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Sound Energy PLC: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Sound Energy shares advance thanks to a busy week of developments

Sound Energy is advancing with multiple work-streams which means a number of value catalysts are coming down the line for investors.
oil and gas operations
INVESTMENT OVERVIEW: SOU The Big Picture
Sound had five RNS announcements in five days

Morocco-focused gas junior Sound Energy PLC (LON:SOU) shares are up almost 25% this week, as the company issued five stock market statements in five days.

The daily communications included progress reports for the group field development and separate exploration efforts at the Tendrara project, as well as the launch of a partnering effort for the Sidi Moktar exploration venture.

It’s not exactly clear why investors have been peppered with updates in this way. This observation comes without any agenda, though the sector’s more partisan followers may wonder whether some of the week’s announcements could’ve been folded into others.

READ: Sound Energy applies for Tendrara development concession

It could, easily, be the case that Sound Energy’s communications and investor relations are simply on-the-ball. And, unlike less efficient teams in the junior market, Sound’s management is simply keeping the market abreast of developments practically in real time.

Regardless, it is plainly becoming an increasingly busy period for Sound, and, whatever the motivation or approach, what is clear is that the company’s strong retail following is very much re-engaging with the stock and the company’s story.

With multiple work-streams now underway, there’s a number of value catalysts coming down the line for investors.

Tendrara exploration and development advancing in tandem

East Morocco is the primary focus for Sound. Here, the portfolio essentially comprises three areas, of which the Tendrara discoveries (47.5% owned by Sound) represent the most advanced of the three components.

The area that the market has known as Tendrara spans some 9,000 square kilometres and it is made up of eight permit areas – and has been so far host to seven wells.

Tendrara itself can be separated into two distinct ventures. One is a field development project which, as we learned this week, is now on the path to production.

The other is very much focussed on exploration, along with two additional areas that span a further 14,000 square kilometres.

In terms of the exploration story, Sound this week told the market that it has another 8 well locations that have just been granted environmental approval - specifically, though, it is presently preparing to drill at least two new wells later this year.

These are likely to be exciting wells. The A1 prospect, to be drilled this year, is for example estimated between 278bn and 1.25 trillion cubic feet – from the low case to the high.

Investors can expect to see newsflow coming across the two-track project; both exploration (seismic, prospect estimation, and the lead up to drilling) and development which is building to towards project sanction at some point in the coming months.

Sidi Moktar presents another opportunity, subject to a deal

Quite separately, the group also owns a 75% stake in the high potential Sidi Moktar exploration area.

It spans about 4.5 square kilometres, and it is close to existing infrastructure and end-user demand (Sound highlights that it is close to a state-owned phosphate plant).

Here there is an awful lot of potential – Sound estimates nearly 9 trn cubic feet of undiscovered gas in its ‘best case’.

Some relatively shallow discoveries have been made in the area previously, which have some development potential, though the big hypothetical resource numbers are seen in deep targets – deeper than 3kms below surface.

On Tuesday of this week, Sound launched a farm-out process for the project.

As highlighted above, Sound already has a lot of commitments in Eastern Morocco and those assets will require time, human resources and capital.

At Sidi Moktar, Sound seeks a new partner to share the burden. It is anticipated that the 2018 work programmes will be supported by a farm-out, assuming a deal is done in sufficient time. Sound says it has one “potentially drill ready” prospect in the deep play, and it expects additional wells will require additional insights from seismic work. 

Sidi Moktar is essentially a secondary project to Tendrara, contingent upon some form of partnership or funding deal – as such, a transaction presents yet another potential value catalyst.

Overall, it again appears that Sound Energy is a standout stock to watch in AIM’s oil sector - which is just as well, because the company’s not likely to be shy in presenting the market with updates.

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