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Sound Oil shares rise as Nervesa approval approaches

Sound expects to receive written approval for the proposed Nervesa appraisal well by the end of the month, after it cleared a key regulatory hurdle.

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Sound Oil (LON:SOU) shares soared around 25% as the Nervesa appraisal project moved a step closer.

The company said this morning that it expects to receive written approval for the proposed Nervesa appraisal well by the end of the month.

This comes after the AIM quoted explorer successfully concluded the ‘Conferenza Servizi’ process, which it said was the final step in the Ministry of Economic Development’s approval process.

Meanwhile Sound says that preparation work has now begun at the Nervesa site.

"Nervesa is a 21Bscf [billion standard cubic feet] gas discovery which was discovered by ENI in 1985 and was put into production for several years,” said chief executive James Parsons.

“The discovery has an independent assessed base case value of circa US$60 million and is a flagship project for the company.

“I am pleased to report that preparatory operations on site have commenced which will accelerate spud of the well once the Autorizzazione is issued. We still expect to receive the written Autorizzazione during January."

Investors cheered the latest development as the shares climbed 2p, or 28%, to trade at 9.12p per share.

Meanwhile City analysts also welcomed the update, with Westhouse Securities repeating a ‘buy’ recommendation and a 32p target this morning.

The broker says that Nervesa is a ‘potential game changer’ for Sound Oil, and the project represents 4.7p of its price target.

Westhouse believes the value of Sound Oil’s shares could rise in the weeks and months ahead.

“Given that the final tranche of the Astin Capital equity drawdown facility will complete in February 2013 thereby removing any remaining over-hang on the stock, coupled with balance sheet cash in excess of US$10mln, Sound Oil is entering a period where positive news flow could materially impact its valuation,” the broker said in a note.

Quick facts: Sound Energy PLC

Price: 1.528 GBX

AIM:SOU
Market: AIM
Market Cap: £17.75 m
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