Sound Energy, the Moroccan focused upstream oil and gas company, announces its audited final results for the year ended 31 December 2017.

HIGHLIGHTS

Morocco

• Successful TE-7 extended well test
• Acquisition of Oil & Gas Investment Fund's interests in Eastern Morocco
• US$27.2 million Schlumberger carried seismic programme
• Paleozoic play opening TE-8 well
• Continued preparation for next exploration drilling, including ongoing 2D seismic acquisition and aerial gradiometry

Corporate

• Cash balance at 31 December 2017 of £21.2 million
• Strong safety record
• Disposal of Italian interests in progress
• Appointment of new Chief Financial Officer

Overview of the Operational Performance for the Year

Wells Programme
Two challenging wells were safely delivered in the year, Moirago-1 at Badile in Italy and the TE-8 step out well at Tendrara in Morocco. The Italian well was ultimately unsuccessful with insufficient hydrocarbon shows. The TE-8 step out well completed drilling in May 2017 and despite lower quality TAGI sands than in the previous wells, is the first well to establish significant gas shows with a Westphalian aged sequence.

Sidi Moktar
During 2017, the Company completed the licence obligations with a positive re-entry and work over of the Koba-1 well. Sound Energy has, subject to final approvals, recently received the exploration permit for the next phase on the licence and is looking forward to progressing the work programme in this area in late 2018 onwards.

Seismic
2017 saw Sound Energy commence its geophysical programme in Eastern Morocco. The coverage of all the 22,800km2 of the licences with flown Gravity Gradiometry, Magnetics and LiDAR data was completed during Q4 and augmented with detailed satellite imagery.  The proposed 2,900km of 2D seismic was commenced in October and the phase 1 lines completed in early December. In total, 598km were acquired in 2017. In addition to this operational programme, the Company has completed reprocessing of the existing 522km2 of 3D seismic data across the TE-5 Horst discovery and an integrated programme of geological studies including commissioning new petrographic, geochemical, chemostratigraphic and biostratigraphic analyses of the new and historical well data.

TE-5 Horst Development
Good progress has been made on the development project, including the resource certification issued in January 2018. Key forward steps include the contracting, engineering and financing which are progressing as well as offtake and other related commercial agreements. The Company intends to apply for the concession in 2018 with final sanction estimated for later in the year.

The Company's HSE record has been strong with only one LTI (Lost Time Incident) during the year.

EASTERN MOROCCO

Permit Area

• Figuig Province, North-East Morocco
• 120km from Gazoduc Maghreb Europe (GME) pipeline (connecting Algeria and Morocco to the Spanish/Portuguese gas grids)
• Sub-divided into eight blocks

Geology

• Represents a continuity of the Algerian Triassic Province and Saharan Hercynian platform. Same tectono-sedimentary as the evolution in the Algeria Basins.

Partnerships

• Sound Energy farmed in to the Tendrara licence in June 2015, taking a 55% working interest in the licence, partnering L'Office National des Hydrocarbures et des Mines ("ONHYM") (25% interest) and OGIF (20% interest) and assuming Operatorship
• In December 2015, Sound Energy entered into a Field Management Agreement ("FMA") with Schlumberger. Schlumberger agreed to fund a significant portion of the capital expenditure on the first three Tendrara wells and provide technical services, equipment, personnel to Sound Energy as Operator in exchange for an upside linked to production performance
• In February 2017, Sound Energy entered into binding agreements with OGIF for the conditional acquisition by the Company of a further 20% interest in the Company's Tendrara-Lakbir permits and a 75% position in Matarka (relinquished area of the Tendrara exploration area) and in Anoual permits (ex Meridja reconnaissance licence converted in permits). These agreements were approved by Sound Energy shareholders at a general meeting in March 2017
• In April 2017, Sound Energy and Schlumberger expanded their partnership to the Matarka reconnaissance licence and Anoual permits
• In September 2017, after the completion of all the conditions precedent-related to February 2017's binding agreements, OGIF became a substantial shareholder of the Company.

Main Results

• TE-8 proved, 12km to the Northeast of TE-7, the presence of a TAGI sand sequence, commencing at a measured depth of 2,643 metres. It penetrated 114 metres of TAGI I (approximately twice the thickness of the TAGI I reservoir encountered in wells on the TE-5 Horst) with gas shows. The TAGI sands encountered by TE-8 are also interpreted to be at the same reservoir pressure as the previous wells on the TE-5 Horst (TE-5, TE-6 and TE-7)
• TE-8 was drilled some 359 metres into the Paleozoic and identified the full series of Westphalian stratigraphy including sandstones (between 2,762 metres through to 3,120 metres), which are one of the producing horizons in neighbouring Algeria. The sandstones are interpreted to lie in a separate pressure regime to the overlying TAGI play beneath the TE-5 Horst and the Lakbir High. Gas shows were encountered over this interval and subsequent petrophysical analysis suggests that these sandstones may be permeable and likely to be producible with mechanical stimulation
• Sound Energy completed the first phase of the 2D seismic and magneto-telluric acquisition in Eastern Morocco during 2017.

Future Focus

• The second phase of the 2D seismic acquisition campaign is underway and should be completed during summer 2018
• Further wells targeting the Paleozoic on the Tendrara permit are being planned in 2018. The 'A' Structure is expected to be the first target at TAGI level

SOUTHERN MOROCCO

Sidi Moktar

The Geology and Activity History

• There are four Exploration plays within the Sidi Moktar permit:
• PS1 Argovian (sandy dolomite) which has given rise to five discoveries (Jeer, Kechoula, Sidi Rhalem, Toukimt and N'Dark);
• PS2 Low Liassic (sandstone) which has given rise to two discoveries (Zelten and Kechoula);
• PS3 Triassic (TAGI equivalent) which has given rise to one discovery (Meskala); and
• PS4 Paleozoic Devonian carbonates which remain frontier exploration, gas shows present in penetrations beneath the Meskala field with one well testing gas.

Essaouira Basin history

• Historically, 84 wells have been drilled in the Essaouira Basin with discoveries in the lower Liassic and Triassic having the highest discovery ratio. Additionally, 7,000 km of seismic have been acquired since the late 1950s.

1950s and 1960s

• Exploration in the basin began in the 1950s resulting in the discovery of two small gas fields (Kechoula in 1957 and Jeer in 1958) and one oilfield (Sidi Rhalem in 1961).

1970s

• By 1970, 35 onshore wells and one offshore well had been drilled, of which 12 were classed as appraisal/development. From 1974 to 1980, a further 13 wells were drilled with the aid of multi-fold 2D seismic resulting in three further discoveries at Toukimt (1976), N'Dark (1976) and Meskala (1977).

1980s

• The development of the Meskala field gave rise to the discovery of gas-condensate in Triassic clastics at 3,500m and a DST yielded a flow rate of 12 MMscf/d. Between 1980 and 1987 a further 28 wells were drilled including nine development wells at Meskala, two of which were the deepest stratigraphic tests in the basin (4.3km), proving the possibility of Ordovician sands as a second potential Paleozoic target.

Most recent history

• In 2009, Magreb Petroleum Exploration (MPE) signed a Petroleum Agreement with ONHYM to secure a 75% interest in the Sidi Moktar North, South and West licences, the remaining 25% being held by ONHYM (the Moroccan NOC). MPE subsequently farmed out a 50% working interest operated position to Petromaroc (formerly Longreach) in exchange for a full carry to first commercial gas. During the course of 2013 and 2014, Petromaroc drilled two wells which both had gas shows but which were never completed and tested. In January 2016, Sound Energy secured and retained MPE's 25% carried interest in the licence and in March 2016 secured Petromaroc's 50%.

ITALY

Badile

Moirago-1
The exploration well Moirago-1 was located 20 km south of Milan and was spudded on the 7th March 2017, by the drilling contractor Pergemine S.p.A. The project was successfully executed with no Lost Time Incidents (LTIs) and no recordable injuries.

The objective of the well was to target the Badile prospect. The prognosed reservoir in Badile was the Lower Jurassic aged Conchodon Dolomite formation. The Conchodon dolomite reservoir was successfully reached, was proven to be permeable and displayed significant gas shows during drilling. Subsequent data, however, proved that any potential gas accumulation was sub-commercial, and as such the well was plugged and abandoned on the 26th July 2017. The well reached a final TD of 4473m MD (4406m TVD).

Saffron Deal

Sound Energy plc entered on 5 October into non-binding conditional heads of terms with Saffron Energy PLC, based on which Sound Energy plc proposes to dispose its portfolio of Italian interests and permits through the sale of Apennine Energy SpA ("APN") and its Holding Company, Sound Energy Holding Italy Limited to Saffron Energy PLC. The SPA was signed on 22 January 2018 and the deal is expected to complete in April 2018.