Sound Oil Negotiating Farm in to Tendrara Licence

Source: www.gulfoilandgas.com 5/11/2015, Location: Africa

Sound Oil has declared that it has been granted a 30 day period of exclusivity from the Moroccan Oil and Gas Investment Fund ('OGIF') in relation to a potential farm in to the Tendrara licence, onshore Morocco. The grant of exclusivity initiates exclusive negotiations between Sound Oil and OGIF and follows the submission of an indicative offer letter from Sound Oil to OGIF in respect of the Tendrara Licence, the indicative terms of which are described below.

The onshore Tendrara Licence includes two stranded gas discoveries with low risk appraisal potential and significant (multiple Tcf) blue sky exploration upside. Preliminary internal estimates of existing discovery volumes are broadly comparable to estimated volumes (post a successful drill) at the Company's Badile licence in Italy.

The Tendrara Licence area covers eight blocks across a total of 14,500 sq kms in the North East of Morocco. The underlying Trias Argilo-Gréseux Inférieur (TAGI) reservoir is a continuation of the Algerian Triassic Province capped by salt and underlain by Paleozoic source rocks. Seven wells have been drilled on the Tendrara Licence to date, of which five discovered hydrocarbons and two were tested successfully. The licence already has 4,400 kms of 2D seismic and 500 sq kms of 3D seismic. Gas produced from the Tendrara Licence is expected to either feed the gas hungry Moroccan domestic market or be connected to the Gazoduc Maghreb Europe (GME) gas export pipeline. The Tendrara Licence is currently owned 75% by OGIF and 25% by The National Office of Hydrocarbons and Mines ('ONHYM'), the Moroccan national hydrocarbon and mineral company - which has a 25% carried interest during the exploration phase.

Morocco is a stable, hydrocarbon rich geography with growing domestic energy demand, a very competitive fiscal regime and access to key EU gas import infrastructure.

Sound Oil Farm in Offer

Sound Oil has offered, subject to contract and regulatory approvals, to assume operatorship of the Tendrara Licence and to take a 55% working interest (with OGIF retaining 20% and ONYHM the remaining 25%). The 55% working interest would be granted in two tranches, with the initial 37.5% being awarded immediately on completion of the transaction and the remaining 17.5% being granted once Sound Oil commits on the second exploration phase (which would include a second well).

Under the terms of the proposed farm in, Sound Oil will pay 100% of the cost of three wells, of which only the first well would be a firm commitment. The first well is to appraise the larger of two existing discoveries in the Tendrara Licence with a view to addressing the residual reservoir uncertainties (well deliverability and areal continuity) and proving up sufficient reserves to properly size the design of the infrastructure required to commercialize the gas. Sound Oil's commitment to fund the second and third wells would depend upon the results of that first well.

It is anticipated that drilling of the first well, costing approx. £6 million (100%), would commence in Q4 2015.

James Parsons, Chief Executive Officer of Sound Oil, commented:

'This transaction is our first transformational deal in pursuit of our Mediterranean gas strategy. The Tendrara asset, with two existing discoveries and resource potential of multiple Tcf, has a very attractive risk / reward profile, builds on our core technical and commercial strengths in Milan and dovetails perfectly with our Italian portfolio. We look forward to updating shareholders on the conclusion of negotiations and the exciting potential of the enlarged portfolio.'




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