Sound has updated the market on the ongoing marketing process in respect of its Eastern Morocco portfolio. The plan has been to explore the monetisation options for the company’s interests in the area with a view to selling all or part of this portfolio prior to FID.
It seems that the company has seen a great deal of interest from potential buyers with 23 companies in non-disclosure agreements followed by the board hosting 15 management presentations which resulted in them receiving a number of non-binding offers. The number of companies showing interest is testimony to the acreage offer available and included I would imagine a range of majors and and independent companies both private and quoted, accordingly the company received a range of valuations and risk/reward profiles. With the need, according to the company, for further exploration to unlock fully the basin potential the choice of partner has been key in unlocking enhanced value to shareholders.
So, the heads of terms agreement has been signed with a ‘privately-owned, UK registered company specialising in energy asset development and investment’, as yet unnamed…This company will buy a substantial proportion of Sound’s interest in their Eastern Morocco portfolio whilst Sound shareholders will continue to benefit from significant potential upside in those assets.
The nuts and bolts of the deal are interesting, subject to completion Sound will sell 51% of its share ie 24.2% of its 47.5% stake for a total consideration of $112.8m of which cash is $54.3m (payable in tranches) and a carry worth $58.5m for Sound’s future capital expenditure requirements to first gas. This will leave Sound with a 23.3% interest in the Eastern Morocco portfolio held synthetically through this new JV, in addition Sound has provided the buyer with an option to buy a further 9% of the asset on the same terms which would take them down to 14.3%.
Looking at the transaction metrics this is a read across 19p deal on an enterprise value basis… split roughly 4p upfront cash, 4p of carry with the P50 value of the remaining 23.3%, according to the brokers, valued at circa NPV 10 of 11.3p which gives a total read through of around 19.3p from which you would have to deduct the around 2p of debt to get to a read through equity price of above 17p. Furthermore this figure is before any exploration upside which is substantial given the huge basin potential and the near term drill ready prospects, which presumably are one of the main upside attractions for the prospective buyers. This looks like an interesting result for Sound shareholders, who whilst disappointed with some of the recent drilling results now get early monetisation of the Eastern Morocco portfolio, a line to funded first gas as well as possible substantial exploration upside. This is validated by the substantial interest in the assets for sale and the huge size and range of those expressing an interest.