Sound Energy PLC (LON:SOU) has signed a preliminary agreement to sell just over half of its stake in its Tendrara licences in East Morocco for US$113mln.
The consideration is US$54mln cash and the rest a carry for future capital expenditure, which is possibly why the market reacted with disappointment with the news, according to an analyst in the City.
READ: Sound Energy's sale of Tendrara gets boost with offtake agreement
“It is about the future growth of the business and it is a creature of its valuation, but you need to wait a little bit for the cash, just because of the structure of the agreement… It creates value long-term but it is not cash in your pockets today,” the analyst told Proactive on the phone.
Sound’s East Morocco operation consists of Tendrara, Greater Tendrara and the Anoual Permit and are currently part of a joint venture with Schlumberger and Morocco’s state vehicle ONHYM.
The operation was put up for sale in May, following two exploration wells proving unsuccessful, since when Sound said it had entered into 23 non-disclosure agreements and received numerous non-binding offers.
The Tendrara basin requires further exploration to unlock fully the basin potential, it said, and the structure of the proposed deal allows it to retain an interest in the licences while having its share of future drilling covered.
An exclusivity agreement with the prospective purchaser, described as a privately-owned, UK company specialising in energy asset development and investment, has been signed until 14 February to finalise the deal, which totals US$112.8mln and comprises US$54.3mln cash and a US$58.5mln carry on future capex.
Sound currently holds a 47.5% stake in the East Morocco licences but this will drop to 23.3% once the sale completes with the purchaser also having an option to acquire a further 9% within a year.
Sound entered Tendrara in 2015 following a farm in agreement for an undisclosed sum.
Simon Davies, Sound’s chairman, said: "The Proposed Transaction being progressed on an exclusive basis funds development of the Tendrara project, provides early monetisation of a substantial part of our established gas resources and retains upside for our shareholders through both future gas production and further exploration drilling."
Shares were down 16% to 5.77p on Wednesday afternoon.