I am at Heathrow waiting to fly to Houston to spend some time with Dennis Proctor and the guys at Hunting, after that I am seeing a couple of smaller exploration plays.
Sound Oil
Sound has announced this morning that it has been granted a 30 day period of exclusivity from OGIF the Moroccan Oil and Gas Investment Fund in relation to a potential farm-in to the Tendrara licence onshore Morocco.
This action which if successful would be the first 'transformational deal in pursuit of the company's Mediterranean gas strategy'. Sound see this as having a very attractive risk/reward profile and the first step in diversifying out of Italy. They see Tendrara as a large scale but stranded gas discovery with low risk appraisal potential and significant exploration upside. With strong domestic demand and Morocco being the host of the Algerian gas pipeline to the EU the company probably sees access to significant upside (Fastnet had a CPR with a potential 5 TCF in it I understand) with a small downside of around 10m euros.
Sound has said that it has offered to assume operatorship of the licence and to take a 55% working interest which would be granted in two tranches, 37.5% awarded immediately and the remaining 17.5% granted once they commit on the second exploration phase. The terms are that Sound will pay 100% of the cost of three wells, of which only the first would be a firm commitment. This gives the company the chance to assess whether the reserves were of a sufficient size to justify development of the licence.
The company has promised diversification and scale and the recent funding more than covers this potential acquisition whilst into the bargain opening up for shareholders an exciting procession of news flow. With Nervesa drilling at the moment, a well on Tendrara would add to one being planned at Badile for early next year and of course exciting prospects such as Laura are in the pipeline.
Sound has always said that it can run a Mediterranean gas business from Milan but if successful I expect to see modest infrastructure placed in-country Morocco probably with some of the management from Italy, some of whom are conveniently Moroccan! The core strengths of the technical expertise in Milan will be accessed and Sound will have less exposure to the Italian pa rt of the portfolio.…
