Sound Oil walks from Antrim deal as oil price continues to sink

By Amy McLellan

With the oil price still in free-fall, oil companies are weighing their options carefully as what looked a steal just six weeks ago at US$70 per barrel now looks far less compelling as the price sinks below US$50. As a result, deals are being pulled and projects iced as companies wait for the bottom. Among these is AIM-quoted Sound Oil, which in late November announced plans to make a public offer for struggling Antrim Energy but has now decided not to proceed.

The intended all-paper offer valued Calgary-based Antrim at 3.44 pence per share, or around £6.35 million, at the time a very slim premium. Antrim, which had been trading below its net cash value, rebuffed the approach but the subsequent weeks saw a continued slide in its share price: on Tuesday’s news that Sound was walking away, Antrim’s shares slipped another five per cent to 2.25 pence and its market cap was under £4.3 million.

London-based Sound, which is on the right side of the oil price rout as its production comes from low cost gas fields in Italy, had been attracted to Antrim’s cash pot of over £10 million and its deep-water exploration project off the west coast of Ireland: the cash is still there but at current prices it will be hard to convince potential industry partners and shareholders of the sense of frontier wildcatting in the Porcupine Basin. And as the oil price sinks, well-managed Sound Oil, with its steady production, its strong balance sheet, low overheads and a slate of very bankable projects, will be able to cast its net wider to try and land bigger fish than Antrim.

Sound produced on average 430,000 cubic feet of gas per day last year from the Rapagnano and Casa Tiberi gas fields, generating revenues of €1.2 million in 2014: this covers its Italian cost base. This was a 97 per cent uplift on 2013 production levels because it included a full year of production from Rapagnano and the first contributions from Casa Tiberi, which came online in July 2014. Another significant uplift is expected this year, with the large Nervesa discovery expected onstream.

The company has received final EIA approval for a second appraisal well on the field, designed to confirm the southern extent of the field, with drilling expected shortly.   This, says CEO James Parsons, is a “flagship project for Sound with an estimated NPV10 of US$66 million”. The company has already lined up a €7 million reserve based lending facility for Nervesa, from its cornerstone institutional investor Continental Investment Partners.

And this is just the start of what could be a transformational year for Sound, with back-to-back drilling planned on the potentially game-changing Badile exploration well and then the SMG and Laura exploration wells.

Analysts at SP Angel Corporate Finance said that for Sound, the decision to abandon the bid for Antrim was the “best deal it didn’t make”. Given the  the current oil price, and the economic malaise in Italy, we can’t help but think that there might be better, and cheaper, opportunities in their core area,” said the analysts.

And for Antrim? Analyst and blogger Malcolm Graham-Wood, founder of Hydrocarbon Capital, said: “Antrim holders may well regret that its highly remunerated management on the other side of the pond made a hasty decision to reject Sound’s advances”. With Antrim still trading below cash, it will remain vulnerable to being taken out. But most likely at a much lower price lower level than Sound offered in November.