-- adds broker commnet, share price --
Sound Oil (LON:SOU) has now received a production concession from the Italian authorities for the Nervesa project.
The Casa Tonetto production concession, which includes Nervesa, was granted by the Italian Ministry of Economic Development and it is the final step in the permitting process.
It enable Sound Oil to start commercial production from the successful Nervesa gas well, drilled in 2013.
Construction work is expected to begin shortly, allowing first commercial gas production later this year.
"First commercial gas at Nervesa will be a significant milestone for the company and I am pleased to report that we have now finalised the associated permitting,” said chief executive James Parsons.
“The Nervesa discovery is approximately 80 metres from the high and low pressure gas distribution networks. Similar to the company's other existing onshore discoveries, Nervesa benefits from very strong gas prices.
“A gas sales agreement with a long term partner is expected to be signed shortly."
The gas project goes ahead despite the recent disappointment of the second appraisal well at Nervesa, which was not able to establish stable gas flows. It was described, at the time, as “a frustrating but relatively minor set-back.”
Sound Oil is also expanding into Morocco, and it recently raised £3mln to fund a three-well drilling programme there.
Broker finnCap started coverage on the Sound today with a ‘buy’ recommendation and 23p target price.
The portfolio of near-term production growth appraisal opportunities in Italy and Morocco, is attractive while there was also significant upside potential on the exploration assets.
The broker, which visited Nervesa earlier this year, said the growing cashflow profile and balance sheet strength make it attractive.
Shares rose 4% to 17.8p.