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Sound Energy shows no sign of slipping as it starts 2017 in a big way

Published: 08:03 19 Jan 2017 EST

Sound Energy drilling operation at Tendrara in Morocco
Sound Energy shares are up around 330% in the past twelve months

Sound Energy PLC (LON:SOU) is showing no sign of slipping in eastern Morocco where it has seen success at the Tendrara gas project.

The AIM quoted share is up some 330% over the past twelve months thanks to a series of good wells at Tendrara, and it has now delivered its first significant Moroccan newsflow for 2017.

Ahead of significant new drilling, the TE-8 well starting in February, the company has agreed a considerable acquisition to consolidate the group’s acreage position.

It gives Sound Energy an extra 20% of the Tendrara discovery, taking its stake to 75%, and importantly gives the group 75% of additional nearby acreage – the neighbouring Meridja project and an area close to Tendrara that had previously been relinquished.

The timing of the land grab may prove significant as next month’s TE-8 well, located some 12 kilometres from the most recent TE-7 well, aims to prove that Tendrara is spread across a much larger area.

Chief executive James Parsons says the new acquisition gives the company a “hugely attractive, material and consolidated portfolio” across Eastern Morocco as well as significant additional upside.

TE-7 delivered close to one billion cubic feet of gas in tests

Whatever comes of next month’s well, Sound Energy has already had considerable success at Tendrara.

Results from its latest impressive well, TE-7, were also revealed on Thursday January 19 with the company telling investors that over a 56 day period of continuous flow the well has yielded just under 1bn cubic feet of gas.

That figure is made all the more impressive given that the gas flow was constrained in test conditions, at a maximum of 40% drawdown, in order to protect the integrity of the well completion to date. 

No formation water was produced during testing – as the company had expected – and there were no indications of barriers.

As such Sound Energy said that the result had confirmed a “significant connected volume” of gas is present at Tendrara, and it would now monitor pressure across past wells to confirm the physical connectivity of the reservoir.

These results will all be valuable as Sound Energy advances field development planning.

TE-8: A ‘step out’ appraisal well

Sound Energy is now preparing the next well at Tendrara.

The TE-8 well will be a ‘step out’ appraisal that aims to confirm the continuation of the large gas project some 12 kilometres to the northeast of the TE-7 well site.

This morning the company confirmed that civil works are now underway at the TE-8 well site and it expects drilling work to begin in February.

TE-8 could potentially confirm a larger reservoir exists, and that may see gas resources at the top end of some of the more blue sky estimates from market experts and commentators.

OGIF deal secures Sound Energy’s upside potential

On January 19, the company announced a non-binding agreement to acquire all of Oil & Gas Investment Fund's (OGIF) assets in Eastern Morocco – that includes 20% Tendrara, 75% of the Meridja project and a 75% stake in acreage close to Tendrara.

In return the AIM quoted company offers OGIF some 272mln new Sound Energy shares, notionally worth nearly £200mln based on Sound’s present market price. It will mean that OGIF – a fund owned by seven Moroccan financial institutions – will own around 29% of Sound Energy’s enlarged share capital.

“We are pleased to have entered into heads of agreement with OGIF following the successful extended well test and I look forward to welcoming them to our shareholder register,” James Parsons said.

“I have worked closely with the OGIF team for over 18 months now and their access to Moroccan debt capital and their relationship and influence in country are second to none."

Meanwhile, OGIF chief executive Mohammed Benslimane said: “Sound Energy has already played a critical role in unlocking the Eastern Moroccan gas promise over the last eighteen months and we remain hugely impressed by James and his team.

“This new partnership aligns the interests of OGIF and Morocco's largest financial institutions with those of Sound Energy. We see huge short term upside potential in the equity of Sound Energy and look forward to what will certainly be a successful future together."

Sound Energy and OGIF have also agreed that they will together identify and secure a low cost and high quality solution for the Tendrara infrastructure, which may include using OGIF's shareholders to fund the pipeline.

Sound Energy shareholders will be asked to approve the proposed transaction at a general meeting, the details of which have yet to be disclosed.

Expert says OGIF deal is ‘one of the best’

Analyst Malcolm Graham-Wood spoke with Proactive Investors to outline the significance of Sound Energy's deal, its well results and plans for Tendrara.

''The fact that Sound have tied all this up means that if the plan in a year or two's time was to sell this asset in one go ... then you've just made it possible for that to happen,” he said in an interview.

Graham-Wood adds: ''Sound shareholders should like this very much''.

Don’t forget about Badile in Italy!

The fact that recent news from Sound’s Italian operations weren’t taken with a great deal of excitement perhaps reflects that most investors are now interested mainly in the group’s Moroccan success.

Sound’s shareholders are naturally focussing on Morocco – with the standout success there who could blame them – but, over in Italy, meanwhile, the company has been looking forward to Badlile for some time.

Earlier this month, the company told investors that drilling the Badile well in Italy will begin in March.

Much of the preparation such as ground work has already been done, while the conductor pipe at the top of the drill hole has been set.

At the same time the rig has been mobilised and should be on site and assembled by the end of next month, the company added. Badile, in Italy’s Piedmont Lombard Basin region, is being drilled as an exploration well.

The plan is to go to a total depth of 4,600m to test the hydrocarbon potential of the Lower Jurassic Conchodon Dolomite.

An independent assessment suggests the target could be host to around 178bn standard cubic feet of gas with a net present value of £400mln. That figure is what’s called a ‘best case’, unrisked estimate. It sits at in the middle of the range with the ‘high case’ forecast being 670bn cubic feet and the ‘low case’ 46bn cubic feet.

Badile is part of a portfolio of Italian assets on which the original Sound Oil was founded.

It includes smaller producing assets Casa Tiberi and Rapagnano as well as a host of exploration and appraisal opportunities that could help turn the valuation dial.

Recently Sound expanded its collaboration with oil service giant Schlumberger from Morocco to Italy with the latter helping fund Badile after agreeing to provide €7.5mln of drilling services.

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