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LNG Heads of Terms with Leading Moroccan Energy Group

Source: www.gulfoilandgas.com 6/29/2020, Location: Africa

Sound Energy, the Moroccan focused upstream gas company, is pleased to provide the following update in relation to the Company's micro liquified natural gas (mLNG) phase 1 development plan for the TE-5 Horst development (the "Phase 1 Development") at the Tendrara Production Concession. This is being pursued alongside the phase 2 full field development plan centred around the development of a 120 km pipeline and central processing facility (the Phase 2 Development).

Signature of Heads of Terms and Grant of Exclusivity

The Company is pleased to announce that, on 26 June 2020, heads of terms (the "HOT") were entered into with a Moroccan conglomerate (the "Partner") with significant liquified petroleum gas, butane and propane distribution and marketing operations in Morocco, pursuant to which the Company has now entered into exclusive discussions with the Partner ("Exclusivity") in order to enter into agreements for both the purchase of LNG to be produced from the TE-5 Horst development, as well as the partial financing of the Phase 1 Development by the Partner (the "Proposed Transaction").

Exclusivity has been granted to the Partner in relation to the Proposed Transaction until 31 December 2020 (the "Term"). In this context, the Company and its Partner have agreed to use their reasonable endeavours to conclude the Proposed Transaction on the basis of key commercial terms set out in the HOT.

HOT - LNG Gas Sales Agreement

Under the HOT, the parties have agreed to use their reasonable endeavours to negotiate and enter into a gas sales agreement (the "Proposed GSA") pursuant to which Sound Energy Morocco East Limited, on behalf of the Concession joint venture partners, will commit, over a period of 10 years from first gas from the Concession, to produce, process, liquefy and sell to the Partner an annual contractual quantity of 100 million standard cubic metres of gas (approximately 4 billion standard cubic feet of gas per year) from the Phase 1 Development, and the Partner will commit to an annual minimum "Take or Pay" quantity of 90 million standard cubic meters of gas, priced within a range of $7 to $9 per mmBTU with an indexed formula using a combination of the European Title Transfer Facility and United States Henry Hub benchmark indexes.

Proposed Partner Project Funding

In order to accelerate the delivery of first gas under the Phase 1 Development Plan, the Partner has also agreed under the HOT to use reasonable endeavours to conclude definitive agreements in respect of a proposed partial financing for the development ("Proposed Partner Financing") through:

· a £2 million subscription by the Partner for 159,731,651 new Sound Energy ordinary shares at a price of 1.2521 pence per new ordinary share, and

· a secured commercial loan of $13.5 million provided by the Partner to the Company in respect of the Phase 1 Development, with an 11.5% coupon and 12 year term.

Update re mLNG Production Plant

The Company continues to progress negotiations with potential service providers in relation to the design, procurement, construction and operation of the gas processing and liquefaction unit (the "mLNG Facility") required for the Phase 1 Development and with additional funding partners for the balance of the finance required for the Phase 1 Development.

Despite COVID-19 outbreak restrictions, which have delayed progress of the Phase 1 Development Plan, the Company aims to take a Final Investment Decision ("FID"), subject to the approval of the Concession joint venture partners, during H2 2020.

The Company cautions that whilst the HOT is binding during its Term in the grant of Exclusivity and in its recording of the commitment by the Company and the Partner to use reasonable endeavours to conclude the Proposed Transaction based on the key commercial terms set out in the HOT, the Proposed Transaction remains subject to, inter alia, the negotiation and entry of further binding agreements, to the approval of the Concession joint venture partners and to an FID on the Phase 1 Development being taken.

Mohammed Seghiri, Sound Energy's Chief Operating Officer, commented:

"We are delighted to announce the signature of these heads of terms and the award of exclusivity for the purchase of LNG from the TE-5 Horst.

In spite of challenging current market conditions we have made significant progress, and these heads of terms, mark an important step forward towards the delivery of the Company's phase 1 production development plan for the TE-5 Horst at the Tendrara Concession."

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