Snippets from Progressive report21 Apr 2019 23:10
▪ 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.
▪ 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 TCF net recoverable resources to Sound Energy could add a further 166 p/share to the asset value. Investors should view any valuation in the context of their own assessment of relevant risks.
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