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Sound Energy one of the few companies to be playing AND winning in the exploration and production game - says broker

Last updated: 14:44 08 Mar 2017 GMT, First published: 11:57 08 Mar 2017 GMT

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First to the ball? Sound is certainly ahead in the high stakes E&P game

Sound Energy PLC (LON:SOU) is one of the few companies to be “playing and winning” in the exploration and production “spectrum”, according to one City broker.

WH Ireland’s comments followed news earlier the company had begun drilling its hotly anticipated Badile gas well in Northern Italy.

The house said oil services giant Schlumberger’s involvement with Sound’s projects in Italy and the successful exploration programme in Morocco has “brought technical validation” to the business.

But it added: “The bulk of the risk and reward resides with Sound.”

Earlier, the company said work on the Badile well, around 10 miles from Milan, began on Tuesday (March 7).

The plan is to go down to a total depth of 4,445 metres with drilling and logging expected to take 100 days.

Assuming gas is found, it will take a further 25 days for completion and testing.

To date the company has scored significant success at Tendrara, in Morocco, where it has discovered significant accumulations of potentially commercial gas.

However, Sound’s Italian assets were the foundation stone on which the company was built and it has two producing wells – although their output is modest.

Badile, however, could be a game changer. An independent assessment suggests the target could be host to around 178bn standard cubic feet of gas with a net present value of £400mln.

That figure is what’s called a ‘best case’, unrisked estimate. It sits at in the middle of the range with the ‘high case’ forecast being 670bn cubic feet and the ‘low case’ 46bn cubic feet.

On Badile, WHI said: “The structure is classic fault and dip bound structure as seen below.

“The key risk in our opinion relates to reservoir quality as carbonates are inherently prone to regional variations.

“Regardless of the result, we believe that getting anything done in Italy is a noteworthy achievement.

“We also note that we believe the source rock could be more oil prone than anticipated.

“A porous/permeable reservoir of this scale might need only three wells to develop and infrastructure is in the immediate vicinity.”

Sounds shares inched higher in late morning trade to 89p, valuing the business at a touch over £600mln.

A year ago the stock was changing hands for 17p with the success in Morocco driving the meteoric rise in the price.

In March 2016 the company’s future, in the minds of some investors at least, was predicated on the success or otherwise of Badile.

Now, according to natural resources boutique SP Angel, its significance has been “de-emphasised” by Sound’s success in North Africa.

“That said, for investors, we believe that even a drilling failure will be an opportunity as although Badile has been the pivot on which Sound changed direction, its value has not really been reflected in the market cap, hence we believe any weakness in share price following Badile will offer an in point,” SP Angel said.

“This is one of those rare moments where the term often applied to drilling, that it is ‘better to travel than to arrive’ actually isn't true, as the journey has been impressive and the destination (Badile's result) will (ultimately) be positive for investors for the aforementioned reasons, no matter what.”

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