Sound Energy plc (88S1.F) Earnings Call Transcript & Summary

Good evening, and welcome to the Sound Energy plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received in the meeting itself; however, the company can review the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Executive Chairman, Graham Lyon. Good evening, sir.

Thank you, Alessandro. For those of you who can see, I am flanked by our new CFO, Andy Matharu, and I've also got our VP, Geoscience, John Argent with me, who are going to help me do the presentation and answer some questions. Thank you for sending them in advance. That's been very helpful. We are in a really exciting time now. We're right on the cusp of things coming good in sound. And it's actually an exciting time to be in sound at the moment. You know we are very close to production. And we -- since we did the deal with Managem last year, we're in a much healthier position. For those that are new to Sound and have come in recently or have been watching us recently because you know we're close to revenue generation. I'll just refresh a little bit of why we think we're a good investment opportunity for you. We're clearly a strong player in Morocco, and we're in the transition energy space, where we're helping Morocco move away from the fossil fuel, the coal-fired power and transition them to what in the end will be a very renewable energy dominated country, but transition energy involves gas, and we're the biggest owner of gas in -- or landowner alongside Managem, obviously, in Morocco at the moment. So we have a fantastic onshore position. We have a concession that we are about to bring on to production, and we have plenty of exploration upside and romance in Morocco. The need for gas is very compelling in Morocco and strong demand and strong pricing. And it's been like that for quite some time, not just since the issues in Europe. What we've got is a very clear development plan for our projects. If those of you who have been with us for a few years will know that we -- we eat the elephant slice by slice, and we have it for breakfast, we have it for lunch. We have it for dinner. So what we've done with this gas field is we've taken it in stages. We're onshore, so we can appraise it, we can evaluate properly, we can put our investments in, and we can expand on that as we see the successful results. We have 2 projects, one about to be producing. That's the LNG project, small-scale LNG, micro LNG, and we'll talk a little bit about that in a second. We have a second project, which is progressing, not quite as fast as we wanted to, but I think there's some exciting news coming out on that in the near term. What's very important for a small cap AIM listed company is where our financing is. As everybody knows that it's very difficult when you're in the small cap world. So we've done that in the last year, like the year, 18 months. We brought in a strong partner [ Managem Energy. ] So we are now financed for our second phase of our development. We recovered some past costs of our investments. And we've got a couple of exploration wells that are going to be drilled, which is not many people can say they've got fully funded exploration wells. So we've got a good potential, bringing these fields on to -- or this concession on to production with our first phase and our second phase gives us a long-term view, 10, 15, 20 years of revenue. The excitement is going to be when we drill a bit more and we find more gas. And as those of you have seen in the past when Sound was successful in exploring and finding more gas, the share price reacted. But moreover, we're not resting on our laurels and just waiting for the gas to come out of Tendrara. We've also expanded to our strengths in Morocco. John will be talking a little bit about the natural hydrogen that we will -- we formed a joint venture company called HyMaroc, and that's with Getech. So John will talk a little bit about in that. So very early stages, but that's very positive. The second one is really not just solar energy for the sake of doing solar. Morocco is one of the best countries in the world to do solar, but also because of the liberalization of the electricity grid and our opportunity to be one of the first movers to participate in that. So why Morocco, why do we think transition energy is good in Morocco? Well, there's been a lot of gas imported into Morocco. There's a lot of -- not much natural hydrocarbons in Morocco. We have, as I say, the biggest position. The government has decided to stop subsidizing and reduce the subsidies on the imported LPG, liquefied petroleum gas. That's the gas that the locals cook with and is used sometimes in industry. And the idea that we are partnering up and doing this business in Phase 1 with the liquefied natural gas is a substitution. So I mean, it's good for the carbon footprint as well. Local gas is always better than imported. Tell that to Edward Miliband, but he wants to import it from the rest of the world instead of using our own gas. But we will be producing liquefied natural gas for the domestic market, industrial market in Morocco. It's a growing energy need. Morocco is getting about 4% to 5% growth. I mean we would love to have that growth in the U.K. And inflation in Morocco is around about 1%. It needs energy, and therefore, everybody is hell for leather to get energy -- Moroccan energy into the Moroccan system. We also believe that moving into the transition energy and taking opportunities of our strength in Morocco, our relationships and our shareholder base in Morocco to move into the renewable energy basis. But financially, Morocco is attractive to companies like Sound to develop its gas, and there is a 10-year corporation tax holiday. So it's important for us to produce this gas and get as much out as possible in a 10-year period to optimize our tax position. So moving on to -- for those of you who are not sure where Tendrara is, we're up on the Algerian border. Quite a remote location, but we are south of the main trunk line that comes in from Algeria goes across Morocco and up into Spain. That's called the GME pipeline. Tendrara concession is a small concession in the center of a large exploration acreage position that we have. And so we're out in the east of the country, and we will be developing the second phase with the pipeline that ties into the GME. 377 Bcf of raw gas volumes, uncontracted raw gas volumes is more than that, but we have taken with our 2 signed gas sales agreements to sell around about what we will call the 1C, 1P reserve level. So there's plenty of upside to sell of our 2C resource, 377 Bcf. And a little picture at the bottom here of where we are. I've got a couple more site pictures. But where we are in this Phase 1 development, we partnered with Mana Energy. Mana Energy is a new leg to the Managem story. Managem, a mining company, I think, a $6 billion Moroccan-owned mining company that's active throughout Africa. And they've moved into the energy space as well. They've moved into the gas business by acquiring a part of our business last year. We're also partnered with Afriquia Gas, which is a big fuel distributor in Morocco, a subsidiary of the AKWA Group, which is an even bigger conglomerate. Afriquia Gas in their own right, a couple of billion dollar company. So we've got 2 very strong local partners, and we now are a 20% non-operated shareholder in that business. The other shareholder is 25% owned by the state, which is the state participant ONHYM. So Phase 1 development for those that you have been following us, it's taken some time. The wells are ready. We're up to -- we've tested them. They are completed. They're ready to go. The micro LNG plant is coming to site in pieces. It's been factory tested and it's being brought into the country and commissioning is starting any minute now. We expect to have production by the end of this year. Transportation, Afriquia Gas already. They bought their trucks. They've got their regasification -- storage facilities, and they've got their regasification facilities. We took some financing out to help it when this was owned 75% or operated by Sound and owned at various times between 47.5% and 75% owned by Sound. We have our -- sorry, our Afriquia Gas sales contract in place. We will be at the top end of that gas price, $8 around about that for gas sold at the site. And then bear in mind, Afriquia picks the gas up there, trucks it 600, 700, 800 kilometers to their sales points. The store it and they regasify it and then they sell it to their customers. A 10-year take-or-pay contract and around about 10 million cubic foot a day of sales gas, 100 million cubic meters a year. There's a few pictures. We are -- every day, there's new equipment coming to site. Every day, there's a bit of process. But the main developments now is the LNG tank is pretty ready. The -- up in the top right-hand side, you can see the flow lines that are being laid. You see here, this is a couple of months ago when we tested the well. So the well shut in now, but it's ready to go, amine units and the LNG equipment. So it's all coming together on site, and it's quite exciting. There was an interesting pre-submitted question, which I'm looking forward to answering about getting to first gas. Second phase of the development is more about the pipeline. And I think the interesting and the good news is that Mana Energy have already commissioned and started the FEED update. And in fact, information is coming to our knowledge quite regularly on that. So we expect that the FEED study will be completed by the end of the year. That triggers then -- and the main thing outstanding is now with the FEED studies, where are we in the cost estimate? Are we talking GBP 300 million? Are we talking GBP 325 million? Are we talking GBP 350 million for developing this? Bear in mind, we are carried to 24.5% of our share of the equity. The debt financing is in place with Attijariwafa Bank. And so the FEED study triggers closing of the debt financing, triggers selection of the EPC contractor and triggers the finalization of the ONEE gas sales agreement. Again, a 10-year take-or-pay contract at 300 million cubic meters a year. When this is fully on production, we're looking a couple of years after FID, it's about $90 million a year revenue. So in total, Phase 1 and Phase 2, $120 million a year. Our share of that will be 20%. So I'm going to pass over to John now to talk a little bit about where we are with the exploration because that's key to everybody's hope that the share price will rocket.

Great. Thanks, Graham. Just a bit of an introduction to some of our new shareholders and those thinking of perhaps investing in Sound. Sound Energy, we're providing some exposure to some very large areas of exploration acreage, looking for gas beneath the salt that's our niche play in Morocco. But around the TE-5 Horst development itself, and Graham has talked a lot about that development is coming on stream in those 2 phases. That's the map up in the top right hand there. That's -- we have some 23,000 square kilometers of exploration acreage surrounding that development. And through that, we've got exposure to significant exploration potential for further gas discoveries on that acreage as well. So the Phase 2, which brings in the pipeline in there that's shown on that map, really is the launch pad for opening up additional potential that this basin truly has. So it really is that infrastructure that facilitates much more rapid commercialization of further discoveries should we make those in the future. Now we've received a lot of questions about timing of the exploration drilling. As a shareholder myself and a geologist, I'm obviously extremely keen to see further drilling in this basin because I truly believe this basin will deliver. And we know that drilling is certainly a catalyst for share price movement. And what I will say is there are -- there's a bit more work to be done on the exploration permits. We need to perfect those permits before drilling operations can commence operationally on the ground. And Mana Energy, they're now the operator of those exploration permits, and they're leading those discussions with the Moroccan authorities with Sound with us in support where we're able to do so. So once those discussions are complete, under the terms of the SPA we have with them, we'll be drilling 2 exploration wells and sound, importantly, sound, we are carried for our cost contribution for those 2 wells, and that's a net carry of $6.2 million. So we'll be carried for those 2 wells moving forward. Now in parallel with those discussions to perfect those exploration licenses, I'm pleased to say Mana Energy, there's -- as one would expect, they're in the market for a rig, the most appropriate rig that's technically capable, the best commercial terms. There is a rig available stacked on TE-10, but obviously, they're going off into the wider market to secure those best technical terms that they can. So clearly, we, Mana Energy, very keen to unlock the potential of this basin. And if we're successful, we're talking about adding a Phase 3, Phase 4, really ramping up significantly those revenues that Graham is already talking about. And Sound Energy provides exposure to that potential revenue gain that we could see.

Yes. And I mean, let's face it. If John is successful in any of these, the -- there are 2 areas in Grand Tendrara that we've already established gas. It's really about getting the gas out of the ground. The wildcat is the M5, and that is a massive game changer if that one comes in. So -- but bear in mind, John might say Phase 3 is the exploration potential. And we can sell uncontracted gas. So there's even more in the concession, right? Okay. John has done a good job with Getech setting up a company called HyMaroc.

Yes. So talk a little bit about natural hydrogen and helium. It's nascent. It's very early days in this space. But as a number of investors will be aware, there's a lot of activity and excitement around the possibility of natural hydrogen accumulations in the ground or indeed engineered hydrogen. That's a different story. Hydrogen is -- obviously could form a very critical part of the energy transition. It's a clean burning fuel. And there's a significant need and that need for hydrogen is set to grow in the future. So there are a number of companies looking for hydrogen across the globe at the moment. We have teamed up a company called Getech Group, listed again on AIM. And the reason why we've done that is Getech, they have their own proprietary gravity and magnetics database. They also have an advanced geoscience platform as well. They have machine learning algorithms, but they have a workflow, they have the personnel and they have expertise in this area. And then what Sound brings to that arrangement is that we've got our specific expertise in Morocco. We've been operating and developing exploration wells. We drilled 5 wells. We've undertaken a number of well tests. We've acquired seismic data, we acquired airborne data, so we can deliver those operations. And obviously, we'll be working our extensive network of contacts in country as well, which we developed over that decade. So those 2 companies bring those complementary skills together, and we've formed HyMaroc. You can visit the website there that we have at the moment. And already, as we've announced previously, we've completed -- I say quite a high level, but a regional screening study of the whole of the territory of Morocco. And we're very pleased that it has identified a number of favorable areas where there could be source rocks for natural hydrogen or helium as well. So we'd like to focus on those areas. But before we take some next steps with some further work, what I want to do is secure some exploration permits across there. And we're already starting to engage Moroccan authorities as well to access and get some exposure to those permits there as well. So that would be the next steps there. So an exciting joint venture, early days, but just watch this space of these things develop.

Thanks, John. I'm going to ask John, if that's okay, although he's not fully involved in this, just to talk about where we are with our potential access to the medium voltage grid in Morocco and our partnership with Gaia.

Yes. So what we're doing there, that is another area where we're diversifying into the energy space in Morocco, again, leveraging our Links and our network in Morocco that stepping into the solar space. We're taking advantage of a liberalization of the medium voltage grid in Morocco. In Morocco, medium voltage is what, 22 kilovolts in there. And we're an early mover into this space. So as far as we're aware, there are only 2 other companies active in this area. So what we're looking to do is -- and we're looking to secure capacity of around about 250 to 300 megawatts in total. And to do that, we're looking at now 20 different sites of 20 megawatts each of installed capacity, 20 megawatts each, okay? So we don't expect to secure all of those 20 sites at 20 megawatts each, but we expect to secure enough to get somewhere between 250 and 300 megawatts in total. So what does the 20-megawatt solar site look like? Well, each of those could be up to 100 hectares. So you're looking at 125 football pitches in size, just to give an idea of what that would be. And each of those sites were identified as already proximal to a substation. So you can access -- get direct and close access to that medium voltage grid, and that would feed power into urban and industrial centers. So we've already identified those, and we're already working to secure the lease and the permits of that land. So clearly, energy is going to grow very quickly in the near term. People are aware that in 2030, Morocco will host the FIFA World Cup. They're building the world's largest football stadium. I mentioned football pitches there. So that's 115,000 seat capacity in there. They're upgrading 7 airports. They are upgrading the transport system. That all needs immediate energy growth in there and not all of that should come through fossil fuels, which should be looking at renewables as well, and we want to move into that space. We signed an agreement with Gaia Energy to move that forward.

Yes. Thanks, John. And Gaia is a Moroccan-focused developer of renewable energy. I'm going to pass over to our new CFO as of the 1st of September. Thank you for joining us, Andy. Andy has been with us for 4 months now or 3 and a bit months as an interim CFO. And I think he's been doing quite a bit of work, and he likes the company. So I'm really pleased you joined us. Thank you.

Thanks very much, Graham. As Graham said, I joined recently, and I've got really 3 areas that I'm really quite focused on. The first one is obviously the company going from being a pre-revenue a company to having operational cash flow. And that's why one of my key focuses is on ensuring that we get to production now with Phase 1. And part of that story is the contract that we changed with the Micro-LNG plant going from vendor financing to an EPC-type contract, which improved the economics and reduce the cost. So that helps us get to first gas. The second area of my focus is on the company's balance sheet. And everybody is aware that the company has a level of debt. And I'm focused on looking at ways that we may be able to restructure that, maybe reduce that to get the debt-to-equity ratio change within the enterprise value of the company. And the third area is new ventures. Because the company always has to look ahead, look at new areas outside Morocco, maybe in oil and gas and other projects, and they could be corporate opportunities, there could be asset opportunities. And the sort of areas that we're focused on is in North Africa, around the Mediterranean. And if we come across good opportunities, then we need to think about funding solutions that we can take on board to take those forward.

Thank you, Andy. And I think for those of you who don't know Andy, he -- he did a little interview introducing himself last week, and it's up on our corporate website. And then he also did a little podcast with VSA Capital. We're discussing more -- over a more of an extended period about businesses. And so please get a chance to learn a little bit more about Andy and a little bit more of his thoughts on how he's going to take this company forward. So one of the things that we work quite closely on and most of us are engineers by background. Fortunately, we have a geologist to keep us on the straight and narrow. But what we like to do is measure things, what gets measured gets done. So we've put out key performance indicators together with the Board at the beginning of the year, and we have essentially 5 areas that we have to deliver on, all of this under the guise of making sure we're doing things safely and in the right way. So clearly, number one is getting first gas. And the conversations we've had recently and the updates we've had recently, we know things are all coming together at the site. And this is always the way in a typical project. It's normally a slow start, and there's a very fast ramp-up and then the last 10% takes like 20% of the time. While we're doing everything we can to make that a very steep curve and then we get first gas Q4 this year. I'm pleased with the FEED update that's underway. We know the Canadian outfit GLE quite well. They're very professional, very slick, competent people, and they're doing a very good job. I mean these are people that we knew as Sound Energy as well, had already been doing some work on Tendrara. So we're very pleased that that's coming together. And I'm hopeful that the FEED will finish by the end of the year. And then that will unlock where we are with the ONEE gas sales contract, the Attijariwafa Bank there. And then we'll select the right EPC contractor with our, obviously, operators lead on that with Mana Energy. John's talked about exploration. I think it's exciting that Mana Energy are out there looking for a rig. We are working Sound as well as Mana Energy to perfect those licenses. There seems to be a little bit of a bottleneck in the ministry at the moment. Things are taking longer than normal, but we're working hard to unlock that. And as soon as those licenses are ready, we'll be pushing Mana Energy to select the rig and get going. Andy has just described the balance sheet strengthening. You know I mean, when I first joined Sound, the balance sheet looked even worse than it does today with no revenue on site, et cetera. And we've been able to restructure that bond a couple of times and kick it down the road. So we'll see where we get to on that with the bondholders, but they are supportive of us. They like what we're doing. They like the fact that we're actually within spitting distance of first revenue. And they've been supportive over the last 3, 4 years. I think if they wanted to do something nasty to us, they would have done it 5 years ago. And finally, John has been working very hard on establishing the JV, which is set up at HyMaroc and the website is up and e-mail addresses and everything is going. Gaia Energy, we need a little bit longer to formalize because it's got a little bit more extra -- outside of the U.K. registrations to be completed. But that's all moving in the right direction. And we're going to be looking at other opportunities. We have a team that we're looking at other opportunities. But let's face it, we want to strengthen our position in Morocco. We want to be strong with revenue base, and we want to play to the strength of our 2 main shareholders and our partner, Mana Energy. So Alessandro, that was a quick run-through of the presentation. Maybe we can head over to questions.

Yes, of course. Well, thank you very much for the presentation. [Operator Instructions] As you can see, we have received a number of questions, both pre-submitted and throughout today's live presentation. And Graham, what I'll do is I'll hand back to you now to run through the Q&A, and I'll pick up from you at the end.

All right. Thanks. Well, what we'll do so you have a bit of variety is the questions are more aimed at me, I'll take first, and then we'll pass to John and Andy to carry on with some other questions. And please, if you've got any other clarification questions, we have already covered quite a lot anyway in the presentation, but any clarifications, just pop it on the live questions, and we'll try and cover that. Here we go. I've been a shareholder for over a decade. Please can give me an estimate, even a very rough estimate when we might expect the share price to rise above 25p? Well, look, at 25p per share, that means a market cap of GBP 500 million. I think if we get there, everybody is going to be very, very happy. Our core net asset value as reported by our analyst Dan Slater at Zeus. And by the way, you can see in interview that he held just recently up on our website as well. But that shows 2.2p per share. So still 4x where we are today, all right? And the risk net asset value. So the core 2.2, the risk NAV is 3.9, so 6 or 7x where we are today. This all builds in Dan's models, his understanding of where we are with our cash flows, where we are with our capital expenditures, where we are with our debt repayments. And Andy explained that to you before. There's no immediate panic about paying debt down, okay? All of that is based on where we are with the concession. It doesn't take into consideration anything that John is going to develop for us with the exploration drilling. And that's a free ride for us at Sound. So we're quite clearly keen. SBK-1, we know a structure has gas in it. The issue is, can we find the right location and get the well to produce. M5, I've said, is pure exploration. What I would say to the person who said when will we see [ $0.25? ] Actually, since the company existed, it's been over 25p per share 3 times at 3 specific times over its history, not just 3 days, but periods of time when it was over [ $0.25. ] So roll on the [indiscernible], that's all I can say. Okay. Similar sort of question, when will I see a return on my 12-year-old investment? Well, thanks for that. Definitely sounds in a much better position than we were a year ago. A year ago, we hadn't closed the deal with Managem. It was announced, but we hadn't closed. We've now got funded development. We've got cash in the bank. We've got several catalysts for news flow, whether it's perfecting the licenses, announcing that there's a rig contracted, spudding an exploration well, getting first gas, taking FID, locking in a new contract with ONEE with a good gas price. I mean -- so all of that is good news flow over the near term. So I'm hoping, depending on what you've averaged out at and maybe you've stuck and bought your shares 12 years ago and never bought a single penny. But I mean, just look back 3 months, people that bought in at 0.6, we were over 1p for a few days, but we're over 1p. So there's very thin liquidity in the market at the moment. So I think with all this news flow coming, I'm hoping that -- we all know a little news flow goes a long way in the share price. Here's a question, and I think there's a couple in the similar theme. It's like, can we have reassurance that Mana Energy isn't deliberately delaying commissioning and revenues from the LNG project with the aim of eradicating Sound from the project. Well, I was with the CEO of Mana Energy about 2 weeks ago, discussing with him, it's full focus. His team is full focused on delivering this. They put new people in. They got specialist commissioning engineers in for the project. And please don't lose fact that our former COO, Mohammed Seghiri, is still running the show down there. So Mana Energy want first gas, they want FID on Phase 2, and they are no, they are definitely not stalling first gas. They paid money to get into this project. And if they wanted Sound out, they could have bought us out completely. They didn't, and we're in the project for that. Here's a question now, what's the expected revenues from Sound for the solar project? Where is the funding coming from? Does Sound have a 50-50 share in this with its African partner, that's Gaia Energy. Is the Moroccan government having a share? Well, the simple answer to that is no, the Moroccan government isn't part of this. This is the liberalization of the medium voltage grid. And so we are 50-50 with Gaia Energy. There is actually a company formed in Morocco right now, and there will be a 50-50 joint venture company owned by Sound and Gaia Energy outside of Morocco. That is being set up. Sound Energy, for those who follow us at company's house will know we've set up our Solar Ventures company. So we've got our U.K. parent set up. We're just waiting for the intermediary company to be set up on that. To give you an idea of revenues, a 20-megawatt site gross is around GBP 2.5 million to GBP 3 million a year of revenue. So if we can get to GBP 250 million, we're looking at $225 million of gross revenue and our share of that will be 50%. So then obviously, we have to take our debt financing and everything else off on that. The difference between oil and gas and solar, particularly in Morocco, the Moroccan banks and institutions love renewable energy in Morocco, and we'll finance it. And secondly, it's not risky. If you're drilling an exploration well, you're drilling a development well, there's always a bit of subsurface risk. We know the sun shines in Morocco. That's not the issue. We know once we have grid capacity because, as John mentioned, the substations are there. As soon as we've got the capacity, there is very, very little risk, technical risk in these projects. So that can possibly attract 80% or even up to 90% debt funding. So the idea of us having to put a lot of equity into this is it's small. So yes, we think it's a good opportunity for us. And it's also a relatively short time frame from decision to develop getting the power capacity and getting the approvals and then construction and commissioning and production can be within 6 months. So that's quite good. Here's another question more along the valuation or the undervaluation of Sound. There's an increasing nationalistic movement throughout many nations, and it's expected to Morocco is keen to keep control of its resources. Sound has invested GBP 150 million in Morocco, but it's now valued at only about GBP 13 million. It would make sense for Mana Energy to take over Sound's 20% and it's 27.5% in the Eastern Morocco what's assurance that nothing like this happens? Well, we're a public company. And yes, we recognize we are way undervalued. Some costs are some costs, they're not the value of the project going forward. So the enterprise value, that's the combination of market cap and debt is around about $70 million. So that's the difference between the enterprise value and the accountants way of looking at it in book value. Andy can correct me on this if I'm going wrong. I think if management want to make an offer for Sound plc, they would -- our Board would have to consider it, but it's got to be a pretty good offer. And secondly, we would have to come to shareholders to ask their approvals. So now I see we're on the cusp of good news in Morocco, but really material good news, production, exploration spuds and 2 new development projects with Gaia Energy and HyMaroc. So any low-ball offer coming in to buy Sound, it's not only -- I think I would find it difficult to accept, especially where we are today. But I think our 2 main shareholders, that's the Oil and Gas Investment Fund and Afriquia Gas, who've been with us for a long time, don't forget, I think they will find it difficult for us to sell to any lowball offer. Similar type of question. The share price is so low, Mana Energy could purchase sound out of its stock exchange. Well, that's true if they wanted to. If we were approached for a takeover, what would we do? What's the minimum sale price? Look, we're in this business to create value for our shareholders. And we are doing that through running our job. We're doing that by trying to grow our business using as little capital as possible, but the biggest bang for our buck. Mana Energy is a Casablanca-listed company, and we're an AIM-listed company. So any approach to us will have all sorts of corporate governance issues and the merger and takeover panel, et cetera. My guess is and my conversations with Mana Energy, they are very focused on getting the gas production at Tendrara, and they're very focused on getting that pipeline built and getting the gas into the power stations. Messing around with a company like Sound at the moment is a distraction from their focus from all their corporate transactions that they're doing. So I recognize that the AIM market hasn't built in a takeover premium to our company. But as a British company in Morocco on the cusp of all these good things, I recognize we're completely undervalued. And I'm sure the market hasn't factored in any takeover premium in our share price. Is there any evidence that Mana Energy is progressing to Phase 2? Yes. Well, I discussed in the presentation that GLE, a Canadian engineering house, design engineering house is updating the FEED study. We are aware that Mana Energy is constantly being updated with new information on that. The target is to have that study finished by the end of the year. All of the experiences we've had working with GLE is they always meet their deadlines. They're a very good engineering house, fit for purpose for this project. And they've been familiar with the project for over 2 years. So this is not new to them. So yes, we're very pleased on that. And that will trigger, as I say, the ONEE contract, the Attijariwafa Bank debt and the selection of the EPC contractor. And then management are very keen to take FID. So with all those things in place, that would be good. Is there any obligation from Mana Energy to keep Sound as a minority holder informed of what the progress or lack of there is? Well, yes, there is under our agreements. We have a formal meeting sessions with what we call the management committee meeting, where our Technical Director and Andy are on the Board of that management committee. And so we have a structure for that. We have regular project reports. We have formal reports and then informal reports. But it's true to say we don't get the daily update that we used to get when we were the operator. Now what they call OBO, operated by others is quite common in the oil and gas world. and it's about relationships. It's about getting informal information and sharing information in a timely manner. And I think you've got to remember, Mohammed Seghiri is sitting there where he was sitting inside sales 6 months ago -- 9 months ago. So our Technical Director has regular calls with Mohammed. He was on the call with him yesterday, and we get e-mails every other day. So we do -- we are informed. We're not on an hourly basis step by step as we would have done as operator, but we are informed and we have structures that we can keep in place. Here's a little bit more technical question about the LNG progress, commissioning and revenues. How long before Afriquia Gas agreed minimum take-or-pay is achieved and all its various customers, will they all come online at once or are they phased in? Well, as I said to you earlier on, the LNG construction continues. Commissioning is going through. And once commissioned full production for Phase 1, the 2 wells deliver full gas now. We could have those gas -- they can deliver 15 million cubic foot a day and our gross production expected is below that. So the wells are ready, we have capacity to flow at full blast, right? The issue is taking the gas through the LNG liquefaction plant and then calling down the big tank, which has storage capacity for about 2 weeks. So you call the tank down. So you can't on the very first day, put all the capacity in and then take it all out in the trucks. So there will be a period where we load up the LNG tank and then Afriquia will take -- and their plan, and I've spoken to the representative of Afriquia, they're ready. Their head of projects. Everything is ready. They've got the trucks. They've got everything in place. They will probably bring on 1 or 2 buyers of the gas every week. So probably 1 a week. So it will take a period of time to get up to the full offtake. But from our point of view, the way the gas sales contract is, as soon as we put gas in through that plant, they pay for it, okay? So it might get stored in the LNG tank, but the system is that we get revenue from that. Then they offtake and there's a certain minimum and maximum capacity they can take it off. Essentially, it's 1 truck to 1.5 trucks an hour to come in and pick up the LNG. So -- but the key for us is as soon as we're on maximum production capacity and the LNG is being manufactured, it goes in that tank, we get paid even if Afriquia Gas don't take it. Here's the interesting question. Is Graham committed to see Tendrara project through to commissioning? I've been here 6 years. Of course, I am. I want to be there the day we load the first tanker and we sell it, maybe even the day we first commissioned. But realistically, that's going to be an operational thing. So I'm sure we'll get invited out to do a ribbon cutting or whatever it is. So very keen to stay. And plus, I think we've got a very solid base. I want to see exploration wells drilled. I want to get the solar projects going. I would love HyMaroc to get some licenses. Admittedly, I might not be around when they drill their first well. But of course -- so I plan to be here for another week or 2, but it's in your hands. If you want me to stay, it's in the hands of the shareholders. Now that was a been long thing for me. I'm going to pass to Andy for a couple of questions. And there's a couple coming on the live questions, which John will be answering. And so we'll go to Andy on the financing type questions first, and then we'll finish up with John. Andy, we made a loss on foreign exchange of nearly GBP 4 million in 6 months. Why is that?

That's quite easy to answer. Graham, our debt is denominated in the U.S. dollar. That's our loan notes with Afriquia. And our eurobonds are denominated in the euro. And so any fluctuations in the exchange rates come as an FX loss. There's been quite a fluctuation in the U.S. dollar and sterling exchange rate, and that's what's made up most of that FX loss. The important thing is that this is a P&L effect. It's not having any...

It's not real money, isn't it...

No, it's not having a cash flow impact. So that's the most important aspect of it.

I know you talked a little bit about this in your discussion, but one of the questions was, we need $25 million facility to fund the contract change from vendor financing to traditional EPC. Can you explain, please?

Yes. So the micro LNG contract that we originally have with [ Italgas ] was a vendor financing type contract, and we converted that with the operator to a more traditional engineering, procurement and construction, EPC type contracts that needed to be funded. And the way the joint venture funded that was to put in a $25 million debt facility with the local Moroccan bank. Our share of that facility is $5 million. Why did we move to that? Those sort of traditional type of EPC contracts, I think, focus the contractor better. They certainly get a better OpEx level out of it. So that overall, it enhances the project rate of return. It enhances the project economics and ultimately leads to a better valuation for the project.

And this was the challenge we as Sound Energy had where how would we have raised the $25 million to do that on top of the other capital that we needed to put in. We had the $18 million from Afriquia. So this shows you the strength of having somebody like Mana Energy behind you because we're using the strength of Managem and the bank is very comfortable lending to Managem. Andy, the next question is a little bit more about revenues and when are you going to run out of money. Sound investors have endured delay after delay. Money continues to drain away from the company. Still no revenues. When will the company coffers be empty? Does Sound really have the financial capacity to survive?

Yes. Well, look, it's been a long time coming to get to this point where we're on the cusp of first revenues. And as you saw in the interims, we reported a cash balance of GBP 2.8 million as of the 30th of June. We also have -- and this is important, we have a carry via debt financing and the energy carry for Phase 2 post FID. And we've got some cash coming in once we start getting into operations from Phase 1. So we haven't got that long to last to go now until we get to first gas. And we can make that cash last us until we get to that point by just covering our financials like our listing costs, compliance costs, et cetera. So we do make a little go a long way. And the important thing is that we're not that far away from having our own revenues now.

Yes, that's right. Will -- Sound's 20% of Phase 1 revenue, which may take months to reach full flow, I don't think so, but anyway, be sufficient for it to survive. So similar sort of question.

I mean, similar question. We're going from being a pre-revenue company into a company with operational cash flow. And coupled with all the other aspects that we've got and importantly, as I just mentioned in the previous question, the carried element that we've got from Mana Energy post FID on Phase 2 and the debt financing that's already put in there, I think that we're in a very good position to cover ourselves until we get into meaningful cash flow.

Thanks, Andy. A little bit more question about the bond, the Eurobond. Has any progress been made regarding payment and/or renegotiation of the GBP 24 million is 23.5 million euro bond?

Yes. Well, the bonds are not -- the euro bonds are not due until December 2027. We have a very good relationship with the representatives of the bondholders, and we're in constant discussions with them. And they're very keen, obviously, to see us get to first gas and first revenues. So they see the light at the end of the tunnel. We've restructured these bonds a couple of times. I think there's every possibility of restructuring them again, potentially to push the maturity date out so that it jives with the Phase 2 revenues in 2028. And all these sort of conversations and discussions are being had at the moment with the bondholders.

Yes. I have to say, since Andy has come on board, he's picked up that relationship really well. So they've got a lot of confidence in Andy joining as our CFO. Can we pass over to John now for some answers. Could the Board please clarify expected commencement projected time line for drilling campaign, including any dependencies, milestones that may influence its execution?

Okay. So I think I answered part of that question in -- during the presentation itself. But to be clear, there's some a bit of work to be done on the protection of those exploration licenses. That is -- those discussions underway. Managem Energy is leading those discussions on the back of that, and we're obviously assisting where we're able to in that. So once those are complete, we'll then move towards drilling. Having said that, I have said in parallel those discussions, Managem are out in the market looking for a rig. And in terms of what a program may look like, yes, there's 2 exploration wells, which we're all keen to see, but there's additional drilling within the development itself. So for example, for the Micro-LNG project, it's a 10-year contract, take-or-pay contract that we have. We need to feed that plant with 15, 1-5, 15 million [ scfs ] a day from those 2 wells we've got tied in. They will be able to supply that 15 million [ scfs ] a day for a period, but after which the production decline in those and they will need to drill another well to fulfill that commitment. So there's one development well there. So that's a third well in the program. And then with Phase 2, there's another 5 wells that need to be drilled for first gas on there as well. So suddenly, there's an 8-well program. So when you're going out for a rig, we have a rig contractor, there's an attractive drilling program there to put that in place, and that's putting that in schedule. And they're doing it sequentially and schedule, there are a lot of cost gains as well as from there as well from the synergies of the wells. And that's what we're putting together. So look, Managem are on it. We're moving forward. And as soon as we've got some higher schedule, we will put it out there. We'll be messaging that, but we look to the operator to provide that, and I'm sure they will in due course.

Thank you. We have the same question from a couple of people. So I think John has explained that. And there are a couple of new questions in. I mean it's the same sort of one. Is there an update of drilling the Anoual well? And it's the same answer, isn't it?

Yes. So I think I said there it was originally scheduled for the first semester. So we have guided how long it would take to drill a well from a standing start, 9 to 12 months in terms of long lead items, securing the rig, et cetera. But as I say, once those licenses are perfected, Managem is working in parallel to bring in long lead items. But obviously, the rig is one of those as well. Do we reactivate the current rig that's on there? Would it be better to -- commercially better to bring in another one from outside. Those options are all out on the table and the operator is working through those, and we're assisting those where we're asked to do so. So that's well covered.

Yes. Thanks, John. Here's a very good question. And I'm not sure if it was asked to the Getech people this afternoon in their presentation, but it is very sensitive, the answer. Has HyMaroc already identified a potential exploration zone?

Yes. So as I said before in the presentation, HyMaroc has -- we've already screened the whole country. We're using that, using the information that Getech holds, leveraging their technical expertise as well. And from that work, we have identified an area which we believe has the potential for hydrogen source rocks. We think it's got the potential perhaps to accumulate hydrogen and helium in the subsurface in that area, but it needs sort of further work. So we'll be looking to secure an exploration permit over that area to allow us to make that investment, but we secure the rights with that. And we're working with the government authorities on that. But also we're reaching in to some of the Moroccan academic community as well. We want to leverage some of their laboratories, local personnel on the ground as well to provide surveys, sampling, et cetera. So that piece as well. But as Graham said, it's sensitive for commercial reasons, we can't reveal where that area is. But as soon as we secure that permit, which we're hopeful we'll be doing that in the near term, we'll be announcing that in due course.

Thanks, John. Alessandro, I think with the 20-odd questions, we're sort of getting towards the end of the hour anyway. Can I pass back to you.

Yes, of course. Well, thank you very much for answering those questions from investors. Of course, the company can review all the questions submitted today, and we will publish the response out on the Investor Meet Company platform. But just before redirecting investors to provide you with their feedback, which is particularly important to the company, Graham, could I just ask you for a few closing comments?

Well, I think guys and gals and anybody else is something else. We're on the cusp now. Sound has been an interesting journey over the last 6 years for me. And I want to see revenue. I want to see exploration wells drilled. I want to see the FIDs taken for Phase 2. So there's a lot of and what we're doing with HyMaroc and what we're looking at with the joint venture with Solar. There's a lot on our plate and a lot of news flow coming in the very near term. So I can't remember, we actually said we're on the cusp. I think we really are on the cusp and then factor in over the top of that, that our share price is at an all-time low. I'm hoping there's only one way to go. So thank you for sticking with us for the new people who are interested, keep an eye out on us, keep watch what we do. And I'm hoping that in the next few months, you're going to get some really good news flow.

That's great. Well, thank you once again for updating investors today. Can I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. On behalf of the management team of Sound Energy plc, we'd like to thank you for attending today's presentation, and good evening to you all.