Sound Energy (LSE:SOU) — Investor Presentation

0:00 Good afternoon, and welcome to the SOUND ENERGY PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions can be submitted any time by the Q and A tab situated in the right hand corner of your screen. To click Q and A, scroll to the bottom, type your question and press send. Company may not be in a position to answer every question received during the meeting itself. Have a review of questions submitted today, we'll publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Graham Lyon, executive chairman. Good afternoon, sir. Thank you very much. Hello, everybody. You've got

0:31 me, Graham Lyon, the executive chair of SOUND ENERGY, and also Gary Dempster, our chief financial officer. We're gonna give you a bit of background about the company. Some of you may be new to SOUND ENERGY, not understand the whole story. And then we're gonna focus very much on some of the exciting news that we've been able to release to the market over the last couple of weeks. So, of course, we've got a couple of, slides where we disclaim everything. What we're gonna do now is we're gonna give you an overview of where we are as a company, what we've been planning to do, how we're trying to deliver on that. We're also gonna talk to you about the people we work with. Gary is gonna go into a lot more detail about the exciting news that we've had with our financing and and the major part of our portfolio is looking like we can we can deliver that. We'll interest introduce ourselves, and go through the questions that you've submitted, and there's been quite a lot. We're we're lucky enough with our shareholders and stakeholders to get some very interesting and quite detailed questions. So we've got quite a lot of those to cover tonight, and then we'll finalize and and and wrap up. So, hopefully, about an hour.

1:46 So what am I gonna do? Talk to you about the strategy and where are we as a company. Well, we are in Morocco. Morocco, as you probably know, is energy deficient in its gas and moving in a transition energy way through to solar and wind and renewables. But energy in the form of gas is its its core transition energy. We have got large acreage positions onshore in Morocco, and that gives us the ability to develop it on a phased basis. The company in the past was very exploration driven. So from very good successes, some good exploration wells, tested well, flowed well.

2:32 And the company now has changed its strategy from being purely exploration into develop and and bringing it through to production. We've done that by breaking the projects down in the East Of Morocco. Our large acreage position is on the Algerian border in lands, quite large, 14,000 odd square kilometers. And we have a concession there, which we have got a discovery on and which we will be developing. We've broken that down into two stages. One stage is to supply the industrial market with transportable LNG, and that replaces the imported LPG that currently the end users are are buying. The second phase is a pipeline project. That's the more material, the meatier project.

3:19 We are a 120 kilometers south of the main GME pipeline that used to bring gas from Algeria across Morocco into Spain. That gas was turned off at the end of, 2021, and so Morocco's two power stations are short of gas. They're currently partly importing some gas from Spain, reverse flowing along the GME, but we intend to be producing gas from Tendrara, Moroccan gas from Moroccan power stations. Part of that process has been accelerated by a resolution of a a tax claim that was against the company a while ago. We still have a big exploration portfolio. And once we put this core infrastructure in place in the East, it will allow us to quickly monetize any discoveries and any developments.

4:08 We'll talk a little bit about the corporate side of the company in a in a minute. But the micro LNG project is the very first project that we've kicked off. It started last year, and we are responsible for the wells. We have two wells on the site at the moment. We will be producing gas from those wells, tying it into an LNG plant, small scale LNG plant being manufactured through a a vendor financing contract with with Itau fluids. And at the site, we will have our partner, Africa Gas, transporting the the LNG away, regasifying it, and giving it to the industrial market. So we're moving along on that development. And where we are with the first phase?

4:55 The first phase has three segments. One segment that we are responsible for, which is the wells and the flow lines. Second segment, which is a towel fluid's responsibility, is to provide a skid mounted processing facilities and LNG liquefaction facilities and storage. And and for that, we're going to rent that equipment. Third phase first sec sorry. Third sec segment is Africa Gas with the transportation. Now work has commenced last year. We've done a lot of work, and we've built quite a bit of infrastructure basis and particularly the LNG tank base. That's all done. We're now waiting to reactivate the site, and that should start very shortly.

5:42 And that will be mow mostly to do with the LNG tank erection, and that's tank has been acquired through Cryo Spain in from Spain. This will provide us about 10,000,000 cubic feet a day of sales gas in the form of LNG. But a much bigger project is the pipeline project. That's not as advanced on the engineering front. We do need to move that one a little bit further along. Feed study was done in the past. We have got all the approvals in place. We own the land. We have the concession. We have the environmental impact assessment done. So what we need to do to get this project moving is financing, and Gary will go into a lot more detail about how we've been able to put all the financing together to get that project at the final investment stage, hopefully, towards the end of this year, early next year.

6:34 The gas sales agreement is 300,000,000 cubic foot meters a year, which is around about 30,000,000 cubic foot a day. So three times the size of the micro LNG, and that gas is sold to our state partner, ONEE. The key elements I've said that we've just announced are debt financing with Attitude Offer Bank, a substantial project debt financing. Several CPs involved in that, and they're quite traditional normal CPs, regulatory approvals, gas sales agreements, and engineering. Gary will go into the detail. We've had a lot of detailed questions, and the presentation will cover some of those off. How do we bring the rest of the money? We're a relatively modest and, we think, quite significantly undervalued company. Our net asset value is significantly below our enterprise value or or our share price and market capitalization.

7:31 So we've looked at different ways of bringing financing into the of the company, and we have selected Cal Valley as a a partner in this project. But there are other sources of funding. Mezzanine deck can come along, subordinated law loans. This could also be some vendor financing in the package in the long term if if we so desire. But at the moment, the project has all the elements of putting everything in place. We're not gonna be out there knocking on shareholder store for an equity placing to finance this project. We think we've got that all in place, And now it's ticking off those CPs and getting us in the to the stage where we're ready to take the investment decision. We still have a lot of potential. If you look on this, map here, the Anoala and Greater Tendrara exploration acreage is massive compared to the concession, what's called the TE five host in the center of the red blob in the center there.

8:29 So we're the largest permit holder onshore Morocco. And because it's onshore, we're unable able to phase the development of this. We can do it every time we make a discovery, every time we have sufficient resource identified, we can tie it into the infrastructure. We can either tie it into the pipeline once it's been built, or we can do another LNG project, or we could even do some something else if if necessary. We do have some near term drilling opportunities on the exploration, and part of the deal with Cal Valley, Gary will go into, includes us taking an exploration well at the TE 4 Horse where a gas discovery has already been made, and it's very close to the planned infrastructure for the pipeline. So quick development once that world's successful.

9:15 We do have other worlds to drill in Nanawhal. There's a large prospect called M 5, which we would like to drill. And then into the South and the west of the country, completely different geographical location, but the same Taghi Reservoir. That's a tight gas sandstone at Sidi Moktar. And there's been some questions about Sidi. How have we been doing this over the last three years? Well, we've been doing this by partnering up. We've been partnering in phase one with Itau fluids, the Italian contractor who's providing vendor financing and will provide us equipment, and we will lease that from them with an opportunity to buy it back over a period of time. Africa Gas, who is not only a shareholder in our company now, but is also the off taker of our gas and has provided us some soft loans. We have Atijoafa Bank, one of the largest banks in Morocco, who we've announced has provided us a term sheet for debt financing for our phase two, our pipeline project.

10:17 We have Calvary and Octavia, its parents, as our technical partner, as our joint venture partner going into this development provided we close the deal, and and we we're working hard on that. And then finally, we obviously work closely with our government partner, ONIM, who have a 25% share of the of the project. For those that are not aware, OIM as a state participant is carried through the exploration phase of the project, but pays its share of 25% of every development. So they are a fully paying member of the consortium as we go forward. ESG's core to our business, and that's corporately, environment, social, and governance.

11:05 We have a sustainability plan. We are following some of the six of the main United Nations sustainable development goals, which we think are appropriate. We're measuring our c o two emissions, and we're doing things in a a fair way being a listed company. So all of those things come together, and that helps us get to a sensible way of developing our our our business projects. We've moved the company from exploration through to development and production. But I've talked quite a bit already. Let's pass over to Gary and go through the the meat of the of the presentation. Okay. Thank you, Graham, and, good evening. Nice to, present in this this forum. My name is Gary Dempsey. I'm the CFO of SOUND ENERGY. So I just wanted to talk through some of the financial aspects of the the business and the journey we've been on over the last few years.

11:59 As Graham mentioned, earlier, we've we've shifted the strategy of the the company since we came on board as a leadership team in early twenty twenty, very much away from exploration being at the front end of the value proposition of the the company, and ultimately, looking towards an exit as it was back then to becoming a revenue generating company and monetizing the intrinsic value that we have within the the the business through the development of the discovered molecules that we have. So we've been making good progress in that regard. As as Graham's indicated, phase one obviously is is underway. Phase two, the the gas pipeline development we hope to get underway very, very soon. Alright. So things are moving ahead nicely.

12:47 We've got first gas scheduled for 2024, so we'll be revenue generating from from then. And then the the intention, obviously, is to bring phase two on stream thereafter and for the business to become self funding thereafter and to have excess capital that we available

13:05 for deployment into other investments or other distributions. That's the intention of the the strategic shift we've had since early twenty twenty. And and that's firmly based around the organic side of development of the existing portfolio, but we are keen to grow. But we have to obviously grow within our financial envelope. So we do so by evaluating a basket of opportunities, both organic opportunities, but also inorganic opportunities as well within the traditional upstream transition energy space, but also looking at some other opportunities to add some other elements to to the portfolio in the renewable space as well where we have strategic advantage through our position in country in Morocco. So we've been evaluating a number of opportunities over the last couple of years in that regard.

13:56 We haven't moved forward with anything yet because we haven't identified the right opportunity to to move forward and develop and grow the business, but we are actively looking at that on a continual basis. And then in terms of capital access, obviously, for a small, aimless deed company, that that's one of our key challenges in the in the business. And we've restructured the the capital base of the company over the last three years as well so that we can operate within the financial envelope that's available to us. Principal among that was restructuring a corporate bond that we undertook in 2021. That was due for maturity midway through 2021. At the time, we didn't have the financial capacity available to to redeem the bonds. So we went into restructuring exercise with the with the bondholders and successfully renegotiated the terms of that bond and push maturity out to 2027, which is within a time frame that we have the financial capacity to meet the principal repayment obligations associated with that bond. So that gives us the financial reading space to move forward with some of the more exciting elements of the investment phase within the within the business.

15:10 And as part of the access to capital, we also entered into a debt arrangement with Africa. So Africa are the buyer of the gas from the phase one micro LNG development. And what we did was we entered into an $18,000,000 loan note agreement with them on very favorable financial terms of 6%. You just seem to have lost you there, Carrie, momentarily. Bear with me one sec. It seems like Gary's frozen a bit. Yeah. I think, Gary's, just let's just refresh you. Let me just refresh you and bear with me one sec.

15:56 Just see if we can bring you back in. Just do bear with me, ladies and gentlemen, just while we get Barry Carrie back in the room. Graham, just like Gary Well, I can gonna reconnect. Carry on. Yeah. Let me just carry on, and and when when Gary can join us, he can pick up. I'll confirm when he's back in the room. Thank you. Okay. So people can hear me now, can they, Mark? Yes. They can. Okay. Fine then. So as as Gary was saying, you know, we've getting access to capital for a small market cap company has always been our biggest challenge. Technically, we all know how to run a business. We all know how to do our oil and gas, but find finding the funding for when you're a small market cap company is difficult.

16:48 So as Gary mentioned, we have taken on some debt with Africa Gas. They're our offtaker. So, essentially, it's a little bit little bit like offtake financing. So we have that with Africa Gas now. And we had and one of the questions brings this up. We had quite a lot of thought about how the best way to raise the re required capital for the the equity portion, the nondebt portion. And there's different ways of doing that. As you can see in our phase one development, we chose not to go to the market and raise equity. We chose to take a leased option. So we got the vendor to to do some financing. Another way, of course, is to tap tap the market and go and ask shareholders to to provide funding.

17:36 But the third way is to reduce your equity position at the asset level. And and that's what we've done with the partnering up with Cal Valley to bring a partner in who's actually got access to deep pockets and can help us a lot. We'll we'll talk about that. Gary is a good Scotsman. He's been very good at controlling our g and a, keeping our costs as low as possible. And and we've we've we've done that through not having very many staff and and partnering with key providers, not just the strategic technical providers and technical partners, financial and government partners, but actually consultants and contractors, medium sized, small cut, small sized specialist engineering firms, and advisory boutiques.

18:24 So we think we can grow some value for the shareholders. We'd certainly believe our our share price doesn't recognize the the value in the company and the the net asset value of the company. Our shareholder composition has a a large portion of retail shareholders. Our two top shareholders, the oil and gas investment fund of Morocco and Africa Gas themselves. So we have a strong Moroccan flavor in our shareholder base of about 15%. About 10% is small institutions, and the rest are retail and and and directors and, officers of the company. So let's go through the, deal, what we've done with the transaction, recently.

19:13 And we've announced this. We had a process, kicked off last year, and it was quite a a well run process by NICE ENERGY on our behalf. And we we stuck we we we were at a 75% position in the company in the asset, which is quite large position for us, as a small market cap company. So bringing in a partner to share that was, considered a good, opportunity. With Calvary, what we're prepared to do is we'll divest 40% of the working interest across the two licenses, and we'll give that, in exchange for certain financial package. And it's not just one thing. So there's they're joining the projects as though they come in from day one.

20:01 So they carry pay us back all the costs that we've put in so far. They contribute, further ongoing phase one costs. They also contribute to the their share and our share up to a cap of 48,000,000 of the funding the equity phased funding of phase two. And they're also providing us a a carry on the T 4 Horst exploration well. So it's it's a package, and it's it's you know, they're coming in. They are also in a position because Calvary is is linked in with the Octavia Group who have similar, shareholders of a very large, Middle Eastern conglomerate, which has access to a lot of money.

20:47 And so there's there's an opportunity should we so wish to draw down a a larger financing. So we we think that's a good opportunity and to financing, and that coupled with Bank is is pretty good. There's an exclusive exclusivity period. Clearly, Cal Valley has done a lot of due diligence on the company. So now this is what is traditional DD lawyers pouring over agreements that are in French and having them translated into English and making sure that all the bells and whistles are correctly in place. So so that's all going on at the moment. The next part of

21:26 the the the package is really to just bring to light to shareholders what the TE four Horst opportunity with Cal Valley coming in and and carrying this exploration work for us. A significant volume is available.

21:43 And if you look at the chart there, we've got over 250 BCF of gas as a best estimate gas in place. The the World TE four was drilled in the past, and our geologists will tell you, not by sound, by the way, in a in in not the most correct location. The readout mapping has shown this is the dark red, that the the higher up you come, the closer you are, and the gas is is more likely to be there. This has a chance of success of about 36%. And if it comes in, it's right on top of the discoveries and the TE five horse development and therefore very close to infrastructure. So it could be brought on production quite quickly. So this would be considered a relatively low risk prospect, but, of course, it is it's not a guarantee certainty.

22:36 But, yeah, the idea that Cal Valley come in and fully carry us on this well, think, is is is very attractive to us as a company. The other part of this structure is the senior debt, and we've been working on this with Bank for quite some time now. And I apologize to shareholders who've got a little bit frustrated, but this is the first time a project debt financing like this will have been done in Morocco, And therefore, they are doing it correctly. They brought good advisers in to help them. And oh, welcome back, Garrett. I I I can pass over to you if you if you're com if it's convenient. I I've only just entered into the Attitude Offer Bank

23:22 slide. So if you if you want to take over from now, Gary, that's fine. Yeah. Okay. Thank you, Graham. Apologies. I'm not sure what happened there. There was a connectivity issue. So hopefully, can hear me okay now. So, yeah, just picking up on the the senior debt component of the phase two development. So the intention is to fund the development through a blend of debt and equity. Graham has mentioned the the equity component that we're in the print the process of trying to finalize by way of the proposed farming of Cow Valley. But the debt component is the principal element of the overall fund. Sorry. Looks like we've lost Gary again. I do apologize. Looks like it's happened again. So Okay. Okay. So as as as Gary said, it's the debt funding is the is the is the part the main part of this.

24:16 And what what we are doing with Attitude Alpha Bank, where they have worked very hard on structuring this in a way that works for everybody. So we will have a more this will be in a Durham facility. So we will require a newly incorporated SPV, which is particularly standard. All the consortium come together in the SPV. And don't forget, this will include ONIM as a 25% shareholder funding their share of the 25%. So the borrower will be an SPV. We we fully expect ONIM to be in it. So all of the shareholders in the consortium, in the concession will be the borrower in a in a Moroccan SPV. 2,365,000,000 dirhams, that's roundabout 237,000,000 dirhams in today's in today's money.

25:09 A rough gearing of 65%. You know, working with the Moroccan banks, we have found them be to be very flexible, and therefore, these numbers are in the term sheet. But, you know, in the end, they may change a little bit one way or the other. A twelve year period is very attractive

25:26 with a two year grace period. So two years to develop this project from FID, and therefore, we will have revenue to start paying this this debt down. And that debt will come as the primary recovery from the revenue stream in the in the in the project team. Gary, I'll carry through on the left hand slide, and you can come in with the conditions precedent. Sure. One of the issues of the of any debt financing is security, and this will be typical project related security and why the SPV is put in place. The interest rate is commercially sensitive at the moment, and and they in in fact, it's not they've they've given us several options. It's a little bit like the the variety of buy to let mortgages that used to be out there, maybe not so many today.

26:18 But they've given us an option of fixed and variable or flight variable, fully floating, not floating, and we're working that up. But the interest rate is very, comparable to the current sort of level of interest that we have with our projects ongoing in phase one. And, of course, the proceeds go into the whole project. That means the drilling of wells. That means the processing. That means the flow lines. That means the pipeline, the tie ins, and everything, and the project management. So the good thing about this is it's a true project financing. The whole thing's encompassed. And then by bringing a partnering like Cal Valley, the whole package can be put together. And I think what we've announced over the last couple of weeks has really moved the durability of this project from a pretty high level because Moroccans want it to happen to a very high level.

27:15 Of course, there's bells and whistles that we have to go through, hoops that we have to jump. And, Gary, why don't I pass to you to do the CPs that are

27:23 requested of us? Sure. Thanks, Graham. And, hopefully, third time lucky on the connectivity. I'm not sure what's been happening there, but the the conditions to the to the offer are standard in terms of project financing. So you'd anticipate that the types of conditions that are associated with the the offer that we've received from the bank would apply to this level and this complexity of project financing. Typically, what what those are are governmental ministerial approvals of the the structure of the

27:57 SPV, not the actual development itself because we've actually received development consent already, but we need to go through the governmental approval process for the structure that we're proposing to put in place. We obviously need to go through the appropriate clearance with the tax authority to ensure that the the taxable treatment of the development is in the manner that we plan for. So, again, that's that's fairly standard for this type of arrangement. Then there are some other elements that we want to to work on as well, certain amendments to the gas sales agreements to or the sales agreement with O and E to ensure that that's satisfactory to to the lender. We need to conduct more engineering. We've done engineering previously on the the pipeline development, but we need to refresh that and update that and then go back out to the market to secure more definitive pricing for the EPC development.

28:53 So these are all what we call pre FID activities that, are customary, and we'll conduct those over the course of the next period. And, hope to hopefully, we'll close those out over the course of the the next period of time to enable us to move forward towards an FID decision in as timely a fashion as possible. Naturally, there'll be a question of, well, when will that be? It will be when we're in the right position to have adequately addressed the suite of arrangements that's required before we finalize and close the the financing. So we're not gonna be time bound driven. Obviously, we want to close the financing out as quickly as possible and move towards FID as quickly as possible. But what we do want to ensure is that we make the right decision for the company, for shareholders, all for all the stakeholders involved in in development. So that's the the course of action and the journey that we're on at the current moment in time.

29:52 But, you know, I think I think what what I would say is, you know, we're we're actually delighted to have achieved the milestone that we announced a week and a half or so ago because this is a significant milestone for the company. It's tremendously difficult to access bank finance for upstream players in the current environment. The majority of US, European banks that traditionally operated in this arena have pulled out of upstream investments. So for us to have closed this out for such a significant sum of money is is a big achievement by the team that's been operating and developing the the senior debt.

30:29 Thanks, Gary. Yeah. And I I would also add to that that in in this difficult time in the upstream energy business to do a farm out type deal, partnering type deal that we've done with Cal Valley, where you have an exploration well fully carried, and also you have a fully carried up to us, a cap, but pretty much fully carried phase two development from the equity side, I think, is is quite an achievement. And I would like to thank the team for for doing that. So, yeah, we we've got an exciting time ahead. This is a couple of slides couple of pictures here. That's the micro LNG plant on the left in the three d model that we are developing. So this is real. This is happening. This is on the ground now, and these things are gonna be built and landed and and up and running next year.

31:20 On the right, we've got a whole load of copper cable ready to be wiring things in. So

31:25 life's moving on fast. We also are being able to reactivate our expiration. We obviously had some problems during the COVID period, so that's going to be reactivated. And as we develop our portfolio, think I shareholders will see the value in that in our in our in our share price. We're now at the questions side, and so I think we can probably close down the slides. And so we've we've had quite a lot given to us earlier on. So, Mark, if that's okay, shall I go straight to them? Because we'll we'll catch up a bit of time that way. Absolutely. That'd be great. Thank you very much indeed, Graham. Just read them out and where appropriate to do so I can give you a response, and I'll pick up from you at the end. Thank you. Right. So so we we had I think it's quite a few questions in advance. What's happened with Citi?

32:10 Shareholders got diluted massively for what? Please advise what is intended for Citi. Well, I think we've shown you that we've actually got 75% of Citi Citi Moktar. Olim have 25%. So we are as at the maximum equity position we can be in Citi. And, yep, we need to draw so we need to get some seismic shot before we drill a well. So we have a work commitment to to do that seismic, and then the well will come subsequent to that. I think if anybody's referring to a deal that was done way before my time and Gary's time, there was

32:49 the entry into Citi was in exchange for some shares. So I I I think if you look at where we are at Citi now, we're we're at the maximum equity position we can be at 75%. The next question I'm gonna hand over to Gary, but I'll read it out. When will we be given the financial metrics of the bank deal just confirmed? We know the list of issues to be agreed. However, crucial details like the interest rates haven't been told.

33:17 Okay. Thanks, Graham. So I think as as Graham kind of outlined, the conditions present are there at the moment. We've announced what those are and what it's necessary to act upon those and complete those before we reach financial closure on the transaction. The bank are very sensitive to the commercial terms going into the public domain before we satisfy those CPs. So it's a case of bear with us. We will get to that stage, obviously, once we've conducted the next steps in the process and closed out those CPs, we'll announce the the terms to to the market. What I can say is that the the terms that we have received in terms of, I guess, the key element is that the the coupon offerings that we have been offered by the bank are very, very attractive and certainly more attractive than a company of SOUND ENERGY

34:13 SCALE would reasonably expect. There's a lot of governmental support in country for this development. So that that that has helped us because the bank had been very favorable to us. In our discussions, we've negotiated a good deal with them. So I think once we get to the stage of announcing the the coupon and the other commercial terms, shareholders will will be very pleased with the with the outcome that we've we've achieved. So look forward to updating the the market and shareholders in due course. Okay. Thank you, Frank, Gary. I heard you, but I think you've frozen again. Gary, I'm just gonna take your camera down just so we can hear your audio and keep that integrity. The next question is when will TE four be drilled?

34:58 When are SOUND and Cal Valley Petroleum planning to drill the TE four prospect? Well, the first thing is just to get the nomenclature right. The TE four

35:08 prospect is is a host, and the new well will be called something else. Right? It won't be called TE four. It'll be called whatever the government assigned to it. Will be carried throughout that. But, of course, we can't drill it until we've closed the deal with Cal Valley. However, we are doing as much planning and preparation as possible to to move forward with that as quickly as possible because, clearly, we want to to to make the the most of that. And so, yeah, bear with us. We wanna close Cal Valley first before we can confirm when t four, and a well will be drilled. Next question is also for me. It's a long question, so bear with me.

35:54 But there's a little bit of a compliment with before a slap slap around the face. It is brilliant that the SOUND team have established possible funding to cover much of the enormous capital expenditure to get phase two up and running. The share price, however, has dropped substantially since the announcement of the Cal Valley agreement. The market seems to interpret it not so much as a farm out, but more as a handout. Well, I think I've explained some of that already. SP Angel is almost half their predicted share price for SOUND. Well, when you dilute at the asset level, that's what you get. SOUND is transferring to Calgar to Cal Valley 53% of its 75% holding. Anyway, we get down to the question, which is can you explain how SOUND will be able to maintain control of the company? And secondly, should we be changing the company name from SOUND to Cal Valley? Well, the the answer to that question is the development is gonna go ahead with SOUND ENERGY Morocco East as the operator.

36:51 It will have Cal Valley in it, and it will have ONEM in it. All three companies will form the consortium. And we will SOUND ENERGY Morocco East will remain the operator. Cal Valley will be a partner in that project and will be fully informed and fully working as a joint venture partner as will ONIM. Each will be a funding partner. So there's no no plan to change our name to Cal Valley. Cal Valley is a private company, and SOUND ENERGY is a public listed company. So the next question I think I've got as well, it's brilliant that we've been funded by the Africa alone and that SOUND was looking forward to 75% of the LNG revenues for the next ten years or more. If the agreement with Cal Valley proceeds, their contribution is just 8,000,000 into phase one as the share of 40% of the plant costs.

37:44 That will entitle them to 40% of the revenues, which is far in excess of the 14,000,000 of the greater than the ten year life expectancy of the project. Well, we we can get that. Question. Does SOUND really need to give so much away?

38:00 And secondly, as it's already funded by Africa, could Cal Valley not make a smaller contribution and just come into phase two of the project? Well, the as I mentioned before, we're a consortium, and the, you know, the project is going forward in a way that the equity needs to be put together. And I mentioned earlier on three ways to get the equity. One is you could do some vendor financing. That means you lease everything, and that becomes very expensive. And on a project this size, difficult to do that. Second one is you can do an equity dilution at the PLC level. We clearly didn't want to do that. With a market cap the size we are trying to raise this sort of level of money is almost impossible. So and and shareholders wouldn't like that. So bringing in a farming partner partner into this project is is considered the right way of doing it. So we believe that having Cal Valley and their wider network and their similar shareholders involved in this project will allow us to take this project from something that would have been very, very difficult to finance to now something that's achievable.

39:07 And that coupled with our Tijuwafa Bank and the ministry support, etcetera, then I I think we're in a much better, position. The Cal Valley deal brings us different elements. It brings us the back cost. So they're they're in this project as of they're in from day one. They onward finance for phase one. They drill an exploration well for us. They carry us in phase two, and then we've got access to further group funding. So, you know, I think we're bringing in a very good partner, and and I and I think also a partner that's not gonna swap SOUND. And so together, we can be a a a very good way of developing this. And with that attitude of bank on top of that, I think that's that's very good. The next question is for Gary.

39:57 Gary, can you hear me okay? I can. Yes. Okay. Great. Thanks. In relation to the deal with Car Valley, what's gonna happen regarding to the payments of the €25,000,000 bond that we've out out there, which is due to be amortized from this December. Do we have sufficient funds to satisfy this agreement before phase one revenues be begin, and we will be able to repay the bond with a greatly reduced phase one revenue? Yep. Thank you, Graham. So, yes, we're we're obviously fully aware of our bond commitments and the requirement to start amortizing the bond from December. We regularly pay our quarterly coupon payments. We've never defaulted on that. There's no intention of defaulting in any of our subsequent repayment obligations.

40:43 So we have present presently sufficient funds within the business to be able to meet the December amortization payment. And then once we actually start producing, the the revenues are sufficient to enable us to comply with our financial obligations for for the bond. So we're in good shape as things stand at the moment. Excellent. Another one for you, Gary. Can you give some indications as to the potential revenues from for SOUND for both phase one and phase two? And and, you know, how can we improve this if the t four expiration while is a success? Yep. Okay. Thank you. So as you pointed out, the the transaction with Cal Valley is yet to to close. I saw everything's dependent upon successful conclusion of the the phase that we're in with the at the present time.

41:42 Also, what I would say is currently, we we don't actually issue revenue projections to to the market. It's too early in our life cycle to to do that. What I would suggest is that I there's good research in the market from our broker, SP Angel, that can be referred to, and that gives a good illustration as to the revenue generation potential of both phase one and and phase two. And if you look at that research, you'll see that once we're through the investment cycle on both phase one and phase two, we're generating revenues net to SOUND at the projected 35% equity level of around $65,000,000 per annum on an annualized basis. So that's the kind of revenue generation potential post the the pharma once we've got phase one and phase two onstream, and we're fully through the the investment cycle.

42:40 And then in terms of t four, obviously, that's, an exploration prospect. So there's exploration activities yet to be undertaken on that. The the the p 50 estimate for that, you'll have seen that from the slide there, but it's around 260 BCF in place gas resources associated with that. So if we assume a 50% recovery factor on that for the sake of argument at the the moment, that gives you about a 130 BCF of recover recoverable two c gas potential, which is roughly in line with the the sales gas commitments that we have for the phase one project with Africa and the phase two project that we intend to put in place. With the GSA, we intend to complete and put in place with O and E.

43:33 So it gives you a a sense as to the scale of the the potential of that t e four opportunity. And, obviously, once we've gone through the the phase two development process, we'll have a pipeline in place so that lowers the bar of commerciality for any future discoveries, including TE four, if that's successful upon the the exploration well that we're planning. Well, thanks, thanks, Gary. There's more questions on t four. The success or failure of the proposed t four drill will have a significant effect on sourcing and securing the total funding for phase two. I understand the drill rig is on standby nearby. And, you know, can we be assured that this drill has a high priority and will be put into action as soon as possible and not put on hold until everything is agreed regarding the phase two funding?

44:26 Well, actually, the t four is completely independent for it's an exploration well. It's not sitting within the development concession, so it's got nothing to do with the timing and the development of of the phase two. It's so it's no no bearing at all on that front. The local rig that's there is currently owned by KCA Doitag. It does need reinstating and recertifying. It's not been used for a while. And we've been looking at other rigs in the area, and we've been looking at other rigs to be brought into the area. So I I as I do I think I said earlier on, we're doing as much preplanning as we can to get this work work done. And we clearly would like to optimize it with any further drilling work we're gonna be doing on the phase one development or or or coming into phase two.

45:15 But, yeah, we as soon as we've closed the Cal Valley deal, we're up for getting this well drilled. The next question again on t four, and I think I'm gonna have to take that one again. Will t four drill be, exploratory, or is it gonna have a significant horizontal component like t seven aiming to maximize flow rates? And does the 7,000,000 that Cal Valley offer cover the full cost of drilling it and horizontal drilling and and fracking? Well, I think the answer to that is it's planned to drill this well as a vertical well to keep the cost low. We'll log it. We'll core it. And if successful, in other words, we we believe it's worth testing, we'll test the well.

46:03 We know the taggy produces when it's best mechanically stimulated. So but mobilizing the frac units is quite expensive. So what we would do is have that well ready. We'll have it tested. We'll have a open hole test perhaps, flow it, and then we will look at optimizing it in with other wells that we'll be drilling in the concession development so that we can bring the frac units all to sites at the same time and frac several wells in in one go. Of course, this is ongoing work and optimization, but the 7,000,000 should more than cover the drilling and coring, logging, and vertical testing of of of the first well.

46:52 The next question, I think, is coming to you, Gary. The contribution of both Kalvali and and Antigua Afa Bank is really substantial, but still falls short of many millions covering the total cost of phase two. Can we be given indication as to how this shortfall can be made up and how long it will take? Okay. Thank you. So the the the structure of the funding for phase one and phase two, obviously, is a blend of debt, senior debt from bank, and equity funding. The deal that we are in the process of trying to conclude with CarValley is for the full equity component of the anticipated CapEx to get us through the development phase on the phase two development.

47:37 So there is no gap as things currently stand at the at the moment. We've we've also agreed with them in the in the term sheet, and we'll put this in in place in the binding documentation that there is also another element there whereby if there were to be any additional equity investment requirements for that phase two development, then we will access further monies from Cal Valley to plug any gaps in return for sharing a small element of the the revenue through the the revenue generation cycle of of phase two. So in summary, there there is no gap as things stand at the moment. And if there were to be an equity gap at some point in the future, then we've got a mechanism in place with or a mechanism agreed, I should say, with with Cal Valley to address that.

48:30 Thanks, Gary. Moving on for the other exploration that we have in our portfolio at Citi and Anoel. Is SOUND going to have to wait to phase two revenues now that phase one revenue is reduced before it can take action on these exploration permits? Has Cal Valley or any other party shown interest in participating in these exploration wells? With phase two going, SOUND should be in a much more robust financial position, and can we get a better farm out partner should one be necessary, or are we tied to Cal Valley for future exploration? Has the future of SPK one been discussed with Cal Valley? How is SOUND going to fund this, etcetera, etcetera? So, I mean, the answer to that is the they're all good points. And as I said that right up front at the beginning of this, we we've got very astute stakeholders and shareholders who who know this detail inside out.

49:23 We do have commitments on Anowal and Citi. And currently, we're discussing those with ONIM. And as we announced back in December last year, we have an extension on our expiration permits, but those have yet to be formally ratified by the the ministry. And so here we are in mid June without that being formally ratified. We have discussed those with Cal Valley. There's I think their entry into Morocco is quite a large one as their first first first step. Those opportunities, of course, will be available to them should they want to. And are we talking to other people about city and Anoal? Well, we're not an exclusivity on city and Anoal with Cal Valley where we are for Grand Andrara and the concession.

50:14 So all things are open for us, and we're we're working hard on that. We've got this question now. Can you list the hurdles that SOUND has thought to cross before phase two FID is achieved, and what can be done to solve these issues? Well, actually, I think Gary's, you know, Gary's either discussed it in one of these answers or it was certainly on these slides, but there's routine CPs. I mean, they are routine CPs. They do need a bit of work, and we have been working on them for some time. So it's not like we waited for the term sheet before we we knew these CPs would come ahead. These these are all standard things that anybody and any bank would be expected.

51:00 So, you know, we're we're working everything in parallel. And rest assured that getting phase two to FID is is very core for this company. So it's it's our it's our main focus. Right. What alternatives are there to being analyzed regarding the commercialization of a 195 BCF of uncontracted gas. I think, Gary, this is referring to the difference between our two c resource and our one one c Yeah. Resource. Okay. Thanks, Graham. So the the good thing about the position we've got in Rockwall is that there's no shortage of gas market. It's it's one of the key attractive features of being present in the country.

51:50 We've got additional potential to sell gas to O and E. They would clearly like to take more gas than they're currently contracted to take under the existing GSA. So that's one viable option for us and, of course, at attractive pricing. The second element is into the industrial market. So that's in the market that we're accessing through the phase one development. So we can either sell more molecules to or to an industrial buyer of another description as well. So there's another opportunity there. And, again, the the pricing fundamentals are strong. And then the the third element of the the market that's available to us is is selling into the European market either to a trader, a gas buyer, the GME pipeline system as well. We we've had a number of concrete discussions at various points in the past from European buyers as well. So another element that's that's open to.

52:47 So there's there's no shortage of market available to us for additional molecules that we have already discovered or we may discover in the future. And the positive thing is that the the pricing fundamentals are strong, particularly more recently as well on the back of the the shift in the European gas market dynamics. So we're confident that there's a good outlet and attractive pricing available to us for future molecules that are developed. Well, here's one for you, Gary, that, you know, I think it's a nice position to have. How are you gonna spend the 8,000,000 that Cal Valley is going to reimburse you for the past costs? Yep. Good good question. And, obviously, as we've indicated, we need to close the transaction with.

53:35 But we're we're confident that that will be achieved over the course of the the coming months. And how we use that 8,000,000? Well, we'll we'll use it very efficiently as as we've done with all of the monies we've had available to us over the last few years. We've been very efficient in our allocation and use of capital, so continue to to do that. In terms of concrete investments, clearly, there's a number of activities that require to be undertake, enable us to reach FID on the phase two development, whether that's the the FEED, whether that's further elements of DD in terms of closing out the project financing. So there's a series of investments that are required to take us to FID on the phase two development, which will account for, you know, a significant investment, and the funds obviously will be available to us to to deploy from the the back cost from from Car Valley. So there's a number of different opportunities that we have available to us to to allocate the the finance, but the majority of it's likely to be allocated to the pre FID activities on phase two.

54:42 Thank thanks, Gary. So that that the the last question that was presubmitted is a repeat of the same one about the, project, company that we need to set up, the SPV that we need to set up for the the Durham based loan. So Gary's already answered that one. There's some live questions that have come in, and I think I'll I'll take those to so that we don't eat into too many people's dinner this evening. What amount did SOUND agree to pay the Moroccan tax authorities in the recent settlement? Well, that's that was reported in our in our year end statements in the annual report, etcetera. And it's it's framed over six years, and it's a stage payment over six years with very little paid upfront and and the majority at the tail end of years four, five, and six.

55:37 So in in total, it was 2,500,000, and, we've we've got that coming up, over the six years. The next question is is Africa Africa Gas owned by the Moroccan state? No. It's a private company. It's owned by some billionaires as part of the Aqua Group, and, it's listed in its own entity on the Casablanca exchange. What differentiates SOUND ENERGY TENDRAGA Gas Potential from the predator oil and gas field in, Gurusif, if I've pronounced that correctly. I can't answer on behalf of Predator. All I would, tell you is that we have a gas development. We have buyers for our gas. We have Afrikaia involved. We have a gas sales contract. We have a concession. And I think Predator have are working on their development and and progressing that. So the big big question was, obviously, is there room for all of these players in Morocco?

56:36 And so the answer is yes. So and we wish Predator well. We wish Chariot well, and we we wish SDX well. Can you be specific on the timing of t four drilling? I think we've talked about that already. It's gonna be coming after the Kal Valley deal is closed. It will require a rig, and we're working how we can get that. We do have until I think, it's another year to to fulfill commitments on that grand tender license. So but we wanna get after it as quickly as possible. And it is independent of the phase two funding or our development on phase one. Last question has come through on the two producers have been shut in for six years.

57:24 How confident that you will they will produce as expected? Well, we've actually been in there and had a look at the wells. We measure the pressures regularly. We make sure everything's in good shape. And, yeah, of course, we'll go in there. We'll we we plan as part of it to put the new wellheads on and the completion string in there. So we'll we'll have a good look at the wells before it's on ready for production. Well, so that's the end of the questions. Apologies for a a few of the hiccups through there. Mark, is there You've covered you've covered them all off. So thank you very much indeed. And, course, any further questions, the team will be able to review those, and we'll publish responses where appropriate to do so. Graham, perhaps before redirecting investors to provide you with their feedback, which I know is particularly important to yourself and Gary, if you could just have a few closing comments, please.

58:09 Yeah. Fine. Well, look, apart from the the technical glitches, I would say what we can do our oil and gas business quite well even we can't manage the IT IT side as well. The company you can see has now moved from being a pure exploration company with, you know, a couple of good wells. We know that to develop the Taghi Reservoir, we need to mechanically stimulate it. We know there's a lot of gas in the region. It's finding the pots pot for doing that. We're gonna have an opportunity to do that with the Cal Valley partnering with the t four well Holster drilling. We have now which I think people really underestimate the value of this funding mechanism we put in for phase two. It's a big project for for Little Sound, 300,000,000, $350,000,000 in total.

58:58 The funding to get us to First Gas, and, of course, after First Gas, we'll continue drilling. So part of that $350,000,000 comes after First Gas. But that's in place, you know, subject to us closing everything. So I think what we've got is Calvary. We've got good partners. We've got supportive governments with the ministry, with our state partner in on him, with Calvary with a bigger entity behind it. I think with exploration potential, we're we're in a good position now. Clearly, we've got a lot of work to do over the next six months to get all this buttoned down, cleared out, approved, closed, etcetera. But I do think that, you know, our share price belies the value the net asset value of the company. It it belies a risk weighted value of the company. And I think if you look at what we've done to derisk phase two now and get that pipeline going, I I, you know, I I have I have to say I'm a bit disappointed with the reaction in the market. But, you know, we are we live in very interesting times as they say every year. So, yeah, I hope we're in a position now to deliver, to reward our long term shareholders with a material appreciation in the share price, but also new shareholders that are coming into the market. Those of you came in last year at the tail end of last year are always see already seen a nice profit.

1:00:18 Those of you who can come in now are are all well and good. We're here to to work hard for you, all stakeholders, all shareholders, and we're looking forward to closing with Cal Valley. We're looking forward to closing with that to Jarrahfa Bank. We're looking forward to delivering first gas next year with Itau fluids, with Africa gas. And so, and we've got supportive shareholders with, Ogif and Africa gas themselves. So, yep, apologies for the glitches. One minute past seven, so I hope, that can sort everything out for everybody. Have a nice evening. Graham, Gary. Thank you indeed for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected in order to provide your feedback so the company can better understand your views and expectations. This will only take a few moments to complete, and it's greatly valued by the company.

1:01:06 On behalf of the team at SOUND ENERGY PLC, we'd like to thank you for attending today's meeting. That concludes today's session. Thank you, Good evening to you all.