Sound Inks Morocco Pipe Deal with Enagas
Morocco-focused upstream gas firm Sound Energy has inked a preliminary deal with a Spanish consortium for design of a new pipe to connect Sound’s finds to the nearby existing intercontinental gas pipeline.
Sound CEO James Parsons said June 7 this preliminary deal could “unlock the first significant scale indigenous gas production in Morocco."
The company has signed a 'heads of terms' agreement with a consortium comprising Enagas, Elecnor and Fomento for front end engineering and design (Feed) and conditional construction and financing of all the infrastructure required, including a 20-inch diameter pipeline and facilities, to commercialise Sound’s Tendrara gas discoveries in eastern Morocco. Sound has discovered 0.65 trillion ft³ onshore its Tendrara licence, it said at its 2Q investors presentation.
Enagas runs Spain’s national gas grid, Elecnor runs power plants and invests in energy infrastructure, and Fomento (or FCC) is construction contractor. Feed is expected to last six months, after which Sound expects to take the final investment decision - maybe before the end of this year.
The consortium also has exclusivity to finalise the funding, construction and operation for the new pipe and a central processing facility, under a 'build-own-operate-transfer' (Boot) structure
The pipe would deliver an estimated 60mn ft3/d to the Gas Maghreb-Europe (GME) pipeline system, some 120 km away. In parallel with the Feed, the consortium will finalise plans to secure access to some $184mn of development capital required to fund the project, if it proceeds to construction.
In a recent presentation, Sound estimated that GME has spare capacity sufficient to accommodate about 200mn ft3/d of Moroccan-source gas immediately, with additional capacity opening in the short-term. GME now carries Algerian gas to Spain and Portugal.
If Feed, a final Boot contract, and project financing are concluded, the consortium will build the project and operate it for 15 years, in return for which Sound and partners will pay an annual fee – not exceeding $45mn/yr – once commercial gas production begins. After the 15 years, ownership of the pipe and facilities will transfer to Sound and its partners at no cost.
If Boot is not concluded to Sound’s satisfaction, the consortium has agreed to pay Sound a break fee of $1.5mn, and to provide the Feed ‘at cost’. Likewise if Sound does not award the Boot to the consortium, Sound and partners will buy out the Feed for $2.2mn.
Sound Energy 2Q investor presentation, updated May 16 2018 (Courtesy of the company)
Sound on June 6 said its environmental plans for its TE-9 and TE-10 wells at the Tendrara-Lakbir permit had been approved, with the company now finalising preparations to drill them. It has already drilled seven wells on Tendrara, including a number of discoveries, and sees the 'exploration potential' in that part of eastern Morocco at 31 trillion ft3.
In its 2Q presentation, Sound said it expects to spud TE-9 between July and October 2018, TE-10 in 4Q2018, and to drill a subsequent well nearby in 1Q2019.
Over in central Morocco, Sound said June 5 it received ministerial approval of the Sidi Moktar licence that was awarded to it in February 2018, and has formally begun a farmout process for its 75% stake.