Sound Energy is working on a deal to sell down its stake in the Tendrara concession, in Morocco, to Calvalley Petroleum.
Sound said it had agreed to a 45-day period of exclusivity on the deal with Calvalley. The buyer would fund the first $48 million of development costs for the project. Calvalley is associated with Octavia Energy.
Calvalley would also fund all costs, up to $7 million, for the TE-4 Horst well and 40% of past costs. The company is also set to advance funds to Sound to cover its share of extra costs for the first and second phases, repayable from future revenues.
The seller would retain a 35% stake in the Tendrara concession and the Grand Tendrara exploration permit.
Sound executive chairman Graham Lyon said the deal would “fund the further development of Tendrara concession and the drilling of a well on the nearby TE-4 Horst. The companies will now work towards signing definitive transaction documentation, which upon completion will enable the parties together to jointly progress to the final investment decision [FID].”
The TE-4 Horst well is targeting a potential 273 billion cubic feet gross resource. Maghreb Petroleum drilled the well in 2006 but did not flow gas to surface. Sound said it would aim to produce from the well by using mechanical stimulation.
Funding
Sound has also raised £4mn via a senior unsecured convertible bond with an institutional investor. The funds would allow the company to carry out its work on Tendrara ahead of Calvalley’s support.
Lyon said the bond was priced at a premium to the company’s share price. It “provides the company with additional resources with which to continue to execute its Phase 1 development and to progress the Phase 2 development”.
The first phase involves a micro LNG plan. The second phase will involve a pipe to the Gazoduc Maghreb Europe (GME) pipeline.
The convertible notes fully fund Sound’s capital requirements until the end of the year. Sound launched a farm-out process in August 2022.
Calvalley was listed in Toronto until 2016, when it went private. It operates Block S-1 and Block 9 in Yemen, with 3,100 barrels per day net. The company has said it is considering an expansion into Egypt.
Should costs on phase 1 pass $41mn gross, Calvalley would advance up to $11.65mn to Sound. It would take a larger share of revenues for five years.
Gneiss Energy provided financial advice for Sound on the capital raise and the ongoing sale.