Sound Energy PLC (LON:SOU) shares were rising on Wednesday after the firm announced it had unearthed evidence of gas in the Badile exploration well in Milan.
Up nearly 5% the AIM-quoted share was changing hands at 74.5p, it’s best level since late April.
This morning the company told investors that drilling at its Badile onshore well near Milan, Italy, has uncovered “significant gas shows”.
However it also ‘sounded’ a cautionary note, telling investors the early results shouldn’t be considered conclusive. Drilling and logging must to be completed to establish the full picture.
Plainly good news, but more detail is needed
It is plainly good news, but, it is still a little early for investors to get too carried away, according to WH Ireland analyst Brendan Long.
In a note, the analyst explained that the results from the well essentially reflect that gas had entered the drilling fluid though investors have to wait for more information.
“It is a measure of the presence of the gas and its components (C1 to C5). It is not intended for this measurement tool to provide additional data so it is an early stage indicator that is in line with expectations,” he said in a note.
“The presence of gas does not materially de-risk the prospect in our opinion."
Long added: “Logging will provide considerably better data in addition to data that is relevant for establishing commerciality and estimating scale.
“Typically for dolomitic reservoirs the crux relates to reservoir quality given the chemical and mechanical instability of carbonate reservoirs which can lend itself to a broad range of outcomes.”
Badile presents “potentially very good news”
Elsewhere, oil companies expert Malcolm Graham Wood described it as “potentially very good news”.
“The company are correctly warning investors not to get carried away (some chance) until the full results are known,” he said in his daily market blog.
“Having said that, if this was to come in then the last few years would have been worthwhile, a long time ago I remember having 50p a share in for Badile, i’m not going to change that now although it will need tweaking depending on the results.”
Gas found in exploration well
Revealing the initial findings from the Badile well, Sound detailed that gas was encountered at a measured depth of 4,375 metres within the main reservoir target. Chromatograph data indicated it was composed of methane and pentane.
Drilling has been paused to allow workers run in a liner after which Sound will continue to the bottom of the reservoir.
To date the company has scored significant success at Tendrara, in Morocco, where it has discovered significant accumulations of potentially commercial gas.
However, Sound’s Italian assets were the foundation stone on which the company was built and it has two producing wells – although their output is modest.
Badile could be a game-changer for this portion of the portfolio. An independent assessment suggests the target could be host to around 178bn standard cubic feet of gas with a net present value of £400mln.
That figure is what’s called a ‘best case’, unrisked estimate. It sits at in the middle of the range with the ‘high case’ forecast being 670bn cubic feet and the ‘low case’ 46bn cubic feet.