Sound Oil (LON:SOU), the oil and gas exploration company, has announced that it has signed a heads of agreement to inject £14 million into its Italian operations. Continental Investment Partners, which is investing on behalf of family offices in Italy, Switzerland and the UK, will become the company’s largest shareholder and the first major institutional investor.
Chief financial officer Stuart Joyner spoke to Proactive Investors’ Nigel Roberts about the plans for the funds...
Nigel: It’s quite complex deal, just describe in some detail exactly what it is and why you’ve decided to go down this route.
Stuart Joyner: Sure. We’re basically injecting a total of £14mln into the company through Continental Investment. It comprises two components; the first component is equity and is £8mln. We’re issuing 100mln new shares at 8p per share.
The second component is £6mln and that effectively is a three year loan note with a 10% coupon.
It’s a significant amount of money. It will effectively fund our forward programme. We unveiled what we plan to do back in January and the funds that we’re raising today will go towards paying for that programme.
Nigel: What are the hurdles you have to get over before you get the entire £14mln?
Stuart Joyner: There’s been an immediate payment of £1.5mln from the £6mln loan. That is on signature. The remaining funds will come on completion of the deal which we expect within the next few weeks and months. Obviously, there has got to be technical due diligence by Continental and approvals by our own shareholders, but effectively it’s a two-stage payment.
Nigel: Apart from the capital, you also get some new directors. What do they bring to the party?
Stuart Joyner: We’re thrilled to have Continental on board. They are a high quality institutional investor. Marco Fumagalli, who is their managing partner, will be joining our board with another appointee. Obviously, they will own a little over 23% of the company once the equity component completes.
They are very well known in terms of investing in Italy. They represent Italian and non-Italian investors. Marco brings corporate finance skills and a good network within Italy. We’re delighted to have him on board.
Nigel: The regulatory environment in Italy is quite challenging shall we say, and certainly different from other parts of Europe. I know there are two other UK-listed companies like yourself in that region. Is there any informal cooperation to try and make the system work for you?
Stuart Joyner: Yes. I mean we network not only actually with the UK-listed E&Ps – although we have good relationships with those companies – but with other entities that have interests in Italy. I think there has been an improvement actually in terms of the Italian regulatory environment. You’ve got a new government, we’re seeing progress. There are talks ongoing in terms of how to improve the permitting process.
As far as we’re concerned, we have been able to get stuff drilled and we are confident of bringing assets through to production. We bought our first field online Rapagnano in 2013. We’re expecting to bring Casa Tiberi on stream over the next few weeks and months. Nervesa, where some of this funding today will go, will be on stream in 2015 and that’s a significant asset.
I think if you have the right approach, if you have a very strong Italian technical team with good reputations in Italy, you can get things done. I think our strategy in terms of investing in that capacity is paying off.
Nigel: With this £14mln looking like it’s coming into the company over the coming months, what does this do to the outlook for Sound Oil?
Stuart Joyner: It will fund the programme for the next 24 months, including the Nervesa drill in the second quarter of this year. That’s an exciting well, as well as Badile, where we hope to spud towards the end of this year and drill into next year.
We also will be progressing Santa Maria Goretti, the licence award from 2013 that we announced. Obviously we’re hoping to drill Laura, which is an offshore prospect but we’re drilling that from the onshore and we hope to get the permitting on that sorted soon.