Sonde Resources' (SOQ) CEO Toufic Nassif on Q2 2014 Results - Earnings Call Transcript

Aug.15.14 | About: Sonde Resources (SOQ)

Sonde Resources (NYSEMKT:SOQ)

Q2 2014 Earnings Call

August 15, 2014 4:00 pm ET

Executives

Kurt A. Nelson - Chief Financial Officer

Toufic Nassif - Chief Executive Officer, President, Non-Independent Director, Member of Health, Safety, Environment & Reserves Committee and President of North Africa

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Sonde Resources Corp. Second Quarter 2014 Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Friday, August 15, at 2:00 p.m. Mountain Time. I will now turn the conference over to Mr. Kurt Nelson. Please go ahead, sir.

Kurt A. Nelson

Good afternoon. Before commencing with remarks regarding the second quarter earnings and operational update, I would like to let everybody know that I am joined by Toufic Nassif, the President and Chief Executive Officer of the company. I will now read our cautionary remarks regarding forward-looking information that may be discussed in our call. Some of the statements we will be making today constitute forward-looking information within the meaning of the applicable Canadian securities laws and forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements include, among others, those concerning the status of the farm-out or financing of our commitments in North Africa; our anticipated operational plans and activities, including our development and exploration program in North Africa; our capital programs and sources of funding; Sonde's strategy; and the expectation of successful future results. Forward-looking statements can generally be identified by the 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, the marketing campaign on the Joint Oil Block's commitments, operating and political conditions, management's expectations regarding future growth, plans for and results of drilling activity and the availability of capital. Actual results may differ materially due to a number of factors, including, without limitation, uncertainty as to the availability and the cost of financing and changes in the capital markets; operational risks in development and exploration; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of resource estimates; the uncertainty of estimates and projections in relation to production; risks affecting Sonde's ability to execute projects; risks inherent in operating in foreign jurisdictions; and the ability to attract and retain key personnel. Although we believe these statements 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 statement disclosure in our press release issued yesterday, August 14, and our annual information form for the year ended December 31, 2013. Both are located on SEDAR for more information regarding the risks and uncertainties facing Sonde.

Let me start off. We issued a press release, posted our unaudited second quarter 2014 financial statements, our MD&A on SEDAR yesterday evening. I'd like to start with our cash position. Sonde currently, that's today, has approximately $3.5 million in cash and restricted amount of USD 15 million in support of the Joint Oil Letter of Credit. The restricted cash is eligible for release to meet commitments for the Fisal well. We continue to look forward to a successful farm-out or other form of capital infusion to continue our activities. We have reduced our monthly administrative cost to less than $300,000 per month. Our staffing has been reduced at a minimum level to perform our administrative functions and all operating activity will be located in Houston in the first week of September, closer to our support technical base.

I would like now to turn the conference over to Toufic Nassif, our President and Chief Executive Officer.

Toufic Nassif

Thank you, Kurt. Good afternoon, everyone, and thank you for joining us for this conference call. As you know, and many of you know, the last few months have been an eventful time period for Sonde. We continue to pursue financing to meet our commitments for the Joint Oil Block, via farm-outs, strategic partner or the sales process. Taylor-DeJongh has been working with us, and we reached out to numerous interested parties, and we continue to be optimistic that a party will be forthcoming as a JV partner or even as a financier. Progress on the unitization and the unit plan of development has been made. As a matter of fact, the DGE, the regulatory authority in Tunisia, expect the unit agreement of the Zarat block to our south to be signed by all the parties and presented for ratification by the end of October of this year. And they are also expecting a consensus on the unit plan of development by year end as well. This is the unit plan of development for the Zarat. On the technical side, we continue to work on the 3D seismic that we shot over Hadaf, and we have reprocessed that data, and we're currently interpreting and evaluating the prospectivity of the Hadaf prospect. We also have reprocessed the existing 3D data that we shot in 2012 and correlated some of this data and tied it into the existing prospect. Our new view has basically doubled the size of the Hadaf prospect and identified additional targets to go after in the other exploration prospects. We have yet to execute novation agreement providing Sonde with the second slot on the jack-up drilling rig enter Tunisian water around the September timeframe. This will be dependent on the results of the ongoing marketing efforts and discussions with the potential joint venture partner and financiers. We have been stressing and will continue to stress the urgency of the novation agreement to the various parties that we're talking to, in order to go ahead and ensure the time to drilling of the Fisal well because we feel this is a critical and important matter for any joint venture partner to come in. And as a matter of fact, we have made all the preparation necessary. We ordered all the long lead items, we've done the site surveys, both site, and the geotechnical, and most of the services are in place for the drilling of the well, which we hope to commence in October, November timeframe.

Sonde, as Kurt mentioned, has about $3 million available in cash to supplement its early long lead equipment purchase that we've done for the past 9 months, or past year, and a $15 million, as he mentioned, restricted cash for the LC which will be released based on the agreement with Joint Oil in 2 parts. The first, upon the rig reaching location, which is basically the spud of the well, and the balance upon the completion of the drilling.

The keys to our financial future are really concluding the strategic process that we have initiated in the second quarter. We remain, as management, enthusiastic that the third-party will weight our short-term capital needs against the excellent potential of the Joint Oil Block and the transaction will be concluded in time to meet our commitment for the Joint Oil Block. This is something management has been working on very intensely, and many of you have been asking why it's taking so long. I received e-mails, phone calls, asking why this process is taking so long. Basically, briefly, we are asking a partner, if you think about it, to enter into an offshore international joint venture in North Africa that requires a commitment of approximately $0.5 billion. The investment and the technical decision of this magnitude must be weighed internally within these institutions and companies against other opportunities and the data room when we opened it in April and most companies who entered that have only about 60 days or less evaluating the data, and the exploration projects and the Zarat development, which is a very complex development. This is not a short-term commitment that we're asking for. It's going to take about a minimum of 3 years with extensive capital expenditure to reach first oil. The due diligence process for such an undertaking is quite complex and lengthy, and this is why companies are really looking hard, and the due diligence is taking their time to make sure when they enter into this venture, this is something that meets their long-term objectives, this decision is strategic and must integrate very well in any potential investor long-term plans. So this is one of the key reasons why it's taking as long as it's taking.

And in Western Canada, we continue to show our approximately 100,000 acres in the Wabamun and the Duvernay plays to interested parties with the hope to create a cash or a non-operated interest to monetize those assets. So the work continues on all fronts from the standpoint of the North Africa and also on the Canadian assets with the acreage, with the hope that a deal could be put in place in the near future to allow us to fulfill our commitments with the Joint Oil Block and the drilling of Fisal in a timely fashion.

Now we will take questions from the audience. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] There are no questions registered at this time. I would now like to turn the meeting back over to Mr. Nassif.

Toufic Nassif

Thank you. With no question, Kurt, do you want to take over from here, please?

Kurt A. Nelson

Sure. So thank you, ladies and gentlemen. I guess this will conclude our conference call for today, thank you for your participation and always feel free to contact myself or Mr. Nassif with questions in the future. Mary?

Operator

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

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