Stockbroker Cantor Fitzgerald upgraded Sound Energy PLC (LON:SOU) and detailed upcoming catalysts for the explorer.
As the company begins gearing up for a new programme in Morocco, Cantor moved to a ‘buy’ rating from ‘hold’.
Sound Energy on Wednesday morning told investors that the SAIPEM rig has now arrived at the Sidi Moktar gas project, onshore Morocco, where it will be used for a work-over programme for two existing wells on the Kechoula discovery.
Koba and Kamar work-overs are the next catalysts
The Koba-1 and Kamar-1 wells, drilled by former operators, will be recompleted, perforated and tested.
Operations on Koba-1 are expected to be complete by the end of May, whereas the Kamar-1 workover programme is due to complete by mid-June. If the well work-overs result in commercial flow rates then it is planned that Sound will have an extended well test.
The company notes that past assessment of Sidi Moktar, by past operators, yielded estimates for the asset’s potential for up to 9 trillion cubic feet of gas. As well as the Koba-1 and Kamar-1 well operations, Sound also intends to reprocess existing 2D seismic data.
Sound highlighted that it intends to wait until it has well data and findings from the new seismic data analysis before it comes to its own conclusion about the project’s resource potential. It also noted that if well operations and testing are successful it would anticipate its ‘first commercial gas’ from Sidi Moktar by the end of 2017.
Cantor compare’s Sidi Moktar with Tendrara
“In our view, the Sidi Moktar licences could have significant pre-Jurassic exploration potential from the TAGI and Paleozoic, similar to the company’s Tendrara licence in Eastern Morocco,” said analyst Sam Wahab.
“We therefore update our valuation to take account of the risk profile of the company’s portfolio following this year’s wells at Tendrara (Morocco) and ahead of a key well result at Badile (Italy).”
Wahab pointed to the fact that Sound Energy shares are down 26% since the latest well result at Tendrara (TE-8), though he says the disappointment over the well’s outcome is “overdone”.
The analyst also noted that Cantor’s upgrade comes ahead of a number of potential drilling catalysts.
“We believe that Sound has sufficiently grown its acreage position to become a material player in Mediterranean gas,” Wahab added.
“The company is benefitting from attractive and robust pricing fundamentals which have served to boost project economics.
“With a number of drilling catalysts in the short term, supported by a robust financial position, and a funded 2017/18 drilling campaign, we see Sound’s current share price as representing a compelling entry point for investors.”
**UPDATED on May 18