Sound Energy : Annual financial and audit reports

Our Investment Proposition

• • Largest onshore operator in Morocco and focused leadership team with track record of delivering value

• • Advanced in monetising Tendrara's significant 377 bcf, 2C (gross 100%) discovered gas resource through an innovative phased development

• • Scalable Phase 1 mLNG FID sanctioned 2022 with First Gas expected within 24 months, unlocking the route to cash flow

• • Phase 2 pipeline gas sales, preparation for FID in 2022 and first revenue in around 24 months, generating significant value thereafter

  Read more in Our Strategy on pages 08 to 09

• • Significant multi-tcf upside exploration potential at both Tendrara and Sidi Mokhtar

  Read more in Reserves and Resources on pages 14 to 15

• • Value upside as trading at a deep discount to Net Asset Value supported by SP Angel equity research valuation

• • Assessing a basket of Energy Transition growth opportunities in and beyond Morocco

• • Multiple near-term catalysts for a re-rating with attractive ESG credentials

Corporate website

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Following 2020, our year of stabilisation, 2021 was a year of delivery for the Company. The team's relentless hard work resulted, in spite of the challenges raised by the global Covid pandemic, in the achievement of a number of key milestones for the business and the commencement of our strategic shift to a production focused energy transition business. This delivery has advanced the prospect of gas sales and revenues from our Phase 1 microLNG ("mLNG") development in Morocco while at the same time establishing basis for the large-scale Phase 2 development.

The Phase 1 project made significant strides forward in 2021 with a Gas Sales Agreement ("GSA") announced earlier in the year and a financing package completed at year end. This will cover the cost of bringing this development to market. In parallel with this, we have materially advanced the Phase 2 development, securing a binding GSA with ONEE (Office National de l'Electricite et de l'Eau potable), a vital step, which provided certainty on gas sales pricing and offtake from the pipeline development to unlock the financing stage of the development process. The value of these strategically pivotal developments to Sound shareholders was further enhanced by our entry into a sale and purchase agreement with Schlumberger Holdings II Limited, which resulted in Sound increasing its participating interests in the Tendrara Concession along with the Anoual and Greater Tendrara exploration permits, from 47.5% to 75%. Finally, Sound secured an extension to the term of the Annual Permit, which covers the Tendrara concession, from eight to nine years.

The Company was able to reschedule its longer-term bond holder debt and gain the support of these holders to the staged development of the business. This was completed with minimal dilution to equity holders and has put the Company in a stronger financial position.

In addition to the operational progress delivered in 2021, I am also very proud that we have redoubled our commitment to Environment, Social and Governance (ESG) best practice and while we have always maintained the highest environmentalstandards in our operations, we now have a clear path to measuring and reporting our ESG metrics against the UN's Sustainable Development Goals. Furthermore, we are working with a University of Cambridge project which will assist with the measurement of our Carbon footprint.

Phase 1

In July 2021, we signed the Phase 1 Development LNG Sale & Purchase Agreement ("LNG SPA") for the mLNG project for the TE-5 Horst. This is a ten year take or pay agreement between Afriquia Gaz (Morocco's leading fuel distributor) and Sound Energy Morocco East Limited ("SEMEL") - a 100% subsidiary of Sound Energy PLC. Under the LNG SPA, SEMEL will commit, for 360 days a year over 10 years from first gas, to provide a daily quantity of between 475 and 546 cubic metres of LNG and Afriquia will commit to offtake (or pay for if not offtaken) an annual minimum of 475 cubic metres per day.

Additionally, at the end of the year, we announced binding agreements in respect of a US$18 million loan from Afriquia Gaz for development of the Tendrara Concession. Earlier in the year, Afriquia Gaz also invested in the Company by way of an equity placing of £2 million of Sound Energy PLC shares, further cementing the strategic relationship between the two companies.

Post period, we were delighted to announce that we have entered into a binding contract with Italfluid Geoenergy srl for the leasing and operation of gas processing and liquefaction facilities in respect of our Phase I development. This novel vendor financing arrangement provides the lion's share of the development capital required for Phase 1, thus providing the platform for attractive shareholder returns.

Subsequent to this, the Company has issued a notice to proceed to Italfluid, thus commencing the project execution stage and paving the way for first gas within 24 months. Whilst I do not underestimate the project challenges that lie ahead, particularly in a world post COVID experiencing inflation and supply chain issues, we are pleased that the Company is now on a pathway to becoming cash generative.

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Phase 2

In November 2021, the Company announced the signature of the conditional binding Gas Sales Agreement with offtaker, ONEE. The agreement means that the Tendrara JV Partners (Sound and ONHYM - the Moroccan Government representative body) have committed to delivering gas from the Tendrara Production Concession to the Gas Maghreb-Europe pipeline for an annual contractual volume of up to 350 million cubic metres of pipeline gas for a period of 10 years, with an annual take or pay volume of 300 million cubic meters at a market competitive price.

This binding Gas Sales agreement for Phase 2 represents a major milestone for the Company, so I am extremely proud that it was completed in 2021.

Anoual

In September 2021, we announced an update to the Anoual Permits extending their duration from eight to nine years. While the team has worked relentlessly to deliver our operational goals, COVID has undoubtedly impacted progress on the ground and we have been unable to progress at the speed that we would have wished. As a result of this, Sound was granted an extension to the Permits resulting in an extension to the permits from eight to nine years, giving us further time to mature our plans for this important and potentially transformative exploration permit.

Schlumberger Holdings II Limited sale and purchase agreement

In June 2021, the Company entered into a sale and purchase agreement to acquire the entire issued share capital of Schlumberger Holdings II Limited in return for a minority profit share from the concession development plus a share in any cash disposal of the Anoual and Greater Tendrara exploration permits (should this occur prior to 28 February 2023). This agreement, at no upfront cash cost to the Company, materially increased our working interest in the Tendrara Concession together with the Anoual and Greater Tendrara exploration permits to 75% (from 47.5%), positioning the Company to benefit from enhanced returns, cash flows and value as it moves forward.

Corporate

In February 2021 , we announced the appointment of SP Angel as our corporate broker, whilst in March 2021 we announced the receipt of the first payment (€183k) in respect of the disposal of legacy Badile land in Italy.

In April, we successfully concluded the restructuring of the Company's Luxembourg listed €28.8 million 5.0% senior secured notes due 2021 extending the maturity to December 2027, converting part of the loan into equity, partially amortising and changing the structure of the interest due, to minimise near-term cash outflow.

We continue to constructively engage with the Moroccan Tax Administration in relation to a number of tax notifications. The Company remains clear that the assessments by the Moroccan Tax Administration, as previously announced, arise from a fundamental misunderstanding of the historicallicensing changes (relinquishing old licences and entering new licences covering revised acreage with revised terms - with no continuation or transfer of the original licence) and inter-group ownership outside of Morocco. We hope to bring this to a conclusion so that we can continue our very positive and productive relationship with a number of the Country's ministries.

We have continued to scrupulously and efficiently manage our expenditure and corporate overheads, to sustain cash balances, whilst at the same time strengthening our team and our resourcing capability necessary for the Company's operations.

Whilst the pandemic has challenged our ability to engage face to face with shareholders and other key stakeholders, we undertook a variety of virtual stakeholder and investor events and I was delighted to welcome shareholders into our London office for our first face to face event since 2019. I look forward to more shareholder events through 2022, giving us the opportunity to share, in real time, our exciting plans for the growth of the Company.

Post period, the Company announced that it was considering a possible offer for Angus Energy plc (''Angus''). The possible offer would be an all-share offer whereby Angus shareholders would (subject to Sound Energy shareholder approval) receive the Company's ordinary shares in exchange for their holding in Angus at an agreed exchange ratio. The deadline by which the Company is required to announce a firm intention to make an offer for Angus, or announce that it does not intend to make an offer, expires on 8 April 2022.

Board Strengthening

We further strengthened our Board as we welcomed Christian Bukovics as Senior Independent Non-Executive Director. Christian has over 40 years of experience across various international roles in the energy industry and he has already made a considerable contribution to the Company since his recent appointment.

Summary

As I have already outlined, 2021 was a year of delivery in pursuit of monetising our significant discovered gas for our Phase 1 mLNG project. This included the successful conclusion of a number of major agreements and the delivery of key project milestones that very clearly demonstrated our commitment to delivering against our promises. During 2022, we will continue to work tirelessly to deliver additional value for our shareholders through meaningful progression on both Phase 1 mLNG project and the Phase 2 gas pipeline development in our energy transition strategy in order to deliver increased future Company growth. I look forward with confidence to delivering a similarly productive 2022 for Sound on behalf of all of its stakeholders.

Graham Lyon

Executive Chairman

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