Broker Cantor Fitzgerald has set out a new target price for Sound Energy PLC (LON:SOU) as investors await news from an ongoing drill programme at the Tendrara gas project in Morocco.
Drilling is currently underway on the TE-8 well – on Friday the group told investors that it is just two metres from the main reservoir in the TAGI formation – and, according to Cantor analyst Sam Wahab, the result can be decisive for the Sound Energy share price.
The analyst emphasised that with a recent deal Sound Energy increased its exposure to Tendrara, and as a result it is now more leveraged to the well’s success (or failure).
Sound Energy’s AIM quoted shares are up some 400% since July, to trade today at around 89p per share.
Cantor’s ‘buy’ recommendation, and new target of 94p, sees further upside.
“Success at TE-8 could lead to a further rerating in Sound’s valuation in our view,” Wahab said in a note.
“Following the company’s proposed acquisition of a further 20% in Tendrara (for 272m of new ordinary shares), we believe the company’s valuation will be more heavily geared to success or failure at this key well.
“We update our valuation to take account of the proposed share dilution and increased working interest in the company’s Moroccan asset base.”
TE-8 has the potential to confirm a much bigger discovery, beyond the significant resource uncovered to date.
TE-8 is around 12 kilometres from the last successful hole and is what’s called a step out well because it will test the lateral extent of gas that has been discovered in the TAGI reservoir.
Assuming gas is encountered in the main well bore, a further 30-day side-track will be drilled to prove a potentially deeper gas contact 900 metres to the north-west.
Whatever comes in the next two months, the firm has already enjoyed considerable success at Tendrara.