The current valuation of Sound Energy PLC (LON:SOU) remains “undemanding” ahead of the completion of two potentially “transformational” wells, according to the broker Cantor Fitzgerald.
Analysts Sam Wahab’s comments followed the release of interims from the growing E&P company, whose shares are up 406% in the year to date, driven by its success in Morocco.
Earlier Sound said the Tendara gas field has “multi Tcf” potential, the company said Thursday as it revealed plans for a third company-drilled well on the site.
In layman’s terms, any discovery that runs into the trillions of cubic feet (Tcf) of gas is an internationally significant discovery.
It has drilled one well, which flowed 17mln cubic feet of gas – this was as a highly commercial and well ahead of expectations.
A second is currently underway and will go horizontal. Armed with the data from both, Sound should be able to give a more comprehensive assessment of what lies below the surface.
The AIM-listed explorer, in harness with its development partner Schlumberger, is currently mulling plans for a third “outpost” well.
The stock has mapped the progress made to date as it has jumped from 16.75p at the end of June to a recent high of 97p.
“The shares have continued their strong rally following the better than expected results at the company’s last well, but we believe the current valuation remains undemanding ahead of two transformational wells,” said Cantor’s Wahab.
Given the success it has enjoyed in Morocco, the company in June exercised an option to buy a 55% stake in Meridja, the block next to Tendara. The pair share the “same fundamental geology”.
Followers of Sound will know it also boasts a portfolio of production and development assets in Italy.
In the half-year update, it said it was counting down to drilling the Badile well, which could move the dial if successful.
The net present value of this one asset is put around €486mln, which may explain why Schlumberger opted to extend its agreement with Sound and help fund Badile’s development in return for a 20% interest.
The financials, meanwhile, show the company is sitting on a cash cushion of €24mln, and has negotiated further headroom with a €28.8mln debt facility.
The shares succumbed to a bout of profit taking as the were marked down around 5% to 92p.
The brokers suggest Sound is worth in excess of £1 a share, although City valuations may look conservative if Tendara proves to be the huge success that is being spoken about by the bloggers and on the bulletin boards.
“Clearly there is a high degree of excitement surrounding the prospectivity of the Tendrara field given the first flow test,” said Dougie Youngson, analyst at finnCap.
“[The] conclusion of the horizontal well and then the step out well thirty kilometres to the north will ultimately determine the scale and potential of this field.”