Report13 Dec 2018 17:39
Exciting times ahead
Sound Energy, together with its partner Schlumberger, has started
drilling its second exploration well in its current programme on the
Tendrara concession, onshore Eastern Morocco where it is operator
with a 47.5% working interest. This programme is looking to evaluate
multiple independent geological play types contained within the
licence. The next two wells are targeting multi-TCF potential which, if
successful, has the ability to provide a step change in the group’s
reserves and resource base. In addition to Sound’s obvious
exploration potential, we derive a valuation for Sound Energy’s
share of the TE-5 discovery of approximately US$360 million using
industry standard valuation methodology – equivalent to 27.1
p/share. Sound’s on-going exploration has the potential to materially
increase this valuation.
Although not covered in the report Sound also has a second asset in
country, Sidi Moktar, with significant potential. The valuation of this
asset will be covered by a follow-up to this note shortly.
? Tendrara campaign. Sound’s first well in the current three well
programme (TE-9) was drilled on the A1 prospect which had a primary
target of a Triassic fault block. The reservoir quality was poor. The
company spudded its next well (TE-10) on 7 December which is
targeting a large stratigraphic trap and a smaller structural closure.
P50 unrisked gas in place is estimated at approximately 2.8 TCF,
worth potentially 110p/share. This is expected to take 30 - 40 days to
complete. Once this is completed, management is looking at drilling a
Palaeozoic target although the precise location of the prospect has not
yet been finalised. This programme has been selected to explore three
major geological targets and will then allow the management to
ascertain the potential running room in the licence for future drilling
programmes or to demonstrate sufficient understanding of the basin to
be able to monetise the assets early.
? TE-5. As well as this exploration programme, the company is moving
forward the TE-5 discovery ready for development. An independent
reserve certification has identified gross contingent recoverable
resources in this discovery of approximately 377 BCF of gas. The
partners are progressing with the FEED (Front End Engineering &
Design) with the hope of getting FID in 2019 and start up of production
in the field by 2021.
? Valuation. Using the industry standard valuation of a discounted cash
flow analysis, we derive a valuation for the Sound Energy’s share of
the TE-5 discovery of approximately US$360 million which adjusting
for the cash equates to a value of 27.2 p/share. This uses a gas price
of US$8.9/mcf in 2019 and is escalated at 2% per annum. The
discount rate used is 10% (with a 2% reduction increasing the
valuation by a further 17%). Using this metric as a basis for the
exploration upside, one could assume that a discovery of 1 T
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