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Sound lines up Moroccan gas sales plan with ONEE

Sound Energy has struck a preliminary deal on the sale of its gas production from Morocco’s Tendrara concession with the state power company, Office National de l’Electricité et de l’Eau Potable (ONEE).

A memorandum of understanding (MoU) has been signed and negotiations are under way on a gas sales agreement (GSA). The company said it was in talks with ONEE earlier this year, describing the GSA as a “critical next step” before reaching a final investment decision (FID). A contract is targeted for signing before the end of this year.

Following a disappointing drilling results on the Tendrara concession, Sound said it was putting its eastern Moroccan assets for sale in May, with Rothschild & Co. advising. While the TE-10 well did not achieve commercial flow rates, the TE-5 discovery remains economically viable.

The preliminary agreement covers the first 500 million cubic metres per year of production, around 1.37 mcm per day. The actual GSA may cover up to 1.7 mcm per day, which is the mid-case production rate under the field development plan. Gas would be priced and sold to ONEE at the M04 tie-in point, with the Gazoduc Maghreb Europe (GME) pipeline.

The GSA would run for 10 years, according to the MoU, with automatic renewal in five year increments. Termination by either party requires one year’s notice.

The first 300 mcm per year of production carries a fixed unit price of $84 million. This is a minimum amount deliverable as a take-or-pay commitment from ONEE and a send-or-pay commitment by Sound. Pricing for volumes over the 300 mcm mark have not yet been agreed and are expected to be negotiated for the GSA.

The MoU represents a midpoint in negotiations, Progressive Equity Research’s Peter Hitchens said, it shows Sound is “advancing along through the stages to the GSA. The initial volume is sold at a fixed price, which provides guaranteed revenue to fund the development of the project. The remainder will be the upside, perhaps linked to the oil price.”

The fixed price for the first amount should help Sound in its push to secure infrastructure financing, the company said.

Previously, Sound has said talks with ONEE included a variable element – with a link to the Brent crude price – and a fixed element to cover transportation costs via the proposed export pipeline, which runs to the GME.

Setting out its half-year report in September, Sound said it expected to conclude the process to sell its eastern Morocco assets by the end of the year. “Management has said they want to sell [Tendrara] but it’s by no means guaranteed that there will be a buyer.”

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