We got two announcements for the price of one from Sound Energy earlier which provided more good news from Morocco while setting out plans to raise just north of £24mln.
The issue of shares is interesting in that Sound is using the crowdfunding platform PrimaryBid to ensure private investors can participate alongside the institutions.
However the real excitement was generated by initial testing on the TE-7 well on its Tendrara licence, onshore Morocco.
Exceptional flow rate
This is the first horizontal well Sound has drilled. It flowed at 32mln standard cubic feet of gas a day and could eventually go “significantly above” 40mln standard cubic feet.
To put that into context, Sound told analysts and investors ahead of its first ever well on Tendrara that 3.5mln standard cubic feet of gas would be commercial.
The new landmark was hit during the clean-up phase and post stimulation.
TE-7 was drilled to a depth of just over 2,600 metres before going horizontally for 700 metres. In all there was 837 metres of contact with the TAGI reservoir.
"I am pleased to report the success of our second well at Tendrara and that the use of sub-horizontal drilling techniques on TE-7 has delivered a significant uplift on flow rates,” said chief executive James Parsons.
“This result further reinforces our belief in the Eastern Morocco TAGI/Palaeozoic play.”
The plan now is to carry out an extended well test. It is now planning its first outpost well, TE-8, which will test lateral extent of the TAGI reservoir.
*For those with a technical bent, the following will make sense. The new production rate was achieved with a flowing tubing head pressure of 230 bar on a choke of 40/64.
Other data, such as bottom hole reservoir pressure and its correlation with the gas gradient of the other Tendrara wells, will be announced after conclusion of the extended well test, Sound said.
On the back of those quite eye-popping flow rates Sound has unveiled plans to raise just over £24mln.
The cash will be used to carry on drilling what is shaping up to be one of the major onshore gas discoveries of the past few years, which analysts believe has super-giant potential.
Sound is offering shares in two tranches and is using the PrimaryBid platform for private investors who have less than €100,000 to stake on the company’s success.
This will allow them to get involved in the fundraiser alongside the institutions.
Usually at this stage, when businesses of Sound’s ilk start raising large slugs of cash, the ordinary punter is locked out.
However chief executive James Parsons sees them as having been instrumental in the firm’s success to date, providing significant financial backing in their own right.
“Sound Energy values its private investor base and has chosen this structure to enable the introduction of institutions to the register whilst also re-affirming our commitment to treat private investors fairly,” Parsons said.
On another note, it is interesting to see the pricing of the issue of new paper, which at 81p a share is a modest 1.25p discount to last night’s close.
This suggests that demand is strong for stock in Sound. Companies in the oil and gas sector in the current depressed environment for the sector have been forced to take major haircuts to bring in new funds.
What the brokers say
The shares, which are up 350% in the year to date, drifted 1.13p in morning trade to 80.57p. That values the business at £463mln.
Cantor Fitzgerald reckons the stock is worth 101p. Analyst Sam Wahab described today’s announcement on production as “very encouraging”.
finnCap’s Dougie Youngson added: “This is an excellent initial result for the company. Clearly the outcome of the extended well test is extremely important as it will help determine the commercial basis and scale of the field.”
His target price is 104p.
Don’t forget Italy
Badile, which has a net present value of over £400mln, 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.
It stands to receive 20% of the profits from a successful well for effectively stumping up 30% of the costs.
The collaboration started with Schlumberger footing a significant portion of the bill for the Tendara appraisal well.
And as CEO Parsons pointed out the partnership “remains a critical differentiator for our company which technically de-risks and funds our key asset”.