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Sound Energy : Annual financial and audit reports - SOUND ENERGY PLC
Sound Energy : Annual financial and audit reports - SOUND ENERGY
About this update from Sound Energy Plc
SOUND ENERGY PLC ANNUAL REPORT & ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2024 Company Number 05344804 Table of Contents Page STRATEGIC REPORT 2 Chairman's Statement 2 Our Marketplace 5 Our Strategic Relationships 7 Business Model and Strategy 10 Reserves and Resources 12 Portfolio Review 15 Micro LNG Project Review 20 Financial Review 22 S172 statement 24 Sustainable and Responsible Business 26 Principal Risks and Uncertainties 30 CORPORATE GOVERNANCE 34 Chairman's Corporate Governance Statement 34 QCA Code Principles 35 Board Overview 41 Board of Directors 42 Board Activities 44 Health, Safety, Security & Environment Committee 46 Audit Committee Report 47 Nominations and Remuneration Committee Report 49 Directors' Remuneration Report 50 Directors' Report 55 Statement of Directors' Responsibilities 58 Independent Auditor's Report 59 FINANCIAL STATEMENTS 64 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2024 64 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2024 65 COMPANY BALANCE SHEET AS AT 31 DECEMBER 2024 66 GROUP AND COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2024 67 GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2024 69 COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2024 70 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2024 71 LIST OF PERMITS AND INTERESTS 99 SHAREHOLDER INFORMATION 100 STRATEGIC REPORT Chairman's Statement Introduction 2024 ended with the closure of a transformational transaction for Sound Energy PLC in which its subsidiary, Sound Energy Morocco East Limited (SEME), was sold to Managem SA (Managem), a large Moroccan based, pan-African mining company. This sale, of the Operating Company for Tendrara Concession (the Concession) and the Anoual and Greater Tendrara exploration licenses, brings Sound significant funding covering both development and exploration activities, as well as cash by way of the recovery of past investments from January 2022 to December 2024, thereby materially increasing the Company's cash position and positioning the Company well for future revenue growth and potentially significant exploration upside. The micro LNG project activity at Tendrara is behind the initial 2024 delivery schedule due to the late delivery of equipment and construction overruns by the main contractor. Despite good progress being made on construction of the LNG storage tank, the construction supply chain and delivery of the key components were challenged. At year-end, major packages had either arrived or were enroute to site. With Managem now assuming operational responsibility for the Concession, value enhancing opportunities will continue to be pursued to ensure delivery of LNG in 2025. The scheduled 2024 Sound-operated development activities, including preparing the wells for production, were completed successfully with no lost time incidents and well integrity maintained. The Phase 2 pipeline gas project matured with entry into a binding agreement with Managem (for equity development capital funding) for Sound Energy Meridja Limited by way of a development carry. The Company has a binding gas sales agreement with ONEE (Office National de l'Electricité et de l'Eau potable) and senior debt financing via Attijariwafa bank. Both are in place (effectiveness subject to certain conditions precedent). In order to take the next step to enable the Concession joint venture partners to take a Final Investment Decision (''FID'') and commence execution of the project, an update of the Front-End Engineering & Design (''FEED'') study to get relevant 2025 costings and an optimised design is required. As new operator, Managem plans to conclude all activities to undertake FID in 2025 - they have maintained momentum by using their own project management team as well as former SEME staff, and Sound plc staff are providing a comprehensive handover and continued support where required. Exploration licenses are all in the process of extension and renewal. At year end we are awaiting the various authorities' final approval of the agreed licence amendments. Managem will operate the Anoual and Grand Tendrara exploration licenses and have agreed to carry Sound's costs on two exploration wells, one on each licence. Sidi Moktar remains operated by Sound Energy through its subsidiary Sound Energy Morocco South Limited (SEMS) and it is the intention of the company to progress a seismic survey over the licence in 2025 or early 2026. Logistics are such that until licenses are all fully approved by the various ministries, on-the-ground works cannot take place. During 2024, we announced a joint study programme with Getech, a market leader in subsurface data, to evaluate natural Hydrogen and Helium potential in Morocco. We expect the study results in 2025. During the year, the Company held regular shareholder meetings both online and in person. Shareholders requested interactive sessions where they do not need to travel and therefore five live webinar Q&A sessions were held and various video recordings answering questions submitted to the company took place. In 2025 regular engagements will be undertaken, as we continue to interact, listen and share information with our shareholder community. Corporate In August, we announced a small working capital bridge facility from 2i Partners which was available whilst the Managem transaction was closing. This facility was not fully utilised, and the amounts drawn down were repaid in December 2024, along with accrued interest. During the year, the Company issued 117.5 million new ordinary shares (under its previous authorities) to settle 2023 Convertible loan note obligations. At year end, accrued interest of £568,800 was outstanding. 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 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. Our strong monitoring and constant improvement of working practices has proved robust; we have had very few incidents over the year; however, one contractor broke a leg falling from scaffolding that was marked not for use and a driving accident offsite and out of working hours occurred. Any environmental issues are also recorded and monitored. We instigated a CO 2 study with a contractor in 2024 for its potential recovery and sale. A modest 936 tCO2e were emitted in 2024 through diesel consumption which was primarily from heavy plant and equipment used in the mLNG facility civil construction / ground works, dozers, graders, compactors and the well workover operations on TE6 and TE7 completed by Star Valley 101. Finally, we engage proactively with our local communities, and in 2024, we laid a water line to a local school making running water available for the first time. We take 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, and we are applying the revised QCA governance code during reporting year 2025. The Company continues to manage its financial resources prudently whilst making significant capital investments in pursuing its strategy. The pathway to funding the company until the first revenues from Phase 1 is always under review and a variety of working capital sources are being evaluated. The transaction with Managem provided cash to the Company, however, as Sound now has less operated activities very careful cost management will continue to be applied in 2025 and moving forward. With significant debt on the Company's balance sheet, debt management will be a key focus for Sound in 2025. Whilst new business opportunities were reviewed in 2024, the corporate focus was to deliver a sustainable Tendrara position and to fund the company for its key development and exploration priorities. With the phase 2 funding pathway contractually agreed, the Company will focus more management attention on growth and portfolio expansion to seek to accelerate its strategy of sustainable revenue generation. In light of the agreed sale of SEME to Managem, the Company is required to compare the carrying value of its intangible and development assets with their fair market value (less cost of disposal). The Company determined that an impairment charge totalling £122.0 million was required for the retained development assets. Board During 2024, the Board continued to meet regularly and oversee effective implementation of the Company's strategy. Simon Ashby-Rudd stepped down as a board member on the announcement of the transaction with Managem. We thank Simon for his valued service, advice, and support to the Company particularly during the major transaction. Post year end, Mohammed Seghiri resigned from the Company and Board to join Managem SA, providing continuation of operations in Morocco. We thank Mohammed for his 8 years of service with Sound and look forward to continuing our close co-operation in his new role. The board now consists of one Executive and two Independent Non-Executive Directors. Summary Significant progress has been made in advancing the sustainability of the Company through the transformational transaction with Managem which brings a substantial co-venturer that will operate the mLNG project, provide Sound Energy's equity funding to take FID on the Phase 2 pipeline project and fund two exploration wells for Sound. Sound is now able to evaluate further growth opportunities, either within the current asset base or externally whilst seeking to further strengthen its portfolio and balance sheet. 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, revenue and progress for all our shareholders during 2025 and beyond, as we focus on material developments in transition energy. Graham Lyon Executive Chairman Our Marketplace Gas and the Energy Transition The market opportunity As the global community advances the deployment of capital and technology to deliver an energy transition, the outcomes of the United Nations COP28 emphasised the urgency of accelerating climate action. The consensus highlighted the critical need to secure lower-carbon energy sources and transition away from fossil fuels in a "just, orderly, and equitable manner." This momentum reinforces the role of natural gas as a transitional fuel on the path towards a lower-carbon energy future. In this context, Sound Energy's strategic position is strengthened by its ownership of Morocco's largest onshore gas resource and its extensive, unrisked multi-TCF exploration potential in Eastern Morocco and Sidi Moktar. These assets position the company to capture a significant share of the Moroccan gas market,a market characterised by limited indigenous gas resources and substantial growth potential across industrial applications, gas-to-power projects, and potential exports to Europe via the Gazoduc-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: 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 scarcer 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 Morocco imported only about 1,881 GWh (0.16 BCM, 5.8 Bcf) of natural gas from Spain, in 2023 imports increased to about 9,472 GWh (0.82 BCM, 29 Bcf) 1 . Imported natural gas from Spain has continued to rise during 2024. The Phase 2 pipeline gas project, under development at Tendrara, has the potential to offset at least 0.3 BCM per annum of imported natural gas Moroccan liquefied petroleum gas (LPG) market demand is equivalent to 3.3 BCM (116 bcf) per annum of natural gas. Commencing in May 2024, the Moroccan Government initiated the process of phasing out subsidies on LPG, specifically butane gas 2 , to ease the fiscal burden on the State, which provided more than US$ 2 Billion of LPG subsidies in 2022 3 . While the government has begun reducing LPG subsidies, the process is gradual and ongoing. The complete elimination of these subsidies is planned over several years to ensure economic stability and social equity. Given these developments, the Moroccan LPG market is expected to undergo significant changes, with potential impacts on consumption patterns, import levels, and market dynamics with particular opportunities for indigenous gas producers. Our Phase 1 mLNG project is the means for the Company to generate long term and stable revenue in the short term potentially offsetting 0.1 BCM per annum of imported LPG. There is strong and growing demand for our LNG within Morocco. For shareholders this is a key 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 (Corporación de Reservas Estratégicas de Productos Petrolíferos data 2023) 2 https://www.mapnews.ma/en/actualites/social/social-assistance-project-partial-withdrawal-butane-gas-subsidy-take-effect-monday 3 OPIS, a Dow Jones Company, 19 December 2023 Interview with Mohammed Rachid Idrissi Kaitouni, President of the Energy Federation in Morocco Our Strategic Relationships Our key business relationships allow Sound Energy to achieve more than we could do alone. We hold strong relationships with our partners, funders, offtakers and investors supporting us from investment funding to project execution and delivery. Managem SA Phase 1 and Phase 2 Operating Joint Venture Partner On the 10 December 2024, Sound Energy completed a partial divestment of the Company's Moroccan assets by way of the disposal of the entire issued share capital of Sound Energy Morocco East Limited (SEME) to Managem. SEME is the designated Operator of the Tendrara Concession, Grand Tendrara and Anoual Exploration Permits. Managem S.A. is a prominent Moroccan mining group with a strong presence across Africa. Established in 1930, the company specialises in the exploration, extraction, processing, and marketing of various mineral resources. Its diversified portfolio includes precious metals such as gold and silver, base metals like copper, zinc, and lead, as well as cobalt and its derivatives. The company employs over 5,000 individuals of 22 nationalities, reflecting its international reach 1 . The company is a subsidiary of Al Mada, a Pan-African private investment fund. Managem's strategic vision emphasises sustainable development, technological innovation, and community engagement, aiming to contribute positively to the economic growth of the regions in which it operates. Under the terms of the divestment of SEME, Managem will provide equity funding to Sound Energy for the Phase 2 development of the Concession, funding for two exploration wells in satisfying the work programmes under the Exploration Permits, a contingent production payment and recovery of past expenditures in cash. Afriquia Gaz Phase 1 Funding/offtaker/investor In 2021, the Concession Joint Venture entered into a binding take or pay Gas Sales Agreement (GSA) to 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 (from the Phase 1 project). In 2021, Afriquia Gaz underpinned its relationship with Sound Energy plc by acquiring a 9.8% shareholding in the Company through a £2 million placing and entered into a $18 million loan note agreement with the Company, also in 2021, which was designed to meet the capital funding requirements of Sound Energy's Joint Venture Concession participants to bring the Phase 1 project onstream. As of 31 December 2024, Afriquia Gaz held an interest in approximately 8.49% of Sound Energy plc's current issued share capital. 1 https://www.managemgroup.com/en Oil and Gas Investment Fund Investor 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, which enabled the Company to: Consolidate its interests in Eastern Morocco's prospective acreage. Strengthen Sound Energy's position in Morocco: OGIF is a Moroccan fund, owned by the seven largest Moroccan financial institutions. As of 31 December 2024, OGIF had an interest in approximately 12.76% of Sound Energy's current issued share capital. National Office of Hydrocarbons and Mines Permits/funding The National Office of Hydrocarbons and Mines ("ONHYM") is another key partner for Sound Energy. 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 formalised through 4 Joint Ventures and Petroleum Agreements (PA) below in each of which ONHYM holds a 25% equity interest: Tendrara-Lakbir PA which governs the Tendrara Concession JV Grand Tendrara PA which governs exploration work over the Grand Tendrara exploration permits area Anoual PA which governs exploration work over the Anoual exploration permits area Sidi Moktar PA which governs exploration work over the Sidi Moktar exploration permits area Office National de l'Electricité et de l'Eau Potable (ONEE) Phase 2 Offtaker The Tendrara Concession JV 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 oversight of the Ministry of Energy Transition and Sustainable Development. Ministry of Energy Transition and Sustainable Development The Moroccan Ministry of Energy Transition and Sustainable Development (METSD) is responsible for advancing Morocco's energy policies towards sustainability, focusing on renewable energy development, energy efficiency, and environmental stewardship. Under the leadership of Minister Leila Benali, METSD has initiated several programs and partnerships to achieve these objectives of which the development of the Tendrara Produciton Concession plays an important role. Throughout 2024 the joint venture partners have engaged directly with the Minister to progress the development and maintain support of the Moroccan Government at the highest level. Business Model and Strategy Sound Energy is a Moroccan-focused transition energy company with a business purpose centred on delivering value and sustainable cash generation through exploring, developing and producing energy. As the world continues its journey towards lower carbon and sustainable energy solutions Sound Energy's investments are focused on supporting Morocco's transition as part of this goal. Growth The Company's growth focused strategy is centred on: Short-term organic growth Tendrara Phase 1 and Phase 2 gas developments Tendrara Phase 1 and Phase 2 expansions - additional 2C resource gas sold Establishing commercialising of known discoveries (e.g. SBK-1, TE-4 Horst) Exploration potential surrounding the developments (e.g. M5) Medium and long-term growth in the region Gas or lower carbon oil Renewables (where Sound has unique access) − Solar − Wind (own use in Eastern Morocco, expansion for grid) Opportunistic or targeted asset or corporate acquisitions A sustainable business model with ESG at its core EVALUATE 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 Natural gas production via Micro LNG or larger projects at advantaged pricing to generate cash and value for shareholders GOVERNANCE AND ETHICS Committed to strong corporate governance to strengthen our business and serve our stakeholders LSE growth market listed entity observing the QCA code SOCIAL RESPONSIBILITY Creating local employment in developing countries Developing local infrastructure for communities DEVELOP 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 Recycle cash and leverage portfolio to fuel growth Leverage technical, financial and commercial skill sets to build the portfolio PEOPLE Keeping our people safe Developing our people Promoting positive behaviours Training of Moroccan nationals ENVIRONMENT 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 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 petroleum 1 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 Resources 2 . 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 Resources 2 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 Company. Segment Discovered Gas Initially In Place (Bcf) Contingent Resources (Bcf) 2 Contingent Resources (Bcf) 2 Name Gross (100%) basis Gross (100%) basis Net to Company (20%) basis Low Mid High 1C 2C 3C 1C 2C 3C TE-5 Horst (TAGI 1 & 2) 349 651 873 197 377 533 39.4 75.4 106.6 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. 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. 2. Contingent Resources are technical volumes, i.e. no economic limit test applied 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 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 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 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 GIIP. The range of unrisked GIIP 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 GIIP with an associated geological chance of success. Target name Unrisked Volume Potential Gas Initially-In-Place (Bcf) Gross (100%) basis Chance of success Low Best High Mean TE-4 Horst Exploration 153 260 408 273 36% SBK-1 Exploration 71 130 225 140 50% M5 Exploration 332 800 1728 943 21% Summary table showing the range of Unrisked GIIP, gross, for the Prospects TE-4 Horst, SBK-1 Structure and M5 with the corresponding geological Chance of Success. Portfolio Review A blended portfolio of gas assets Eastern Morocco Tendrara Production Concession Permit Area The permit in which Sound Energy has a 20% interest is located close to the Gazoduc Maghreb Europe ("GME") pipeline, approximately 120 kilometres to the North of it. The 522 kilometre-long Moroccan section is owned by the Moroccan State and operated by Office National des Hydrocarbures et des Mines (''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 Argilo-Gréseux Inférieur (''TAGI'' 1 ) reservoir within the structural fault block, termed the Tendrara TE-5 Horst, and sealed by the overlying salt. Reservoir characteristics are significantly enhanced by the 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 2 being the development of a larger scale central processing facility ("CPF") and gas export pipeline to the GME pipeline. Phase 1- Micro LNG Development Supply of LNG displacing higher carbon footprint energy (such as heavy fuel, petcoke or imported LPG) Funding is 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. A binding gas sales agreement and associated funding are in place with Afriquia Gaz, one of the largest LPG distributors in Morocco. There is 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 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 In March 2025 (post period-end), the Company announced that the mLNG project main contractor, Italfluid, and the operator of the Tendrara Production Concession had agreed to amend their contractual arrangement by terminating the vendor financed lease agreement entered into in 2020 and entering into an engineering, procurement and Construction (EPC) contract. The parties are currently in advanced discussions to agree an operations and maintenance contract. Phase 2- Tendrara TE-5 Development Concept - Processed gas 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'Electricit é 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) Senior debt facility in place with Attijariwafa Bank (which is one of the top banks in Morocco and Africa), and part of the Al Mada Group (the Moroccan Monarchy's holding company) to fund a substantial part of the Phase 2 project. Fully termed and binding senior debt facility in place (subject to fulfilment of certain conditions precedent before FID) Exploration Grand Tendrara - two Triassic TAGI discoveries Permit Details Area 14,411 km 2 Status Petroleum Agreement: Exploration Effective date 1 October 2018 Net interest 27.5% Term 8 years Resource Potential Exploration potential in the Triassic TAGI 1 reservoir of 7.52 Tcf gross/2.07 Tcf net (arithmetical sum of mid-case un-risked GIIP 2 ) identified in sub-salt concepts, leads and prospects. Permit Area Surrounds the Tendrara Production Concession. The permit in which Sound Energy has a 27.5% interest is located with access to the GME pipeline, situated approximately 120 kilometres to the north of it. The 522 kilometres long Moroccan section is owned and operated by the Moroccan State. The pipeline connects Morocco to Spanish/Portuguese gas grids as well as 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. Two Triassic TAGI 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 TAGI 1 reservoir of 7.52 Tcf gross/2.07 Tcf net (arithmetical sum of mid-case un-risked GIIP 2 ) 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 GIIP, is as follows: Unrisked Volume Potential Gas Initially in Place (Bcf) Gross (100%) basis Chance of Target name Low Best High Mean Success TE-4 Horst Structure 153 260 408 273 36% SBK-1 Structure 71 130 225 140 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 Transition and Sustainable Development and the Ministry of Economy and 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. 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 Detail s Area 8,873 km 2 Status Petroleum Agreement: Exploration Effective date 8 September 2017 Net interest 27.5% Term 10 years Resource Potential Exploration potential in the Triassic TAGI 1 reservoir of 11.51 Tcf gross/3.17 Tcf net (arithmetical sum of mid-case un-risked GIIP 2 ) identified in sub-salt concepts, leads and prospects Permit Area The permit in which Sound Energy has a 27.5% interest is located with 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 Spanish/Portuguese gas grids as well as Moroccan gas-fired power stations. Geology Only one well drilled across the entire area. The primary reservoir is the Triassic TAGI 1 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/3.17 Tcf net (arithmetical sum of mid-case un-risked GIIP 2 ) identified in sub-salt concepts, leads and prospects. Future Developments "M5" prospect high graded for drilling a TAGI 1 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 GIIP, is as follows: Unrisked Volume Potential Gas Initially In Place (Bcf) Gross (100%) basis Chance of Target name Low Best High Mean Success M5 Exploration 332 800 1728 943 21% 1 . 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 2. Internal exploration potential estimates, arithmetical sum of mid-case unrisked Gas Initially In Place ("GIIP") Sidi Moktar Permit Details Area 4,712 km 2 Status Petroleum Agreement: Exploration Effective date April 2018 Net interest 75% Term 10 years Resource Potential Unrisked exploration potential of 8.9 Tcf gross/6.68 Tcf net (arithmetical sum of mid-case unrisked GIIP 2) following interpretation of the historical 2D seismic identified in sub-salt leads 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 reservoirs. Strategically, the Company has shifted its focus on the Sidi Moktar area towards what it believes has the potential to be the most significant opportunity amongst the deeper Triassic TAGI 1 and Palaeozoic gas plays in the region already demonstrated by the gas and condensate producing adjacent Meskala Field operated by our partner ONHYM. 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 Moktar permit and that the work programme for the initial period of the Sidi Moktar permit remained unchanged. Geology There is initial un-risked exploration potential of up to 8.9 Tcf gross/6.68 Tcf net gas (arithmetical sum of mid-case un-risked GIIP 2 ) 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 the basis of 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 . 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 2. Internal exploration potential estimates, arithmetical sum of mid-case unrisked Gas Initially In Place ("GIIP") Micro LNG Project Review Progress in 2024 Sound Energy is a pioneer in Morocco in establishing an onshore small scale LNG solution providing gas to the local market, assisting Moroccan industry in its energy transition, reducing the use of more polluting fuels and CO 2 emissions. The micro LNG project involves three main parties: Afriquia Gaz is 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) is responsible for the design, construction, commissioning, operation and maintenance of the gas processing and liquefaction plant. Post period end, Italfluid contract changed from a vendor finance lease agreement to a standard engineering, procurement and contraction contract. Sound Energy and its Concession partners, including Managem and 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 worked in 2024 with its project partners to mitigate the effects of external global events to ensure that the project can progress safely. Most of the components of the mLNG facility are now manufactured and are either already located in Morocco (Power Generation Equipment and Storage Tank) or are ready to be shipped from the different workshops located around the world (USA, Asia and Europe). For instance, one of the key liquefaction equipment (ColdBox) is on its way to Site. Italfluid confirmed to the new Operator Managem that several other elements should arrive at site in the 1 st quarter of 2025. The new operator plans to start LNG production by the end of 2025, provided that no major event occurs and impacts the plant readiness schedule. The LNG storage tank is now at the final stage of construction at site and is expected to be tested before the end of Q1 2025. The construction of the access road was completed in 2024. The production wells of TE-6 and TE-7 required specialised metallurgy for the production completions prior to long term gas production and were upgraded with Cr13 steel tubing and are now ready to produce. The last operation of well clean-up is planned in the 1st half of 2025. The gas gathering system was fully designed in 2024 and the procurement has been started. All pieces of equipment (Heater, valves, composite pipeline, instrumentation, etc.) should be delivered on site as well in the 1 st half of 2025. 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