Sound Oil enters exclusive talks for Tendrara licence in Morocco

By Amy McLellan

Powered by its successes in Italy, Sound Oil is again looking to diversify. Earlier this year it wisely stepped away from a bid for troubled Antrim Energy, which would have added projects in Ireland and the UK North Sea, but now the company mulling a farm-in to the Tendrara licence onshore Morocco, an asset that until the start of this year was held by fellow AIM company Fastnet Oil & Gas.

With Fastnet unable to raise the funds or find a partner to finance activities on the block, Sound has been granted a 30 day period of exclusivity from the Moroccan Oil and Gas Investment Fund (OGIF) to conclude a deal, which would see it taking on a 55 per cent stake and operatorship.

Tendrara is a large scale gas discovery, with significant exploration upside that could run into the multiple TCF. Five of the seven wells drilled to date discovered hydrocarbons and two were tested successfully. Sound’s inhouse estimates suggest the existing discovered volumes are broadly comparable to those anticipated at its Badile licence in Italy, which the company has long described as a “world class” and “potentially transformational” project.

The Tendrara licence covers eight blocks across a total of 14,500 sq km in the northeast of Morocco. The underlying Trias Argilo-Gréseux Inférieur (TAGI) reservoir is a continuation of the Algerian Triassic Province capped by salt and underlain by Paleozoic source rocks.

Work to date includes the seven wells, 4,400 km of 2D seismic and 500 sq km of 3D seismic, making this a project that could take off quickly for Sound, with the gas sold either into the hungry Moroccan domestic market or connected to the Gazoduc Maghreb Europe (GME) gas export pipeline.

The licence is currently owned 75 per cent by OGIF with the state owned oil company ONHYM carried for its 25 per cent stake through the exploration phase. Sound has offered to take a 55 per cent stake, with OGIF retaining 20 per cent and ONYHM the remaining 25 per cent.

The 55 per cent working interest would be granted in two tranches: an initial 37.5 per cent on completion of the transaction and the remaining 17.5 per cent once Sound Oil commits on a second exploration phase, which would include a second well.

Sound will pay 100 per cent of three wells, of which only the first will be a firm commitment well. The first well will appraise the larger of two existing discoveries to address residual reservoir uncertainties related to well deliverability and areal continuity and to prove up sufficient reserves to properly size the design of the infrastructure required to commercialize the gas.

Sound Oil’s commitment to fund the second and third wells would depend upon the results of that first well. The first well, which is expected to cost £6 million (interestingly just under the £6.5 million that Sound was prepared to pay for Antrim), is expected to spud in Q4 if the deal goes through.

This is a significant opportunity for Sound: it’s a near-term appraisal and gas development opportunity, with the company able to manage its exposure through the phased farm-in. The company has experience of bringing gas fields through appraisal and development and into production, albeit on a much smaller scale in Italy.

The company has impressed to date with its operational track record and effective management and is now ready to step up to larger scale projects to really power future growth: this is already evident in Italy, where it is currently drilling a second well on its Nervesa gas appraisal project, which is due onstream later this year when it will deliver a step change in production and revenues.

Applying this approach to projects is entirely sensible in order to spread risk – and Morocco, with its existing gas network and friendly regulatory regime, certainly fits the bill Sound’s chief executive James Parson said this was the “first transformational deal in pursuit of our Mediterranean gas strategy” – which suggests there is more to come.

Shares in the company were up four per cent at 22.62 pence on the news, nudging up to 22.88 pence by last evening.