Proactive Investors UK
Philip Whiterow
Sound expects to start drilling its first well at the Tendrara licence, in north east Morocco, within the coming weeks.
Mediterranean gas is the theme behind Sound’s expansion plans.
At a time when most talk in the oil sector is about retrenchment and cutbacks, Sound Energy (LON:SOU) has been going the other way.
In the past six months it has started gas production at its Nervesa operation onshore in Italy and taken on three other sizeable gas interests in Morocco.
Mediterranean gas is the theme and as a statement of intent that it is not going to be deflected by events outside of its control, it is pretty definite.
Morocco
Sound expects to start drilling its first well at the Tendrara licence, in north east Morocco, within the coming weeks.
The company sealed its deal to acquire up to a 55% stake in Tendrara (or Tendrara Lakbir) in December and it is now progressing a programme to drill up to three wells.
A collaboration with Schlumberger will see this work carried out.
The US oilfield services giant has agreed to fund 80% of the investment in the first hole and 75% of the second and third.
After that the partners will bankroll further field development on a 50-50 basis.
The programme’s aim is to appraise what could be a significant project and ideally prove-up enough gas to justify investments necessary to install necessary infrastructure.
As a sign of the shift in emphasis Sound told investors it would switch its webcam stream, which had been watching progress at Nervesa, to the Tendrara well site.
In another move that indicates its hopes for Tendrara, Sound Energy has taken an option over 55% of the neighbouring licence.
The new permit, Meridja, covers a 9,000 sq km area adjacent to Tendrara and has the same fundamental geology.
James Parsons, Sound’s chief executive, said given Meridja’s position the option would become significantly more valuable if the first well at Tendrara was as successful as hoped.
At Meridja, Oil & Gas Investment Fund (OGIF) has a 75% interest in a reconnaissance permit with the remaining 25% held by Morocco’s Office National des Hydrocarbures des Mines.
Sound will pay OGIF US$100,000 for its option and spend US$200,000 on early stage exploration. A further US$150,000 is payable if the option is taking up while Sound will have to pay all of the costs of a first well.
The final piece of acreage is a deal to take 75% of the Sidi Moktar project, in the north west of the country.
Like Tendrara, Sidi Moktar hosts a potentially large gas project that requires some further work and testing before a field development. Here, Sound is talking to potential farm-in partners but could still anticipate first gas production later in 2016.
Italy
While Morocco may be the current focus, Sound’s assets in Italy remain the bedrock of the company.
Nervesa’s first well, drilled in 2013, was a success and while a follow up last year disappointed the project remains a valuable asset for Sound.
It should add important production volumes to the group’s steadily growing profile in Italy, where since 2013 it has previously started up two smaller fields.
Production started on 3 February and since then output has been deliberately restricted to 1.0 MMscf/d during daytime hours and 0.7 MMscf/d overnight.
Output will now increase over the coming months to the planned production ratehttp://images.intellitxt.com/ast/adTypes/icon1.png of 1.8MMscf/d, Sound said.
There are two other smaller producing assets in Italy already, at Casa Tibieri and Rapagnano.
What’s it worth
Exploration potential comprises the onshore discovery Badile in the north of Italy, which contributes 5.3p to house broker Cantor Fitzgerald’s 31p target price.
To give some context, Sam Wahab, at Cantor, estimates the now producing Nervesa and Rapagnano add 1.5p to its estimate.
Sound still intends to drill at the Laura offshore/onshore discovery though a recent re-imposition of Italy’s offshore exploration ban has added uncertainty here.
Laura is 4km offshore, but Sound wants to access it from onshore and get the planned appraisal well re-classified.
Overall, Cantor assesses the Italian producing and discovery assets at 10.3p and Badile at 5.3p. Morocco is estimated to be worth 18p and 2.7p of risk adjustments give a total of 31p or £86mln.
Cash at the last half-year end in June was £17.5mln with long term debt of £13.5mln.
