By Amy McLellan
Sound Oil, with its shares trading near 52-week highs, continues to escape the malaise enveloping the sector. The AIM-quoted company has impressed over the last two years for its consistency in delivering on its plans despite operating in Italy, a country better known for red tape and delay.
Sound, which has a knowledgeable and well-connected team in Milan to help navigate the labyrinthine bureaucracy, has now secured approval of the Environmental Impact Assessment – a well-known stumbling block for would-be drillers in Italy – for its Badile exploration well from the Lombardy Regional Government. The next step in the paper trail is a drilling authorisation from the Italian Ministry of Economic Development.
This is a big well for Sound, which is seeking a farm-in partner ahead of drilling. The well carries an independently assessed best case estimate of 178 BCFe and CEO James Parsons rightly describes the prospect as the “largest and most strategic asset” in the portfolio.
The company has positioned the asset to make it an easy “yes” for would-be partners, having secured the key EIA approval, purchased land for the well site and has a number of long lead items, including the wellhead, ready for delivery.
Success here could be relatively quickly monetised, feeding into the energy-hungry domestic market, which as Parsons points out, has “has maintained pricing resilience against a backdrop of falling commodity prices.”
This isn’t the only big well on the books for the AIM-quoted company. It recently received drilling authorisation for the second well in the Carita licence, home to the Nervesa gas discovery, from the Italian Ministry of Economic Development.
Drilling will start shortly and there’s a daily webcam facility that will keep investors up to date with progress. First gas from Neversa is expected this year and will, says Parsons, be a “landmark event” for Sound, generating over €4 million in annual revenues from just the first well.
This will mark a significant step change in fortunes for the company: last year it produced 157 BCF or 43,000 cf/d from its Rapagnano and Casa Tiberi onshore gas fields, generating annual revenues of €1.2million, a level that covered its Italian cost base. The four-fold increase when the first Nervesa well comes onstream will take the company up a gear – while success at Badile would be transformational.
Little wonder the shares are trading at 15.25 pence, more than double year-ago levels, an impressive run given the drop in oil prices. It shows how robust this Italian gas-focused portfolio is to the current market malaise and the willingness of the market to reward sound and smart management.
Once the cash starts to roll in from Nervesa, investors will be keen to see what the company does next: it wisely stepped away from a bid from troubled Antrim Energy earlier this year but there are many other value candidates out there. An interesting year ahead.