Analysts cautious on Sound Oil's drilling plans

Italy-focused Sound Oil on Wednesday confirmed its intention to drill two material wells every year, stressing "the speed and scale of change will now be much greater".

Following a portfolio review, Sound Oil has revised its near-term drilling programme with the objective of "increasing the upside exposure for shareholders, balancing risk and reward, accelerating cash flow from the Nervesa discovery, reserving cash for the company's most material projects [and] capturing rig-cost synergies and eliminating rig non-availability risk".

The Badile prospect, which is estimated to contain 23 million barrels of oil, will be drilled as originally planned in 2014, while a second well addressing the northern extension of the Nervesa discovery will be drilled in the fourth quarter of 2013.

The Laura discovery, estimated to contain 30 billion standard cubic feet of gas, will be drilled as originally scheduled in the fourth quarter of 2014. The company stated its intention to apply directly for a concession award for Laura to accelerate cash flows. The permit for the discovery is expected to be awarded during the first half of 2013.

The Strombone appraisal well is to be deferred in order to free up "an operational window" for the second Nervesa well in the second half of 2013, as well as making available $9 million (£5.9 million) in cash to fund an increased equity stake in Badile.

Sound also hoped for a "potential inclusion" of the Casa Tiberi field development in the third quarter of 2014. The concession for Casa Tiberi is expected to be awarded in the second quarter of 2013.

Finally, the company plans to contract a 2,000 to 3,000 horsepower electric rig on an exclusive basis for 18 months, commencing in the first quarter of 2014, to cover Badile, Laura and Zibido, to ensure rig availability and secure significant cost efficiencies.

"This strategic revision to the drill programme is a positive step and focuses our financial and human resources on game-changing drills whilst also capturing rig-cost synergies," commented chief executive James Parsons.

"The programme commences with Nervesa, our flagship asset, which is expected to spud in April this year. Assuming a successful Nervesa appraisal well, a second well will be drilled later this year on the northern extension to exploit fully the multiple reservoir units and accelerate cash flows."

He confirmed that it was the company's intention to drill two material exploration prospects, Badile and Zibido, over the next two years, each with had "the potential to significantly accelerate our growth".

Analyst view

Analysts at FoxDavies voiced concerns that Sound's Rapagnano concession appeared to have been downgraded.

"At the beginning of the year, we had two announcements that the results of the appraisal mooted it would come on stream at the end of January; here, Rapagnano has only been mentioned in passing," they noted. "We would have thought that this would have been a central tenet to the company's discussions and plans for the future."

They added: "It is clear that Nervesa is now the pinch point for the company, and will be the key in deciding its durability in the near to medium term.

"As a consequence, we will await the news of the Nervesa appraisal drilling programme before we opine on the company further."