SOUND OIL (LSE:SOU)

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Sound Oil goes it alone on Badile prospect

Sound Oil (SOU) has decided to retain its 100%-operated position, and the "significant upside" it offers, in its Badile exploration prospect in northern Italy.

On 1 February, the company received an offer to farm in to the prospect. While the commercial terms of the offer remained confidential, Sound confirmed the offer was received from "an Italian oil and gas major with deep knowledge of the area".

However, Sound was of the view that the offer "did not reflect the potential of this major asset".

Badile is a 185 billion cubic standard feet of gas/23 million barrels of oil exploration prospect onshore in the Po Valley. It is situated 30 kilometres south-east of the Villafortuna-Trecate field, which is estimated to hold recoverable reserves of c. 250 million barrels. The exploration well is forecast to cost some €20 million (£17.2 million) plus contingency.

Looking ahead, Sound Oil said it would submit a drilling request and environmental impact assessment (EIA) to the Italian permitting authorities, targeting a 2014 Badile well with Sound as operator. It also revealed plans to recruit a high-quality, project-specific technical team to ensure the successful delivery of this high pressure/high temperature well, which would reach a target depth of 5,300 metres.

Analyst view

"[Tuesday's] news from Sound is promising, and a sign of the company's returning confidence," commented analysts at FoxDavies.

However, with development and appraisal drilling likely to account for the majority of Sound's existing cash pile, they said the question was how much the company needed to raise, rather than if, noting the amount would be determined by the extent to which it could bring the revenue streams online.

Investor view

Interactive Investor discussion board user 'dmat22' said it was "good news" that the company was retaining ownership, but warned it would mean equity dilution.

"Let's hope if they do go the dilution route, they play it well... i.e. get a great big whacking Nervesa result, push the share price up, and do it when the share price is at its highest and sentiment is there!" he stated.