--ADDS BROKER COMMENT--
Sound Oil (LON:SOU) told investors that the latest Nervesa appraisal well found seven gas bearing intervals in the lower portion of the well, where gas shows were strongest.
The company said it has now successfully perforated and completed these seven intervals, and has observed initial gas flows in multiple intervals. They did, however, have relatively low permeability, it added.
Clean up operations are now underway, and subsequently the company will decide whether to carry out well testing, or advance with reservoir stimulation techniques first.
Elsewhere, Sound Oil has now signed a farm-in agreement for the Tendrara licence, onshore Morocco.
The company describes Tendrara as a large scale discovery with very significant exploration upside.
Upon completion of the deal Sound Oil will have a 55% stake in the project, and it will become the project operator.
Under the terms of the farm-in deal Sound Oil is required to wholly pay for three wells, though only the first is deemed a firm ‘commitment well’. This well will be designed to test the larger of the two known discoveries at Tendrara.
It is expected that drilling operations will begin in the later part of this year. Whether or not Sound Oil commit to the two additional wells will depend upon the results of the first.
Sound Oil chief executive James Parsons said the Tendrara transaction is the group’s first “transformational deal” in its Mediterranean gas strategy.
“The Tendrara asset, with two existing discoveries and resource potential of multiple Tcf, has a very attractive risk / reward profile, builds on our core technical and commercial strengths and dovetails well with our Italian portfolio,” he said in a statement.
The company also announced that it has extended its proposed open offer share sale, which was otherwise due to close for acceptances today. The offer has received a strong response from eligible shareholders, Sound Oil said.
Westhouse Securities analyst Mark Henderson said today’s Sound Oil news was, on balance, neutral.
The Moroccan entry is positive, the analyst adds, though he reckons more detail is needed about the group’s plans. News from Nervesa, however, highlights uncertainty over the timing of first gas from the field, Henderson explained.
“Sound Oil has done very well over the past 12 months but we believe it needs to make progress with its more material Badile exploration prospect in order for further upside to be delivered. We retain neutral rating,” he added.