Sound Oil readies for Nervesa spud

By Amy McLellan

Sound Oil is gearing up for a big year. It has now received final approval of the EIA for the Nervesa field production concession from the Veneto Region in Italy. The award of the Nervesa field production concession from the Italian Ministry of Economic Development is expected to follow shortly, paving the way for first commercial production from the gas field later this year.

It’s another signal of the company’s ability to navigate the Italian regulatory regime and deliver the required permits and paperwork in order to execute projects in a timely fashion. This is a key differentiator for Sound Oil, which has succeeded where so many other small companies have stalled amid the endless delay and red tape of the Italian system.

Operationally the £82 million market cap company is also making good progress. It is now getting ready to drill a second well on the field. The rig has arrived at the drill site and the well is expected to spud before the end of this month.

When the first well at Nervesa comes onstream, it will initially generate over €4 million in annual revenues for the AIM-quoted company, a real step change from last year’s production of 157 BCF or 43,000 cf/d from its Rapagnano and Casa Tiberi onshore gas fields, which generated annual revenues of €1.2million. While this revenue is useful, covered its Italian cost base, the four-fold increase when the first Nervesa well comes onstream will take the company up a gear.

There’s also the world-class Badile exploration well – and last month the company received approval of the EIA from the Lombardy Regional Government – which carries an independently assessed best case estimate of 178 BCFe. CEO James Parsons rightly describes the prospect as the “largest and most strategic asset” in the portfolio.

This is a big well for Sound, which is seeking a farm-in partner ahead of drilling. Success here could be relatively quickly monetised, feeding into the energy-hungry resiliently priced domestic market, an attraction that investors will be hoping will deliver a competitive farm-out despite the wider market malaise.

Analysts at SP Angel Corporate Finance believe Sound is now gaining critical mass, having derisked and tidied up its portfolio. This work that has “not only improved its attractiveness as an investment, but also as an “Italian bolt on” for a third party”, said the analysts. As they note, “the market valuation has not yet caught up to the underlying value within the portfolio”.

That could soon change as the company-making Nervesa and Badile wells get drilled in the months ahead, with the Badile farm-out terms a useful marker of industry valuations.