I can't do this proper justice so if you want the charts and pics you will have to email me.....cheers, Crude
Near-term opportunities The investment by Continental through its subsidiary Metano Capital ought to enable Sound to exploit the potential within its portfolio. We outline below those assets that we believe are key in the near-term work programme, and which Sound will be prioritising over the next 12-18 months. Nervesa gas discovery (Carita Permit) The Carita Permit is located in north-east onshore Italy and contains Sound’s key asset, the Nervesa gas discovery. Nervesa was originally drilled and discovered by Eni in 1985, placed in production in 1989 and shut in just two years later because of poor field performance. It is believed that the discovery well that was brought into production was drilled in a sub-optimal location off the crest of the Nervesa structure (5.9p / 7.4p unrisked). Sound recently completed an appraisal well up-dip of Eni’s discovery well, on the structural crest, where 46m of net gas pay across a total gross reservoir of 239m within the Upper Miocene San Dona formation was encountered. The well flowed at a stabilised flow rate of 2.7 MMscf/d from multiple intervals and confirmed Nervesa as a commercial 24 Bcf gas accumulation. Figure 1: Nervesa top reservoir map Chart 2: Nervesa is key to production
We anticipate the work programme to include an appraisal well on the Laura gas discovery, which has estimated recoverable resources of c15Bcf. Although the Laura discovery is located in water depths of up to 200m, its close proximity to shore may mean that appraisal drilling and, in the event of success, installation of production facilities, can be completed from onshore; this will significantly reduce the required capital investment and environmental risk. Because of the potential impact on tourism in the summer months, it is expected that Laura drilling will be carried out during the winter. Figure 2: Laura top reservoir map and well schematic Source: Company accounts, Peel Hunt estimates Badile Permit The Badile Permit is located in a prospective area of the Po Valley, onshore northern Italy, a short distance from the multi-million barrel giant producing oil fields Villafortuna-Trecate and Malossa. The licence contains the Badile gas (7.2p / 32.8p unrisked) and Zibido oil (2.1p / 14.9p unrisked) prospects.
Badile gas prospect Badile is a gas/gas-condensate prospect within a Mesozoic fault block trap and is thought to be an analogue of the Malossa gas field, located 40 km to the northwest. Badile has P50 unrisked prospective resource of 175 Bcfe and, in terms of drilling timing, management guidance indicates that the prospect could be tested as early as Q4 2014 (PHe Q1 2015). Sound announced in February 2013 that it had elected not to accept a farm-in offer from an Italian oil major, believing that the commercial terms offered did not reflect the potential of the Badile prospect. We believe the farm-in offer and the decision to turn it down demonstrate industry validation and Sound’s conviction in the resource potential of the Badile prospect. A new farm-out process is proceeding, and we expect this to be completed prior to drilling. We model Sound being fully-carried through the well with a 50% retained equity interest.
This is proving time consuming and is somewhat tricky........bear with me. Hope it is making sense. There are some charts I have had to omitit but I am trying to give you guys the gist of it. Appologies for the funny hash numbers. Hopefully more to follow......
 Our valuation takes account of the recent funding arrangements, financial results and operational updates. Our NAV is calculated on a fully-diluted basis, including both the 87.5m shares issued to Continental and a further 76.9m shares upon exercise of the warrants, in total a 33% dilution of current equity.  In our view, the investment by Continental helps de-risk Nervesa; we therefore increase the chance of development from 70% to 80%. We also de-risk our valuation of Laura from 30% to 50% following the permit award. The net impact of these changes is to increase our Core NAV to 4.1p from 3.4p, and our Risked NAV to 13.5p from 11.1p. We also move to include 1.5p of our 7.2p/sh EMV for the Badile prospect into our target price, reflecting our positive view on the regional exploration and geo-technical experience within Sound’s operations team. As a result we set our new target price at 15p/share, but flag that our full RENAV for Sound (which considers full value for risked exploration upside) is markedly higher, at 22.8p. Peel Hunt estimates Recommendation: In our view, recent corporate and operational developments strengthen the investment case for Sound Oil and accelerate the timeframe in which potential upside within the portfolio can be exploited. The next 12 months should see a step-up in production as both Casa Tiberi and Nervesa are brought onstream, in addition to possible significant exploration and appraisal upside from Badile and Laura. Beyond the normal geological and operational risks, the main threat we see to realising the potential value from these assets surrounds farm-out timing and the terms achieved. Factoring in these risks, and all recent positive corporate developments, leads us to raise our target price to 15p/share, Buy.
 Institutional investment of £14m gives Sound Oil security of funding to pursue the portfolio’s growth opportunities. The investment by Continental Investment Partners, through its subsidiary Metano Capital SA, will enable Sound to drill the Badile prospect (7.2p risked/32.8p unrisked). This potentially unlocks significant value from the exploration portfolio. Split 50/50 between debt and equity, the Continental investment will provide prospective farm-in partners with comfort on funding and increased surety of well timing (PHe Q1 2015). Funding proceeds will also be used to develop Nervesa following the recent farm-out to Niche Group (discussed below) and potentially to drill other wells in the portfolio – Laura and Santa Maria Goretti are likely near-term candidates.  Farm down de-risks Nervesa: Sound farmed out 27.5% of Nervesa (5.9p risked/7.4p unrisked) to Niche Group in exchange for a 100% carry through the second appraisal well, which will evaluate the southern extent of the structure (PHe Q3 2014). We previously assumed Sound would farm down 50% in exchange for a carry, so this deal allows it to extract more value from Nervesa than before. Nervesa is a key project in the portfolio, accounting for >40% of our 13.5p risked NAV and underpinning cash flow from 2016. Importantly, any future wells on the field are expected to be funded from production cash flow.  The recent Laura permit award allows this existing gas discovery to be tested. The 15Bcf Laura gas accumulation (1.8p risked/9.1p unrisked), located 4km offshore in the Gulf of Taranto, will be tested using extended reach drilling (ERD) from an onshore location, minimising costs and environmental risk. We understand Sound intends to farm-down its current 100% interest in the licence (PHe 50% retained and fully-carried interest) ahead of drilling (PHe mid-2015).
 2013 financial results reflect a milestone year of first revenue generation, which came in ahead of our estimates (£482k vs PHe £383k). The operating loss (£6.4m, vs PHe £3.0m) was impacted by a writedown on the Strombone asset, but looking forward a £560k reduction in G&A will benefit financials for FY2014E. We forecast that reported FY2013 net debt of £1.6m will be turned around to a net surplus of £12.3m by end-FY2014 following the recent funding arrangements, a full year of production from Rapagnano (0.6p), and the start-up of Casa Tiberi (PHe June 2014; 1.1p).  Our valuation takes account of the recent funding arrangements, financial results and operational updates. Our NAV is calculated on a fully-diluted basis, including both the 87.5m shares issued to Continental and a further 76.9m shares upon exercise of the warrants, in total a 33% dilution of current equity.  In our view, the investment by Continental helps de-risk Nervesa; we therefore increa
Crude, I'm looking forward to reading the broker note, thanks for going to post it. I thought we would of had a RNS stating Casa Tiberi was online and flowing because the skids do not take a lot of work to commission. Also there must be some big news in the back ground about JP visiting Italy. They did not need to tweet that and raise its profile if there is nothing to come of it. After all these years Crude I really think we are on to a winner ? It might just take a little more time and I'm not selling cheap, holding strong.
Datafeed and UK data supplied by NBTrader and Digital Look.
While London South East do their best to maintain the high quality of the information displayed on this site,
we cannot be held responsible for any loss due to incorrect information found here. All information is provided free of charge, 'as-is', and you use it at your own risk.
The contents of all 'Chat' messages should not be construed as advice and represent the opinions of the authors, not those of London South East Limited, or its affiliates.
London South East does not authorise or approve this content, and reserves the right to remove items at its discretion.