Sound Energy, the Moroccan focused upstream gas company, provides an update on its negotiations of a Gas Sales Agreement for the Company's gas resources in the Tendrara production concession in Eastern Morocco.
The Company announces that it continues to negotiate the terms of a GSA and confirms that, as part of those ongoing negotiations, it has received a letter setting out a non-binding offer ("the Offer") from the Ministry of Energy and Mines for the Kingdom of Morocco.
The Offer envisages that all gas produced by the existing Tendrara production concession will be sold under a GSA to Morocco's Office National de l'Electricité et de l'Eau Potable ("ONEE"), the state power company in Morocco.
Under the Offer, the sales price of the gas from 2022 is proposed to be structured with both a variable element* linked to the Brent oil price and a fixed element paid to the Company to fully cover the transportation cost of the gas in the planned Tendrara Gas Export Pipeline. These fixed transportation costs are expected to be capped at some $12.2 million per year under the terms of the Build Own Operate Transfer proposal under negotiation with a consortium led by Enagas of Spain.
The Offer would result post end 2021, based on current oil prices of around $70 to $75 per barrel Brent, in a total gas sales price (variable plus fixed) of some $8.50 to $9.00 per million British Thermal Unit ("mmBTU"), assuming a $1/mmBTU pipeline fee**.
Prior to end 2021, ONEE proposes to purchase any gas at the price at which the Moroccan state sells gas to ONEE.
Sound will now continue to negotiate the Offer with a view to closing out a binding Heads document. The GSA is an important milestone in the progression of the TE-5 field to commercial production.
* The variable element of the Offer is structured as below, onto which the fixed transportation costs capped at $12.2 million per annum will be added.
Prevailing Brent Crude
B < US$50/bbl
P = 0.04 x B + US$3.5
US$50/bbl < B < US$100/bbl
P = 0.10 x B + US$0.5
B > US$100/bbl
P = 0.04 x B + US$6.5
** based on an illustrative downside case production rate of 29 mmscf/d.