The Oil Man: Sound Energy

A flash blog on Sound this morning, but a genuine keynote deal to mention, let alone a very good extended well test (EWT) reported by the company.

The EWT has clearly been a significant success and in line, or better than the company had expected. Just under 1 billion cubic feet were produced in 56 days of continuous flow and the firm has now started the final pressure build up phase.

This is consistent with pre-test estimates and confirms good deliverability of the TAGI reservoir; it justifies the horizontal well and shows "significant potential".

Flow rates were were limited to 40% draw-down to preserve completion integrity and good average rates were achieved over decreasing choke sizes. With no formation water and no indication of barriers detected, Sound will now check pressures at TE-5 and TE-6 for connectivity.

The last piece of this jigsaw for now is the TE-8 well, for which a fair bit of valuation lies - civil works are under way some 12 kilometres away from TE-7 and the company is expecting to spud next month.

In another announcement this morning, the company has proposed that it acquire OGIF's interests in Eastern Morocco for shares, at what seems like an attractive discount.

This is hugely accretive to Sound and delivers scale on an impressive basisOGIF is a Moroccan fund owned by six large local institutions, including the largest bank and pension fund, amongst others.

The influence and access to capital in country should not be dismissed lightly and I suspect that the interest OGIF may have in getting involved in the infrastructure solutions may help identify these with such help from the new shareholder.

The deal gives Sound and its shareholders a very strong position; buying in before the outpost well is drilled gets an early start and the 30% discount to core NAV might achieve even more.

This is hugely accretive to Sound and delivers scale on an impressive basis (75% gross, 47.5% net of Tendrara and 75% gross of Meridja). Should this asset prove to be as big as some expectations, then it prepares the way for a classic asset sale, if a suitor with deep pockets were to come along.

These are exciting times for faithful retail holders, supportive Continental, and now OGIF who bring a local interest to the play engineered by Sound's strong and enterprising management.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.