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Executives

William K. Dirks - President and Chief Operating Officer

Rene P. Beaumier - Chief Financial Officer

Toufic Nassif - Preident of Sonde North Africa Operations

Analysts

Shailender Randhawa - RBC Capital Markets, LLC, Research Division

Sonde Resources (SOQ) Q3 2013 Earnings Call November 8, 2013 3:30 PM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Sonde Resources Corporation Third Quarter 2013 Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Friday, November 8, at 1:30 p.m. Mountain Time. I will now turn the conference over to Mr. Bill Dirks, President and CEO. Please go ahead, sir.

William K. Dirks

Thank you. Good afternoon. Joining me this afternoon from Sonde are: Rene Beaumier, our Chief Financial Officer; and Toufic Nassif, President of Sonde North Africa. Before commencing with remarks regarding the Q3 2013 earnings call, I'm going to ask René to review our cautionary remarks regarding forward-looking information that may be discussed during the call. René?

Rene P. Beaumier

Thank you. Good afternoon. Some of the statements we will be making today constitute forward-looking information within the meaning of applicable Canadian securities law and forward-looking statements within the meaning of the U.S. Private Securities Litigation Act of 1995. These statements include, among others, those concerning the transaction with Marquee Energy Limited; the status of the Viking Farm-Out in North Africa; the outcome of our Western Canadian strategic alternatives; our anticipated operational plans and activities, including our development and exploration program in Western Canada and in North Africa; capital programs and sources of funding; expected production growth and strategy of Sonde; and the expectation of successful future results.

Forward-looking statements can generally be identified by our use of words such as anticipate, believe, expect, plan, intend, estimate, propose, project and similar expressions suggesting future outcomes or statements regarding an outlook. Such forward-looking information or statements are based on a number of risks, uncertainties and assumptions, which may cause actual results or other expectations to differ materially from those anticipated and which may prove to be incorrect. Assumptions have been made regarding, among other things, operating conditions, management's expectations regarding future growth, plans for and results of drilling activity, availability of capital and capital and other expenditures.

Actual results could differ materially due to a number of factors including, without limitation, operational risks and development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve and resource estimates; the uncertainty of estimates and projections in relation to production; risks affecting Sonde's ability to execute projects and market oil and natural gas; risks inherent in operating in foreign jurisdictions; the ability to attract and retain key personnel; and the inability to raise additional capital.

Although we believe that the expectations reflected in the forward-looking information or statements are reasonable, prospective investors should not place undue reliance on forward-looking statements because the company can provide no assurance that such expectations will prove to be correct. We base our forward-looking statements on information currently available, and do not assume any obligation to update them unless required by law.

Listeners should refer to the forward-looking statements disclaimer in our press release issued yesterday, November 7, 2013, and our annual information form for the year ended December 31, 2012, which are both located on SEDAR for more information regarding the risks and uncertainties facing Sonde.

Rather than provide any remarks for the third quarter results, I will now turn the conference back to Bill.

William K. Dirks

Thanks, René, and good afternoon, everybody. Thanks for joining us for our Q3 2013 conference call. We issued a press release this morning and posted our unaudited Q3 2013 financial statements and management discussion and analysis on SEDAR. As you know, this is an eventful time period for Sonde, with a significant press release regarding our transaction with Marquee, issued on Tuesday, and the deadline for the closing of the Viking deal rapidly approaching. Instead of spending time reviewing the Q3 documents, I'd like to make some brief remarks on the 2 deals, and then turn the call over for your questions.

Sonde's executive officers are working diligently to formally close the Viking Farm-Out transaction, which is a top priority for Sonde.

The main remaining condition that needs to be fulfilled by Viking prior to closing is the deposit of USD 40 million into a bank guarantee that Sonde is responsible for under the amended Exploration and Production Sharing Agreement by no later than next Friday, November 15.

This condition had not yet been met as of this morning. While we remain hopeful that Viking will complete its financing arrangements and be in a position to close next week, Sonde is not involved in the financing, and management can provide no assurances that the transaction will close.

Equally important to Sonde is the announced proposed merger of Sonde's Western Canada producing assets with Marquee. When closed, this transaction will create one of the dominant E&P companies in the Drumheller area, with a liquids-rich portfolio and a large number of undrilled locations in the sought-after Detrital and Banff oil resource plays near Michichi. With over 4,000 boe a day of current production, and more than 200,000 net acres of undeveloped land and a first-class management team, the new Marquee will represent a unique growth opportunity for both Marquee and Sonde shareholders.

This transaction also marks a new and strategic path forward for Sonde, under which our shareholders will be able to participate in the value-creation potential of Sonde assets in both North Africa and Western Canada, without the business complexities experienced by a single company doing business in 2 vastly different geographic and geologic settings, and easing board and shareholder concerns about having to curtail one program and pay for the obligations of the other. I will now turn the conference call over to the operator so that we can take your questions.

Question-and-Answer Session

Operator

And the first question is from Shailender Randhawa at RBC Capital Markets.

Shailender Randhawa - RBC Capital Markets, LLC, Research Division

Yes, could you just walk us through what happens if the guarantee isn't posted next Friday? And then sort of -- what sort of recourse does Joint Oil have on against Sonde, I guess, currently?

William K. Dirks

Shailender, I'm going to turn your -- the first part of your question over to Toufic for elaboration.

Toufic Nassif

Basically, if Viking does not come up with the bank guarantee, as per the assignment agreement and the amendment agreement, Sonde has the right to terminate the Farm-Out Agreement, that's first. And secondly, Joint Oil basically have the right to terminate the assignment agreement, which we signed on October 4. And will become -- the Sonde agreement will become null and void. So hence, Viking will not be able to participate if they don't meet this condition by the 15th of November.

William K. Dirks

And Shailender, as to the second part of your question, Sonde's corporate guarantee of $45 million against our obligations during the exploration phase of the EPSA remain in place. This $51 million bank guarantee that we've referred to in past press releases is a unique requirement of the deal with Viking, and would not exist as a separate stand-alone requirement if the Viking deal blew up.

Shailender Randhawa - RBC Capital Markets, LLC, Research Division

Okay. And then in terms of like actually cash out the door, is -- would there be a payment then before the year end and in the future? And I guess, what would your plans be in terms of monetizing or crystallizing value for North Africa on a go forward basis?

William K. Dirks

With regard to your question about cash out the door, the EPSA as amended last year calls for Sonde to drill 1 exploration well in each of 2013, 2014 and 2015. And contractually, Joint Oil has the right to call in a $15 million penalty payment for non-performance in each or any of those 3 years. So -- and that -- the contract allows for a 60-day period between the end of the performance period and calling in the penalty. So theoretically, Shailender, Joint Oil could call in a $15 million non-performance penalty at the end of February 2014. Now management's expectation, at this point in time, is that we'll be successful in working with Joint Oil to obtain a delay to the Faisal well. We've been up against a world rig market, just haven't had a jack-up available suitable to our needs. And I would expect, I would hope, that we will not have that marker -- that penalty called in, in 2014.

Operator

[Operator Instructions] There are no further questions. I would like to turn the conference back over to you, Mr. Dirks.

William K. Dirks

Thank you, Michael. And thanks, everybody, for participating in the call. We look forward to our future interactions with you, and thanks for taking the time to join us this afternoon.

Operator

Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.

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