48
688
(343)
–
125
194
239
4,840
(1,403)
(1,519)
(399)
(4,272)
–
(6,190)
3,680
7,233
(431)
(58)
10,424
312
636
2,913
3,861
2022
£’000s
6,575
(13)
(92)
(2,071)
190
(5,678)
107
101
969
(4,016)
(3,928)
Non-cash transactions during the period included the issue of 99,999,994 ordinary shares, following partial conversion
of the convertible bond. 11,404,221 ordinary shares were issued to third parties in settlement of approximately £0.2
million due for services provided and 3,015,790 ordinary shares were issued following the exercise of nil cost options
by a member of staff. The Group has provided collateral of $1.75 million (2022: $2.5 million) to the Moroccan Ministry
of Petroleum to guarantee the Group’s minimum work programme obligations for the Anoual, and Sidi Mokhtar permits.
The cash is held in a bank account under the control of the Company and, as the Group expects the funds to be
released as soon as the commitment is fulfilled, on this basis, the amount remains included within cash and cash
equivalents.
Sound Energy plc
Page 66 of 97
Annual Report 2023
FINANCIAL STATEMENTS
COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023
Cash flow from operating activities
Cash flow from operations
Interest received
Net cash flow from operating activities
Cash flow from investing activities
Receipt from interest in Badile land
Advances to subsidiaries
Cash received from subsidiaries
Net cash flow from investing activities
Cash flow from financing activities
Net proceeds from equity issue
Net proceeds from borrowings
Interest payments
Lease 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
Notes
2023
£’000s
(3,253)
21
2022
£’000s
(2,931)
11
(3,232)
(2,920)
134
(2,418)
161
–
(7,947)
991
(2,123)
(6,956)
–
4,442
(441)
(180)
3,821
(1,534)
246
1,521
3,680
7,233
(431)
(58)
10,424
548
378
595
Cash and cash equivalents at the end of the year
15
233
1,521
Note to Statement of Cash Flows
for the year ended 31 December 2023
Cash flow from operations reconciliation
(Loss)/profit before tax
Impairment of interest in Badile land
Intragroup recharges
Finance revenue
Decrease/(increase) in receivables and prepayments
(Decrease)/increase in accruals and short-term payables
Depreciation
Share-based payments charge, and remuneration paid in shares
Decrease in impairment and expected credit loss allowance on
intercompany loans
Finance expense and exchange adjustments
Cash flow from operations
2023
£’000s
(13,997)
125
(1,145)
(21)
5
(344)
174
239
2022
£’000s
18,581
107
(1,179)
(11)
(25)
135
58
969
(421)
12,132
(2,501)
(19,065)
(3,253)
(2,931)
Non-cash transactions during the period included the issue of 99,999,994 ordinary shares, following partial conversion
of bond. 11,404,221 ordinary shares were issued to third parties in settlement of approximately £0.2 million due for
services provided and 3,015,790 ordinary shares were issued following the exercise of nil cost options by a member
of staff.
Sound Energy plc
Page 67 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023
1 Accounting Policies
Sound Energy plc is a public limited Company registered and domiciled in England and Wales under the Companies
Act 2006. The Company’s registered office is 20 St Dunstan’s Hill, London EC3R 8HL.
a) Basis of preparation
The financial statements of the Group and its parent Company have been prepared in accordance with UK-adopted
International Accounting Standards.
The consolidated financial statements have been prepared under the historical cost convention, except to the extent
that the following policies require fair value adjustments. The Group and its parent Company’s financial statements are
presented in sterling (£) and all values are rounded to the nearest thousand (£’000) except when otherwise indicated.
The principal accounting policies set out below have been consistently applied to all financial reporting periods
presented in these consolidated financial statements and by all Group entities, unless otherwise stated. All amounts
classified as current are expected to be settled/recovered in less than 12 months unless otherwise stated in the notes
to these financial statements. The Group and its parent Company’s financial statements for the year ended 31
December 2023 were authorised for issue by the Board of Directors on 23 April 2024.
Going concern
As at 31 March 2024, the Group’s cash balance was £2.5 million (including approximately £0.8 million held as collateral
for a bank guarantee against permit commitments). The Directors have reviewed the Company’s cash flow forecasts
for the next 12-month period to April 2025. The Company’s forecasts and projections indicate that, to fulfil its other
obligations, primarily the Company’s exploration permits commitments, the Company will require additional funding.
The Company commenced its Phase 1 of the Concession upon taking FID on the micro-LNG project, and has continued
to actively monitor the project schedule, costs and financing. The Company is progressing towards a final investment
decision for Phase 2, pipeline led development of the Concession and received a conditional offer for partial financing
of the Phase 2 development and continue to work to satisfy the conditions precedents and other elements necessary
for the taking of Phase 2 FID.
The need for additional financing indicates the existence of a material uncertainty, which may cast significant doubt
about the Group and Company’s ability to continue as a going concern. These financial statements do not include
adjustments that would be required if the Company was unable to continue as a going concern. The Company
continues to exercise rigorous cost control to conserve cash resources, and the Directors believe that there are several
corporate funding options available to the Company, including a farm-down on some of the Company’s permits, and
various debt funding options. Furthermore, based upon the Company’s proven track record in raising capital in the
London equity market, and based on feedback from ongoing financing discussions, the Directors have a reasonable
expectation that the Company and the Group will be able to secure the funding required to continue in operational
existence for the foreseeable future, and have made a judgement that the Group will continue to realise its assets and
discharge its liabilities in the normal course of business. Accordingly, the Directors have adopted the going concern
basis in preparing the consolidated financial statements.
Use of estimates and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets
and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting
period. The Group based its assumptions and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future developments, however, may change
due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected
in the assumptions when they occur.
Sound Energy plc
Page 68 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
Estimation and assumptions
The key sources of estimation uncertainty, that have a significant risk of causing material adjustment to the carrying
amounts of assets and liabilities within the next financial year, are the impairment of intangible exploration and
evaluation (“E&E”) assets, impairment of development and production assets, investments, warrants, and the
estimation of share-based payment costs.
E&E, development and production assets
When considering whether E&E assets are impaired, the Group first considers the IFRS 6 indicators set out in note 11.
The making of this assessment involves judgement concerning the Group’s future plans and current technical and legal
assessments. In considering whether development and production assets are impaired, the Group considers various
impairment indicators and whether any of these indicates existence of an impairment. If those indicators are met, a full
impairment test is performed.
Impairment test
When value in use calculations are undertaken, management estimates the expected future cash flows from the asset
and chooses a suitable discount rate to calculate the present value of those cash flows. In undertaking these value in
use calculations, management is required to make use of estimates and assumptions similar to those described in the
treatment of E&E assets above. Further details are given in note 11.
At 31 December 2023, the Company’s market capitalisation was £14.0 million, which is below the Group and
Company’s net asset value of £166.7 million and £156.8 million, respectively. Management considers this to be a
possible indication of impairment of the Group and Company’s assets. A significant portion of the Group’s net assets
is the carrying value of the development and producing assets and disclosures relating to management’s assessment
of impairment for these assets and the investment in subsidiaries are included in note 10, on the basis that the
recoverability of the investment in subsidiaries in the Company balance sheet is linked to the value of the development
and producing assets as, ultimately, the cash flows these generate will determine the subsidiaries’ ability to pay returns
to the Company.
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which
is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation
is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable
market prices less incremental costs of disposing of the asset. The fair value is estimated using a discounted cash flow
model (‘DCF model’’). The cash flows are derived from the latest budgets, expenditure and price data in signed gas
sales agreements (for contracted gas sales volumes), market based price data (for uncontracted gas sales volumes),
project contract or agreed heads of terms, and the latest management plans on project phasing. The recoverable
amount is sensitive to the discount rate and gas price assumption as well as the Brent price assumption that impacts
condensate sales pricing in the DCF model. The impairment test indicated that there was sufficient headroom and
therefore no impairment charge was recognized as at 31 December 2023. The key assumptions used to determine the
recoverable amount of the development and production assets are disclosed in note 10.
Share-based payments
The estimation of share-based payment costs requires the selection of an appropriate valuation model, consideration
as to the inputs necessary for the valuation model chosen, and the estimation of the number of awards that will
ultimately vest, inputs for which arise from judgements relating to the continuing participation of key employees (note
19).
Fair value of warrants
Significant judgement and estimation is also required in the determination of the fair value of warrants.
Fair value of convertible bonds
The calculation of fair value on convertible bonds requires estimation of the discount rate to use when discounting
outstanding principal and interest amounts at each reporting date. The discount rate is a significant input into the
discounted cashflow model used by the Company to estimate the fair value of the convertible bonds. The key
assumptions used are disclosed under the fair value measurement section of Note 20.
Sound Energy plc
Page 69 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
Taxation
The Group seeks professional tax and legal advice to make a judgement on application of tax rules on underlying
transactions within the Group or with third parties. Tax treatment adopted by the Group may be challenged by tax
authorities. The Group had tax cases where Morocco Tax Authority had claimed taxes relating to the Group historical
permits transfers and intragroup transactions. During 2023, a settlement on the tax cases was agreed upon as
disclosed in note 8.
Intercompany loans
The Company has funded its subsidiaries through non-interest bearing loans payable on demand. Given that the
Company has no intention to call in the loans in the foreseeable future, the loans are classified as non-current
investments. Other sources of estimate concern IFRS 9 on intercompany loans at parent Company level (note 13).
(b) Basis of consolidation
The Group financial statements consolidate the income statements, balance sheets, statements of cash flows 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. 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
The Company has no intention of recalling the intercompany loans in the foreseeable future and, therefore, classifies
them as investments in the Company balance sheet. On adoption of IFRS 9, the Company calculated the expected
credit losses on intercompany loans based on lifetime expected credit loss. The expected credit loss is re-evaluated
when credit risk significantly changes. Annually, the Company uses available external data on oil and gas industry
default rates, where available, or speculative bond default rates as the basis for determining expected credit loss.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group, until the date that control
ceases.
(c) Foreign currency translation
The functional currency of the Company is GBP sterling. The Group also has subsidiaries whose functional currencies
are US dollar.
Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate
ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated
at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income
statement.
On consolidation, the assets and liabilities of foreign operations are translated into sterling at the rate of exchange
ruling at the balance sheet date. Income and expenses are translated at weighted average exchange rates for the year
unless this is not a reasonable approximation of the rates on the transaction dates. The resulting exchange differences
are recognised in other comprehensive income and held in a separate component of equity. On disposal of a foreign
entity, the deferred cumulative amount recognised in equity relating to that foreign operation is recognised in the income
statement.
Sound Energy plc
Page 70 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
(d) Oil and gas assets
The Group’s capitalised oil and gas costs relate to properties that are in the development, 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 applies the successful efforts method of accounting for E&E costs.
Exploration and evaluation assets
Under the successful efforts method of accounting, all permit 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.
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 permit/prospect are carried forward until the existence (or otherwise)
of commercial reserves has been determined subject to certain limitations including a 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 the
conclusion of appraisal activities.
Development and production assets
Development and production assets are accumulated, generally, on a permit-by-permit 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 the production of commercial reserves. The
cash-generating unit applied for impairment test purposes is generally the permit, except that a number of permit
interests may be grouped as a cash-generating unit where the cash flows of each permit are interdependent.
Acquisitions, asset purchases and disposals
Acquisitions of oil and gas properties are accounted for under the purchase method when the transaction meets the
definition of a business combination or joint venture. Transactions involving the purchase of an individual permit
interest, or a group of permits 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 permit 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. Where asset purchases include the payment of additional variable payments, such
as net profit interests based on future gas sales, a liability is recognised when the production and sale of gas
commences.
Sound Energy plc
Page 71 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
(e) Expenses recognition
Expenses are recognised on an accruals basis unless otherwise stated.
(f) Borrowing costs
Borrowing costs that are 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.
(g) 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.
(h) Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks. Cash and cash equivalents also
include restricted cash that has been placed as a guarantee for commitments on the permits.
(i) 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, except for the liability component of
the convertible bond which is measured at fair value. 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.
Sound Energy plc
Page 72 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
(j) Share-based payments
Group issues equity-settled share-based payments to certain employees. The fair value of each long term incentive
plan option (“LTIP”) 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 vested, irrespective of whether or not the market condition is satisfied, provided
that all other performance and/or service conditions are satisfied.
(k) Inventories
Inventories represent drilling equipment and materials remaining after drilling operations are completed. Inventory is
valued at lower of cost and net realisable value. The value of the inventory used during drilling operations is determined
on a weighted average basis.
(l) Leases
The Group assesses at contract inception whether a contract is, or contains, a lease, if the contract conveys the right
to control the use of an identified asset for a period of time in exchange for a consideration. The Group applies a single
recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets.
The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use
the underlying assets.
I. Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset
is
for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses,
and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less
any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the
end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are subject to impairment.
II. Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments less any lease incentives
receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be
exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising
the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an
expense in the period during which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date,
the amount of lease liabilities is increased to reflect the unwinding of discount and is reduced for the lease payments
made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease
term or a change in the assessment to purchase the underlying asset.
III. Short-term leases and leases of low value assets
The Group applies the short-term lease recognition exemption to its short-term leases of offices, vehicles and rented
staff housing (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not
contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office
equipment that are considered of low value (i.e. below $5,000). Lease payments on short-term leases and leases of
low-value assets are recognised as an expense on a straight-line basis over the lease term.
Sound Energy plc
Page 73 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
(m) Standards, interpretations and amendments to published standards
Amendments to published standards
A number of amendments to standards and interpretations have been issued, but they had no material impact on the
measurement, recognition, presentation or disclosure of items in the Group financial statements.
(n) Earnings per share
Earnings per share are calculated using the weighted average number of ordinary shares outstanding during the period
per IAS 33. Diluted earnings per share are calculated based on the weighted average number of ordinary shares
outstanding during the period, plus the weighted average number of shares that would be issued on the conversion of
all potentially dilutive shares to ordinary shares. It is assumed that any proceeds obtained on the exercise of any
options and warrants would be used to purchase ordinary shares at the average price during the period. Where the
impact of converted shares would be anti-dilutive, these are excluded from the calculation of diluted earnings.
2 Segment Information
The Group categorises its operations into three business segments based on corporate, exploration and appraisal, and
development and production.
In the year ended 31 December 2023, the Group’s development, exploration and appraisal activities were primarily
carried out in Morocco.
The Group’s reportable segments are based on internal reports about components of the Group, which are regularly
reviewed and used by the Board of Directors, being the Chief Operating Decision Maker (“CODM”), for strategic
decision making and resource allocation, in order to allocate resources to the segment and to assess its performance.
Details regarding each of the operations of each reportable segments are included in the following tables.
Segment results for the year ended 31 December 2023:
Development
and
production
£’000s
Exploration
and
appraisal
£’000s
Corporate
£’000s
Other income
Impairment of development assets and exploration costs
Administration expenses
Operating (loss)/profit segment result
Interest receivable
Finance expense and exchange adjustments
(Loss)/profit for the period before taxation from
continuing operations
–
–
(2,396)
(2,396)
42
(4,840)
(7,194)
The segments assets and liabilities at 31 December 2023 is as follows:
–
–
–
–
–
–
–
Total
£’000s
42
–
(2,396)
(2,354)
42
(4,840)
42
–
–
42
–
–
42
(7,152)
Non-current assets
Current assets
Liabilities attributable to continuing operations
Development
and
production
£’000s
162,908
2,897
(11,368)
Exploration
and
appraisal
£’000s
34,976
1,341
(2,591)
Corporate
£’000s
137
1,959
(23,551)
Total
£’000s
198,021
6,197
(37,510)
Sound Energy plc
Page 74 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
2 Segment Information (continued)
The geographical split of non-current assets is as follows:
Development and production assets
Fixtures, fittings and office equipment
Right of use assets
Software
Prepayments
Exploration and evaluation assets
Total
UK
£’000s
–
4
101
18
–
–
Morocco
£’000s
157,816
6
–
8
5,092
34,976
123
197,898
Segment results for the year ended 31 December 2022 were as follows:
Development
and
production
£’000s
Exploration
and appraisal
£’000s
Corporate
£’000s
Other income
Reversal of impairment of development assets and
exploration costs
Administration expenses
Operating profit/(loss) segment result
Interest receivable
Finance costs and exchange adjustments
–
–
(3,175)
(3,175)
13
4,016
–
5,678
–
5,678
–
–
Profit/(loss) for the period before taxation from continuing
operations
854
5,678
43
–
–
43
–
–
43
The segments assets and liabilities at 31 December 2022 were as follows:
Non-current assets
Current assets
Liabilities attributable to continuing operations
The geographical split of non-current assets were as follows:
Development
and
production
£’000s
167,346
2,141
(8,301)
Exploration
and appraisal
£’000s
35,988
1,413
(2,646)
Corporate
£’000s
944
4,224
(23,024)
Total
£’000s
43
5,678
(3,175)
2,546
13
4,016
6,575
Total
£’000s
204,278
7,778
(33,971)
Morocco
£’000s
163,074
–
9
–
19
4,272
35,988
Europe
£’000s
–
637
5
274
–
–
–
Development and production assets
Interest in Badile land
Fixtures, fittings and office equipment
Right of use assets
Software
Prepayments
Exploration and evaluation assets
Total
Sound Energy plc
916
203,362
Page 75 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
3 Other Income
Research and development expenditure credit
2023
£’000s
42
2022
£’000s
43
During the year, the Company’s subsidiaries received credit under the HMRC‘s Research and Development
Expenditure Credit (RDEC) scheme for qualifying activities undertaken in prior years.
4 Operating (Loss)/profit
Operating (loss)/profit is stated after charging:
2023
£’000s
2022
£’000s
Depreciation
Employee costs
Impairment/(reversal) of impairment of development assets and exploration costs
194
1,215
–
101
1,860
(5,678)
5 Auditor’s Remuneration
Fees payable to the Company’s auditor for the audit of the 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
6 Employee Costs
Staff costs, including the Executive Chairman and Executive Directors
Share-based payments
Wages and salaries
Social security costs
Employee benefits
Employee costs capitalised to development and intangible assets
Total
2023
£’000s
63
2022
£’000s
60
5
–
13
81
5
–
7
72
2023
£’000s
2022
£’000s
239
1,318
170
93
(605)
1,215
969
1,437
214
93
(853)
1,860
Sound Energy plc
Page 76 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
6 Employee Costs (continued)
The average monthly number of employees (including the Executive Chairman and
Executive Directors) was:
Technical and operations
Management and administration
Total
2023
Number
2022
Number
5
8
13
4
10
14
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 £0.6 million (2022: £0.8 million) of
employee costs was capitalised.
7 Finance Revenue
Interest on cash at bank and short-term deposits
8 Taxation
(a) Analysis of the tax charge for the year:
Current tax
UK corporation tax
Adjustment to tax expense in respect of prior years
Tax cases settlement (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)/profit before tax
2023
£’000s
2022
£’000s
42
42
13
13
2023
£’000s
2022
£’000s
–
(8)
–
(8)
–
(8)
2023
£’000s
(7,152)
–
(7)
(1,595)
(1,602)
–
(1,602)
2022
£’000s
6,575
Tax (charge)/credit charged at UK corporation tax rate of 23.5% (2022: 19%)
1,681
(1,249)
Tax effect of:
Expenses not deductible for tax purposes
Settlement of tax cases
Tax losses not recognised
Change in UK tax rate
Differences in overseas tax rates
Total tax (charge)/credit
(82)
–
(1,264)
(322)
(21)
(49)
(1,595)
1,276
–
15
(8)
(1,602)
Sound Energy plc
Page 77 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
8 Taxation (continued)
Deferred tax assets have not been recognised in respect of tax losses available due to the uncertainty of the utilisation
of those assets. Unrecognised tax losses as at 31 December 2023 were estimated to be approximately £14.8 million
(2022: £8.8 million).
The Group had tax cases where Morocco Tax Authority had claimed taxes relating to the Group historical permits
transfers and intragroup transactions. In May 2023, the Company entered into a settlement agreement with Morocco
Tax Authority on a phased payment schedule back ended over 6 years. The amount paid on entry into the settlement
agreement was approximately £126k (after taking account of exchange rate movements). The discounted non-current
liability amounted to approximately £1.6 million as at 31 December 2023.
The table below sets out the current and non-current tax liability and the movement during the year.
Amounts due within one year
Amounts due after more than one year
The movement during the year is as below:
As at 1 January
Tax settlement
Unwinding of discount
Tax payment
Exchange adjustment
As at 31 December
9 (Loss)/profit per Share
2023
£’000s
199
1,410
1,609
1,631
–
101
(126)
3
1,609
2022
£’000s
126
1,505
1,631
–
1,631
–
–
–
1,631
The calculation of basic profit/(loss) per ordinary share is based on the profit/(loss) after tax and on the weighted
average number of ordinary shares in issue during the year. The calculation of diluted profit/(loss) per share is based
on profit/(loss) after tax on the weighted average number of ordinary shares in issue, plus the weighted average number
of shares that would be issued if dilutive options and warrants were converted into shares. Basic and diluted profit/(loss)
per share is calculated as follows:
(Loss)/profit for the year after taxation
Basic weighted average shares in issue
Dilutive potential ordinary shares
Diluted weighted average number of shares
Basic (loss)/profit per share
Diluted (loss)/profit per share
2023
£’000s
(7,160)
2023
Million
1,882
–
1,882
2023
Pence
(0.38)
(0.38 )
2022
£’000s
4,973
2022
Million
1,752
7
1,759
2022
Pence
0.28
0.28
Sound Energy plc
Page 78 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
9 (Loss)/profit per Share (continued)
Due to loss during the year, the effect of the potential dilutive shares on the earnings per share would have been anti-
dilutive and therefore were not included in the calculation of the dilutive earnings per share. In 2022, LTIP options
awards and warrants totalling 138.8 million were all anti-dilutive and were not included in the calculation of diluted
weighted average number of shares.
10 Property, Plant and Equipment
Cost
At 1 January 2023
Additions
Exchange adjustments
At 31 December 2023
Impairment and depreciation
At 1 January 2023
(Reversal)/charge for period
Exchange adjustments
At 31 December 2023
Net book amount
Cost
At 1 January 2022
Additions
Disposal
Exchange adjustments
At 31 December 2022
Impairment and depreciation
At 1 January 2022
(Reversal)/charge for period
Disposal
Exchange adjustments
At 31 December 2022
Net book amount
Development
and
production
assets
£’000s
Fixtures,
fittings and
office
equipment
£’000s
Right-of-use
assets
£’000s
163,074
2,737
(7,995)
157,816
–
–
–
–
157,816
656
2
(14)
644
642
4
(12)
634
10
331
–
–
331
57
173
–
230
101
Development
and
production
assets
£’000s
Fixtures,
fittings and
office
equipment
£’000s
Right-of-use
assets
£’000s
144,735
1,597
–
16,742
163,074
5,107
(5,678)
–
571
–
163,074
626
4
(3)
29
656
588
30
(2)
26
642
14
–
331
–
–
331
–
57
–
–
57
2023
£’000s
164,061
2,739
(8,009)
158,791
699
177
(12)
864
157,927
2022
£’000s
145,361
1,932
(3)
16,771
164,061
5,695
(5,591)
(2)
597
699
274
163,362
Sound Energy plc
Page 79 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
10 Property, Plant and Equipment (continued)
Change in estimate
The discount rate and forecast gas price are significant estimates used by the Company to determine the recoverable
amount when undertaking impairment testing of the Company’s Tendrara Production Concession. The Company has
taken account of changes in market conditions and certain corporate parameters during the period and accordingly
revised the discount rate to 11.25% as at 31 December 2023 from 12.5% at 31 December 2022. The Company at 31
December 2022 used an average of forecast gas price referenced to the Title Transfer Facility (‘‘TTF’’) in the
Netherlands and the UK National Balancing Point (‘‘NBP’’) for pricing the forecasted uncontracted gas sales volumes
for impairment testing. At 31 December 2023 the Company has used average TTF prices only since future gas sales
contracts the Company is likely to enter into are expected to be priced in reference to TTF and in addition, the Company
received an indicative non-binding gas pricing term sheet referenced to TTF. For the impairment testing, the average
TTF gas price projections, from leading independent industry consultants, used for the period to 2032 (and increasing
at 2% inflationary rate thereafter) was 14.39 US$/MMBtu. The average TTF and NBP gas price projections for the
period to 2032 was 14.45 US$/MMBtu.
The Company’s market capitalisation was £14.0 million as at 31 December 2023, which is below the Group’s net assets
of £166.7 million and the Company’s net assets of £156.8 million. An impairment indicator therefore exists. The
Company is pursuing a micro-LNG development (phase 1) followed by full field development (phase 2) of its TE-5
Horst concession at the Group’s Tendrara permit and an impairment test was undertaken on the carrying amount of
the Tendrara Production Concession. The Company used a DCF model (‘Model’’) to calculate the recoverable amount
for the Company’s share of the Tendrara Production Concession. The Model has an NPV of $204.0 million (£160.2
million) which when compared to the carrying amount of the development expenditure of £157.8 million indicated that
no impairment was required.
The Model covers the period 2024 to 2049. The input to the Model included a discount rate of 11.25% and phase 1
gas price of $8.0 per mmbtu rising to the phase 1 gas price ceiling of $8.346 per mmbtu, indexed using a combination
of the TTF and United States Henry Hub benchmark indexes. Phase 2 gas price used is a fixed price for the first 10
years for annual volume of 0.3 bcm and the price for uncontracted volumes referenced to an average forecast price of
TTF and NBP with price range of US$12.10 per mmBTU in 2024 and $14.68 per mmBTU in 2033, increasing at 2%
per annum thereafter, consistent with published sources. The base gas prices used are consistent with LNG GSA for
the Phase 1 development and Phase 2 gas price is based on GSA signed with ONEE for the first ten years. The
production volumes data was based on the 2018 CPR for Tendrara TE-5 Horst.
The well cost assumptions used were based on management’s past experience; mLNG plant leasing costs were based
on contract with the micro-LNG plant contractor; and pipeline related costs were based on Head of Terms entered into
with a consortium of partners that had offered to provide a build, own, operate and transfer (‘‘BOOT’’) solution for the
Phase 2 of the development. The Company’s latest forecast covered the period to 2027, but the model extends to
2049, as that is the period required to produce the gas resources at Tendrara Production Concession and the economic
cut-off. A change in the discount rate by 1% has a $23.2 million (£18.3 million) impact on the NPV and change in
average TTF and NBP forecast gas price by $1/bbl has a $11.4 million (£9.0 million) impact on the NPV.
Sound Energy plc
Page 80 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
11 Intangibles
Cost
At 1 January 2023
Additions
Exchange adjustments
At 31 December 2023
Impairment and depreciation
At the start of the year
Charge for the year
Exchange adjustments
At 31 December 2023
Net book amount
Cost
At 1 January 2022
Additions
Exchange adjustments
At 31 December 2022
Impairment and depreciation
At the start of the year
Charge for the year
Exchange adjustments
At 31 December 2022
Net book amount
45,582
45,964
Exploration
& Evaluation
Assets
£’000s
Software
£’000s
375
22
(15)
382
356
17
(17)
356
26
46,594
729
(1,741)
10,606
–
–
10,606
34,976
Exploration &
Evaluation
Assets
£’000s
Software
£’000s
2023
£’000s
46,969
751
(1,756)
10,962
17
(17)
10,962
35,002
2022
£’000s
42,556
836
3,577
352
23
–
375
352
14
(10)
356
19
42,204
813
3,577
46,594
46,969
10,606
–
–
10,958
14
(10)
10,606
10,962
35,988
36,007
Exploration and evaluation assets
Details regarding the geography of the Group’s E&E assets is contained in note 2. The Directors assess for impairment
when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount.
In making this assessment, the Directors have regard to the facts and circumstances noted in IFRS 6 paragraph 20. In
performing their assessment of each of these factors, at 31 December 2023, the Directors have:
a.
reviewed the time period that the Group has the right to explore the area and noted no instances of expiration, or
permits that are expected to expire in the near future and not be renewed;
b. determined that further E&E expenditure is either budgeted or planned for all permits;
c. not decided to discontinue exploration activity due to there being a lack of quantifiable mineral resource; and
d. not identified any instances where sufficient data exists to indicate that there are permits where the E&E spend is
unlikely to be recovered from successful development or sale.
On the basis of the above assessment, the Directors are not aware of any facts or circumstances that would suggest
the carrying amount of the E&E asset may exceed its recoverable amount. During the year, the Group had capitalised
interest costs of approximately £0.3 million (2022: £0.1 million).
Sound Energy plc
Page 81 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
12 Prepayments
Non-current prepayment of £5.1 million (2022: £4.3 million) and current prepayment of £1.3 million (2022; nil) relates
to activities of the Company’s Phase 1 mLNG Project in the Concession.
13 Investment in Subsidiaries
2023
Cost of
shares in
subsidiaries
£’000s
Intercompany
loans
£’000s
Cost
At 1 January
Additions
Repayment of intercompany
loans
Exchange adjustment
At 31 December
Credit loss allowance and
impairment
At 1 January
(Decrease)/increase in credit loss
Impairment reversal
At 31 December
216,819
3,641
(161)
(10,884)
209,415
19,687
(421)
–
19,266
Net book amount at 31 December
190,149
–
–
–
–
–
–
–
–
–
–
Intercompany
loans
£’000s
Total
£’000s
216,819
3,641
(161)
(10,884)
186,687
8,754
(991)
22,369
209,415
216,819
19,687
(421)
–
19,266
22,189
2,605
(5,107)
19,687
190,149
197,132
2022
Cost of
shares in
subsidiaries
£’000s
–
–
–
–
–
–
–
–
–
–
Total
£’000s
186,687
8,754
(991)
22,369
216,819
22,189
2,605
(5,107)
19,687
197,132
The subsidiary companies of the Company at 31 December 2023, which are all 100% owned by the Company, are:
Name
Sound Oil International
Limited
Principal activity
Incorporated
British Virgin Isles Holding Company
Sound Oil (Asia) Limited
British Virgin Isles Holding Company
Registered addresses
PO Box 173, Kingston, Chambers Road,
Tortola, VG 1110, British Virgin Islands
PO Box 173, Kingston, Chambers Road,
Tortola, VG 1110, British Virgin Islands
Arran Energy Holdings
Limited
British Virgin Isles Exploration Company PO Box 662, Road Town, Tortola, VG 1110,
British Virgin Islands
Mitra Energia Citarum
Limited*
Mauritius
Exploration Company Fifth Floor, Ebene, Esplanade,
24 Cybercity, Ebene, Mauritius
Sound Energy Morocco
SARLAU**
Morocco
Exploration Company
Espace Les Patios, Avenue Anakhil,
Batiment 2, 1 er Etage, Hay Ryad, Rabat
Sound Energy New Ventures
Limited
UK
Dormant
20 St Dunstan’s Hill, London EC3R 8HL UK
Sound Energy plc
Page 82 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
13 Investment in Subsidiaries (continued)
Name
Sound Energy Sustainables
Limited
Incorporated
UK
Principal activity
Renewable Energy
Registered addresses
20 St Dunstan’s Hill, London EC3R 8HL UK
Sound Energy Morocco East
Limited
UK
Sound Energy Morocco
South Limited
Sound Energy Meridja
Limited
UK
UK
Exploration Company 20 St Dunstan’s Hill, London EC3R 8HL UK
Exploration Company 20 St Dunstan’s Hill, London EC3R 8HL UK
Exploration Company 20 St Dunstan’s Hill, London EC3R 8HL UK
The investment in Mitra Energia Citarum Limited is held, indirectly, via Sound Oil International Limited.
*
The investment in Sound Energy Morocco SARLAU is held, indirectly, via Sound Energy Morocco East Limited.
**
On the basis that the recoverability of the investment in subsidiaries in the Company balance sheet is linked to the
value of the development and production assets, as, ultimately, the cash flows these generate will determine the
subsidiaries ability to pay returns to the Company, an impairment reversal of nil (2022: £5.1 million) was recognised
for the investment in subsidiaries following the recognition of a reversal of impairment in the development and
production assets (note 10).
On the adoption of IFRS 9, the Company calculated the expected credit losses on intercompany loans based on lifetime
expected credit loss. The expected credit loss is re-evaluated when credit risk significantly changes. Annually, the
Company uses available external data on oil and gas industry default rates, where available, or speculative bond
default rates. The Company used a cumulative default rate of 9.2% (2022: 9.1%), obtained from publicly available data
published by leading credit rating agencies. A reduction of credit loss of £0.4 million (2022: £2.6 million increase) was
recognised in the income statement.
The Company has funded its subsidiaries through non-interest bearing loans payable on demand. Given that the
Company has no intention to call in the loans in the foreseeable future, the loans are classified as non-current
investments.
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
Gas exploration
Holding companies
Dormant
Renewable energy
Holding companies
Gas exploration
Holding companies
Gas exploration
UK
UK
UK
UK
British Virgin Isles
British Virgin Isles
Mauritius
Morocco
Morocco
UK
UK
Morocco
British Virgin Isles
Morocco
Mauritius
Morocco
2023
Number
3
1
1
1
2
1
1
1
2022
Number
3
1
1
1
2
1
1
1
Sound Energy plc
Page 83 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
14 Other Receivables
Group
UK VAT
Morocco VAT
Other receivables
Company
UK VAT
Other receivables
15 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
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
2023
£’000s
23
426
475
924
2023
£’000s
23
36
59
2023
£’000s
1,453
1,563
3,016
2,734
13
243
26
3,016
2023
£’000s
45
188
233
6
13
214
233
2022
£’000s
32
450
2,333
2,815
2022
£’000s
32
35
67
2022
£’000s
361
3,500
3,861
2,309
48
1,472
32
3,861
2022
£’000s
88
1,433
1,521
15
48
1,458
1,521
The Group has provided collateral of $1.75 million (£1.4 million) (2022: $2.5 million (£2.1 million)) to the Morocco
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 the funds to be released as soon as the
commitment is fulfilled, on this basis, the amount remains included within cash and cash equivalents.
Sound Energy plc
Page 84 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
16 Trade and Other Payables
Group
Trade payable
Payroll taxes and social security
Accruals
Company
Trade payable
Payroll taxes and social security
Accruals
17 Lease Liabilities
Amounts due within one year
Amounts due after more than one year
The movement during the year is as below:
As at 1 January
Office lease entry
Unwinding of discount
Payments
As at 31 December
2022
£’000s
716
145
1,634
2,495
2023
£’000s
102
135
184
421
2023
£’000s
121
–
121
283
–
18
(180)
121
2022
£’000s
713
95
1,060
1,868
2022
£’000s
98
89
578
765
2022
£’000s
162
121
283
–
331
10
(58)
283
The Company has a two-year lease for its London offices.
The right-of-use assets are reported within property, plant and equipment (note 10). During the year ended 31
December 2023, the amount recognised as short-term lease expenses, for the office lease in Morocco, was
approximately £49,000 (2022: £45,000).
Sound Energy plc
Page 85 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
18 Capital and Reserves
Group and Company
Ordinary shares – 1p
1,963,122,679
19,631 1,848,702,674
2023
Number
of shares
2022
Number
of shares
£’000s
£’000s
18,487
At 1 January
Issued during the year for cash
Non-cash share issue
At 31 December
2023
Number
of shares
2022
Number
of shares
1,848,702,674 1,629,183,907
200,000,000
19,518,767
–
114,420,005
1,963,122,679 1,848,702,674
The share issues described below were all non-cash transactions.
Share issues
In June 2023, the Company issued 11,404,221 shares to third parties in settlement of services provided to the Company
amounting to approximately £0.2 million.
In July 2023, the Company issued 3,015,790 shares following the exercise of nil cost options by a member of staff.
In August 2023, the Company issued 22,222,221 shares following a partial conversion amounting to £500,000 by the
holders of the Company’s £2.5 million convertible bonds (‘‘the convertible bonds’’).
In September 2023, the Company issued 22,222,221 shares following a partial conversion amounting to £500,000 by
the holders of the convertible bonds.
In October 2023, the Company issued 22,222,221 shares following a partial conversion amounting to £500,000 by the
holders of the convertible bonds.
In November 2023, the Company issued 22,222,221 shares following a partial conversion amounting to £500,000 by
the holders of the convertible bonds.
In December 2023, the Company issued 11,111,110 shares following a partial conversion amounting to £250,000 by
the holders of the convertible bonds.
Reserves
In 2018, the Company sought, and was granted, a court order approving a capital reduction following the cancellation
of the share premium account. This resulted in the transfer of £277.7 million to distributable reserves.
Sound Energy plc
Page 86 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
19 Related Party Disclosures
Key management
As at 31 December 2023, there were two key management personnel other than Directors of the Company (2022:
two). Details of the Directors’ remuneration are set out in the Report of Directors’ Remuneration. The table below shows
the total remuneration of key management personnel, including the Directors.
Salaries and employee benefits
Share-based payments
2023
£’000s
1,041
239
1,280
2022
£’000s
935
915
1,850
Key management (including Executive Directors) interest in LTIP and nil cost options
LTIP options awards by key management (including Executive Directors), at 31 December 2023, have the following
expiry dates and exercise prices:
2022
Expiry
date
2032
Exercise
price
Pence
2023
Number
2022
Number
2.4p 31,769,085 31,769,075
Nil cost bonus options awards by key management (including Executive Directors) at 31 December 2023 have the
following expiry dates and exercise prices:
2022
Other expenses
Expiry date
2023
Number
2022
Number
2027 12,048,960 15,064,750
During the year, Treyford Energy Limited, associated with Mr Simon Ashby-Rudd, was paid £13,733 being consultancy
fees for services provided prior to his appointment as a Non-Executive Director of Sound Energy plc.
20 Financial Instruments Risk Management
Objectives and policies
A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability
or equity instrument of another entity. The Group’s financial instruments comprise trade payables, loans and
borrowings, receivables, interest in Badile land, 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 14 (Other Receivables),
note 15 (Cash and Cash Equivalents), note 16 (Trade and Other Payables) and note 25 (Loans and Borrowings).
The table below sets out the Group’s accounting classification of its financial assets and liabilities.
Sound Energy plc
Page 87 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
20 Financial Instruments Risk Management (continued)
Financial assets
Cash and short-term deposits
Other receivables and interest in Badile land
Financial liabilities
Trade and other payables
Loans and borrowings
Fair value measurements
2023
£’000s
2022
£’000s
3,016
924
3,940
2,495
33,285
35,780
3,861
3,452
7,313
1,868
30,189
32,057
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.
The convertible bond amount of £1.0m at year end was measured at fair value and falls in Level 2 above. A discounted
cashflow method was used using a discount rate of 17.7% to discount the outstanding principal balance of
approximately £0.3 million and outstanding interest of £1.9 million over the outstanding term of the bonds. The discount
rate is made up of the coupon interest plus a premium of approximately 2.7%, determined by reference to default
spread of the region in which the Company operates.
Risks
The main risks arising from the Group’s financial instruments are interest rate risk and foreign currency risk (note 21).
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Market risk
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.
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 have them approved by the
Board of Directors where applicable.
Sound Energy plc
Page 88 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
20 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.
2022
£’000s
(30,189)
3,861
Borrowings
Cash and cash equivalents
2023
£’000s
(33,285)
3,016
Net debt
Total capital excluding reserves:
Equity share capital
Equity share premium
Shareholders’ equity
21 Foreign Currency and Other Risks
(30,269)
(26,328)
19,631
20,267
166,708
18,487
20,134
178,085
Foreign currency risk arises from the Group’s financial instruments (note 20). As a result of the majority of the Group’s
operations being denominated in US dollar (USD), the Group’s balance sheet can be impacted by movements in the
USD exchange rate against sterling (GBP). Such movements will result in book gains or losses, which are unrealised
and will be offset if the exchange rate moves in the opposite direction.
The GBP cost of the assets being acquired with the USD rises or falls, pro rata, to the currency movement, so the
purchasing power of the USD remains the same.
As the Group also holds some Moroccan dirham (MAD) and Euro (EUR) 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.
2023
2022
Increase/
(decrease) in
rate
Effect on
profit or loss
before tax
£’000s
Effect on
comprehensive
income
£’000s
Effect on
profit or loss
before tax
£’000s
Effect on
comprehensive
income
£’000s
5%
5%
5%
(5%)
(5%)
(5%)
461
(7,065)
240
(7,435)
1,098
(25)
(461)
(1,098)
25
–
–
1,027
(28)
–
–
7,065
(240)
7,435
–
–
(1,027)
28
–
–
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
The sensitivity table demonstrates the effect of a change in exchange rate assumptions, while other assumptions
remain unchanged. In reality, such an occurrence is very unlikely due to the correlation between the factors.
Furthermore, these sensitivities are non-linear, and larger or smaller impacts cannot easily be derived from the results.
The sensitivity analysis does not take into consideration that the Group’s assets and liabilities are actively managed
and may vary at the time that any actual exchange rate movement occurs.
Sound Energy plc
Page 89 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
21 Foreign Currency and Other Risks (continued)
Credit risk
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.
Liquidity risk
The Group and Company manage cash resources to ensure that sufficient funding is in place to settle obligations as
they fall due. Disclosure on going concern consideration is provided in note 1. For further details on the maturity of
financial liabilities, see note 25.
22 Financial Instruments
Cash and short-term deposits
2023
Sterling
Euro
US dollar
Moroccan dirham
2022
Sterling
Euro
US dollar
Moroccan dirham
Floating
rate
£’000s
Fixed
rate
£’000s
Interest-
free
£’000s
Weighted
average rate
%
Total
£’000s
218
–
1,374
–
1,592
438
–
2,067
–
2,505
–
–
–
–
–
1,009
–
–
–
1,009
25
13
1,360
26
1,424
25
48
242
32
347
243
13
2,734
26
3,016
1,472
48
2,309
32
3,861
1.3
–
0.5
–
2.47
–
0.45
–
Euro cash balances have been converted at the exchange rate of €1.1532: £1.00 (2022: €1.1298: £1.00). Moroccan
dirham cash balances have been converted at the exchange rate of MAD12.589: £1.00 (2022: MAD12.589: £1.00).
US dollar cash balances have been converted at the exchange rate of US$1.2731: £1.00 (2022: US$1.2097: £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.
23 Share-Based Payments
Group and Company
Expense arising from equity settled LTIP
Bonuses paid in shares and nil cost options
LTIP Awards
2023
£’000s
239
–
239
2022
£’000s
159
810
969
In 2022, the Company adopted a new long term incentive plan (the ‘’LTIP’’), designed to reward, incentivise and retain
the Company’s Executives and senior management to deliver sustainable growth for shareholders.
Sound Energy plc
Page 90 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
23 Share-Based Payments (continued)
The maximum number of awards that may be issued under the LTIP from time to time will be limited to 3% of the
Company’s issued share capital on the date of grant of awards, and, together, with all other options issued by the
Company under any employee share scheme from time to time, will not exceed an aggregate of 15% of the Company’s
issued ordinary share capital in a rolling ten year period. Awards granted under the LTIP will, generally, be subject to
a three-year vesting period from the date of grant, the number of awards, ultimately, vesting dependent on the grantee’s
continued service and on additional performance conditions set by the Remuneration Committee.
The Company issued 48,875,515 options to subscribe for new ordinary shares under the LTIP, out of which 31,769,085
options were allocated to qualifying Executives and senior management and the balance of 17,106,430 was retained
for future allocations. The LTIP awards are exercisable at 2.4 pence per share and expire ten years after the grant.
The fair value of LTIP awards granted was estimated at the date of grant using a Black-Scholes model, taking account
of the terms and conditions upon which, the awards were granted. The expected life of the LTIP award is based on the
maximum award period and is not necessarily indicative of exercise patterns that may occur. Expected volatility was
determined by reference to the historical volatility of the Company’s share price over a five-year period. The expected
volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be
the actual outcome. The valuation assumed an expected life of ten years and used the following additional assumptions
for the LTIP awards granted during the year:
(i) Share price on grant date: n/a (2022: 2.53 pence)
(ii) Average risk free interest rate: n/a (2022: 1.79%)
(iii) Expected volatility: n/a (2022: 99.11%)
(iv) Assumed forfeitures: n/a (2022: 0%)
(v) Expected dividends: n/a (2022: nil)
No other features of the LTIP awards were incorporated into the measurement of fair value. The fair value of the LTIP
award granted was n/a (2022: 2.26 pence). The remaining contractual life of the LTIP awards outstanding at 31
December 2023 is 8.3 years. If all the 31,769,085 LTIP awards were exercisable immediately, new ordinary shares
equal to approximately 1.6% (2022: 1.7%) of the shares currently in issue, would be created.
Share options
All previously outstanding share options expired in 2022.
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
All RSU awards vested or expired in 2022.
RSU awards outstanding at the start of the year
Granted during the year
Expired during the year
Vested during the year
RSU awards outstanding at the end of the year
Weighted
average
exercise
price
Pence
–
–
–
–
–
2022
Number
5,450,000
–
(5,450,000)
–
–
Weighted
average
exercise
price
Pence
66.47
–
22.29
–
–
2023
Number
–
–
–
–
–
2023
Number
–
–
–
–
–
2022
Number
1,165,400
–
(108,189)
(1,057,211)
–
Sound Energy plc
Page 91 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
23 Share-Based Payments (continued)
The weighted average share price at the date of vesting of the RSU awards was n/a (2022: 2.5 pence).
Warrants
As at 31 December 2023, the Company had the following outstanding warrants to subscribe to the Company’s ordinary
shares.
2023
2023 Warrants
2022 Warrants
2021 Warrants
Exercise
price
Expiry date
Pence
13 June 2026
2.25
2.75
13 June 2025
2.75 21 December 2027
Number at
1 January
–
7,056,875
99,999,936
Granted
/(exercised)
40,476,190
–
–
Expired
–
–
–
Number at
31 December
40,476,190
7,056,875
99,999,936
107,056,811
40,476,190
–
147,533,001
2022
2022 Warrants
2021 Warrants
Exercise
price
Expiry date
Pence
2.75
13 June 2025
2.75 21 December 2027
Number at
1 January
–
99,999,936
Granted
/(exercised)
7,056,875
–
Expired
–
–
Number at
31 December
7,056,875
99,999,936
99,999,936
7,056,875
–
107,056,811
24 Commitment and Guarantees
At 31 December 2023, the Group’s capital expenditure commitment on its permits was, approximately, £3.5 million, for
the development, exploration and appraisal activities in the Group’s permits in Morocco. The Group had placed $1.75
million collateral to guarantee to the Moroccan Oil Ministry for the minimum work commitments on its permits. In
addition, the Company has granted a parent Company guarantee totalling, approximately, £8.2 million for the work
commitments.
25 Loans and Borrowings
Group and Company
Current liabilities
At 1 January
Reclassification to non-current liability
At 31 December
Secured
Bonds
£’000s
Loan note-
Afriquia
£’000s
Convertible
Bonds
£’000s
1,121
(1,121)
–
–
–
–
–
–
–
2023
Total
£’000s
1,121
(1,121)
–
Sound Energy plc
Page 92 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
25 Loans and Borrowings (continued)
Non-current liabilities
At 1 January
Gross amount of loan drawdown during the year
Amortised finance charges
Unwinding of discount
Interest payments
Gross equity component at date of issue
Debt conversion to equity
Exchange adjustments
Reclassification from current liabilities
Secured
Bonds
£’000s
Loan note-
Afriquia
£’000s
Convertible
Bonds
£’000s
2023
Total
£’000s
20,855
–
890
–
(441)
–
–
(445)
1,121
8,213
2,017
532
–
–
–
–
(486)
–
–
2,500
–
137
–
(562)
(1,046)
–
–
29,068
4,517
1,422
137
(441)
(562)
(1,046)
(931)
1,121
At 31 December
21,980
10,276
1,029
33,285
Current liabilities
At 1 January
Amount converted into ordinary shares of the Company
Fair value of warrants issued
Amortised finance charges
Interest payments
Exchange adjustments
Reclassification from/(to) non-current liability
At 31 December
Non-current liabilities
At 1 January
Drawdown during the year
Amortised finance charges
Interest payments
Exchange adjustments
Reclassification (to)/from current liabilities
At 31 December
Secured
bonds
£’000s
Loan note-
Afriquia
£’000s
Total
2022
£’000s
–
–
–
–
–
–
1,121
1,121
20,039
–
1,245
(431)
1,123
(1,121)
20,855
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,121
1,121
–
7,233
324
–
656
–
20,039
7,233
1,569
(431)
1,779
(1,121)
8,213
29,068
The Company has €25.32 million secured bonds (the “Bonds”). The Bonds mature on 21 December 2027. The
outstanding principal amount of the Bonds was initially expected to partially repaid at a rate of 5% every six months,
commencing on 21 December 2023, but this requirement was removed in early December 2023. Until maturity, the
Bonds bear 2% cash interest paid per annum and a 3% deferred interest per annum to be paid at redemption. The
Company has the right, at any time until 21 December 2024, to redeem the Bonds in full for 70% of the principal value
Sound Energy plc
Page 93 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
25 Loans and Borrowings (continued)
then outstanding together with any unpaid interest at the date of redemption. The Company issued to the Bondholders
99,999,936 warrants to subscribe for new ordinary shares in the Company at an exercise price of 2.75 pence per share.
The warrants expire on 21 December 2027. The Bonds are secured on the issued share capital of Sound Energy
Morocco South Limited. After taking account of the terms of the Bonds, the effective interest is approximately 6.5%.
The Company has drawn down $12.0 million from the Company’s $18.0 million 6% secured loan note facility with
Afriquia Gaz maturing in December 2033 (the ‘‘Loan’’). The drawn down principal bears 6% interest per annum payable
quarterly, but deferred and capitalised semi-annually, until the second anniversary of the issue of Notice to Proceed.
Thereafter, principal and deferred interest will be repayable, annually, in equal installments commencing December
2028. The Loan is secured on the issued share capital of Sound Energy Meridja Limited. The weighted effective interest
on the drawdowns made is approximately 6.2%.
In June 2023, the Company issued £2.5 million convertible bonds from a senior unsecured convertible bond facility of
up to £4.0 million. The £2.5 million Convertible bonds have a fixed conversion price of 2.25 pence per ordinary share.
The term of the Convertible bonds is 5 years from drawdown date, with interest of 15% per annum payable bi-annually
in cash or capitalised to the principal, at the Company's election.
Other key terms of the Convertible bonds (‘‘Bonds'’) are:
1)
Issue price and redemption price on maturity is 100% of par value;
2) Early redemption/change of control: callable in cash by the Company at any time after drawdown or in the event of
a change of control of the Company at 110% of par value together with all unpaid interest. If the Bonds are
redeemed by the Company, the maximum amount of future interest payable by the Company in respect of any
early redemption occurring on or prior to the second anniversary will be 15% of the Bonds and after second
anniversary, 10% of the Bonds;
3) Convertible into the Company's ordinary shares at the fixed conversion price. Upon conversion, interest shall be
rolled up and paid as if the Bonds were held to the redemption date, with such interest convertible at the lower of
the applicable fixed conversion price and the average of the 5 daily value weighted average price calculations
selected by the holder out of the 15 trading days prior to the conversion date;
4) The Company issued to Bonds holders 33,333,333 warrants to subscribe for new ordinary shares in the Company
at an exercise price of 2.25 pence per ordinary share with a term of 3 years.
During the year, the Company issued 99,999,994 new shares following the conversion of £2,250,000 of the Bonds.
The carrying amount of the Bonds is stated at fair value and is measured using the discounted cashflow method. A
discount rate of 17.7% was used to discount the outstanding principal and capitalised interest over the outstanding
term of the bonds.
Reconciliation of liabilities arising from financing activities
Non-cash changes
1 January
2023
£’000s
30,189
283
Cash
flows
£’000s
4,001
(180)
Finance
charges
£’000s
1,559
18
Exchange
adjustments
£’000s
(931)
–
Convertible
Bonds non-
cash
movements
£’000s
(1,533)
–
31
December
2023
£’000s
33,285
121
30,472
3,821
1,577
(931)
(1,533)
33,406
2023
Long-term borrowings
Leases
Total liabilities from financing
activities
Sound Energy plc
Page 94 of 97
Annual Report 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Continued)
25 Loans and Borrowings (continued)
Non-cash changes
1 January
2022
£’000s
20,039
–
Cash flows
£’000s
6,802
(58)
Amortised
finance
charges
£’000s
1,569
10
Exchange
adjustments
£’000s
1,779
–
Office lease
entry
£’000s
–
331
31 December
2022
£’000s
30,189
283
20,039
6,744
1,579
1,779
331
30,472
2023
£’000s
1,422
256
601
(285)
1,994
2022
£’000s
1,569
10
–
(133)
1,446
2022
Long-term borrowings
Leases
Total liabilities from financing
activities
Reconciliation of finance expense
Amortised finance charges
Unwinding of discount
Bond issue costs expensed
Less capitalised interest
Total finance expense for the year
26 Interest in Badile land
In 2018, the Company completed the sale of its Italian operations. As part of the divestment agreement, the Company
retained economic interest in Badile land (‘‘Badile Area 1’’ and ‘‘Badile Area 2’’). The Company was also obligated to
fund the Badile land restoration for a fixed amount. A buyer for the land was identified and, in March 2021, Badile Area
1 was sold for €250,000 and, after taking account of the amount that had fallen due from the Company for remediation,
the Company received net proceeds of, approximately, €183,000. The sale of Badile Area 2 was completed in Q2 2023
and the Company received net proceeds of approximately $153,000 (£134,000).
27 Post Balance Sheet Events
In March 2014, the Company announced that receipt of conversion notices to issue 30 million new ordinary shares
(‘‘Conversion Shares’’) at a conversion price of 1 pence per share under the terms of an existing Convertible Loan Note
Agreement (the ‘‘Convertible Loan Note’’). The Convertible Loan Note has a remaining principal outstanding of
£250,000 and the issue of the Conversion Shares reduces the interest owing on the converted portion of the Convertible
Loan Notes by £300,000 to £1,387,500. The Conversion Shares were admitted to trading on AIM in April 2024.
Sound Energy plc
Page 95 of 97
Annual Report 2023
OTHER INFORMATION
LIST OF PERMITS AND INTERESTS
Permit
Status
Name
Type
Grand Tendrara
Permit Grand Tendrara Exploration
Tendrara
Anoual
Permit
Permit
Tendrara Concession
Anoual
Exploration
Sidi Mokhtar
Permit
Sidi Mokhtar
Exploration
Key Project or
Prospect
WI
(%)
75
75
75
75
Area
(km2)
Operator
14,411 Sound Energy Morocco East
133.5 Sound Energy Morocco East
8,873 Sound Energy Morocco East
4,712 Sound Energy Morocco South
Sound Energy plc
Page 96 of 97
Annual Report 2023
Stockbroker
Zeus Capital Limited
125 Old Broad St
London
EC2N 1AR
Nominated Advisers
Cavendish Capital Market Limited
1 Bartholomew Close
London
EC1A 7BL
Registrars
Link Asset Services
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
OTHER INFORMATION
SHAREHOLDER INFORMATION
Dealing Information
Stock code: SOU.LN
Financial Calendar
Meetings
Annual General Meeting – June 2024
Announcements
2024 Interim – September 2024
2024 Preliminary – March 2025
Addresses
Registered Office
Sound Energy plc
20 St Dunstan’s Hill
London
EC3R 8HL
Business Address
Sound Energy plc
20 St Dunstan’s Hill
London
EC3R 8HL
Company Secretary
AMBA Secretaries Limited
400 Thames Valley Park Road
Reading
RG6 1PT
Website
www.soundenergyplc.com
Auditor
Crowe U.K. LLP
55 Ludgate Hill
London
EC4M 7JW
Sound Energy plc
Page 97 of 97
Annual Report 2023