Interactive Investor

Sound Oil eager on 60% Badile upgrade

8th October 2013 10:24

by Esther Armstrong from interactive investor

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Sound Oil has upgraded the net present value (NPV) of its Badile exploration gas prospect in Italy by 60% following an independent report on the area.

The Badile, which is 100% owned and operated by Sound Oil, is located 45 kilometres south-west of the Malossa gas field.

Sound Oil said Malossa, which is "geologically analogous" to Badile, has produced a total of 177 billion standard cubic feet gas with associated light condensate.

Now, ERC Equipoise has completed an independent competent person's report (CPR) of Badile and confirmed a best estimate NPV10 of €486 million (£410.5 million), an increase of 60% on the previous CPR of €302 million.

NPV10 figures are net of estimated direct expenses and discounted at an annual rate of 10%. They are used to estimate the present value of a company's proved oil and gas reserves.

The high case for Sound Oil's Badile NPV10 has been identified as €1.7 billion and the low case as €101 million by the CPR. The study also confirmed a 22% geological chance of success for the prospect.

James Parsons, Sound Oil's chief executive, said: "Badile remains the largest and most strategic asset in Sound Oil's portfolio. We continue to prepare the company for drilling this asset with a view to capturing the upside NPV, which now exceeds $2 billion (£1.244 billion)."

Investor view

Despite the positive update, shares in Sound Oil were down almost 3% in morning trading.

Users on the Interactive Investor discussion boards were generally upbeat though, with many hoping Sound Oil would focus on securing a joint venture or farm out deal with one of the bigger oil and gas explorers.

'M33 Investor' said: "This gives Sound the possibility of farming out but retaining a healthy stake - Parsons has already intimated there have been serious offers."

Meanwhile, 'Chelios11' gave his verdict on why the share price might be ticking lower: "Recent posts indicated a previous chance of success for Badile of 30%. So the new CPR indicates a lower chance of success but higher potential resources. I also hope they get a joint venture partner to help with this prospect as it is a big risk."

In February Sound Oil received an offer to farm into the Badile prospect from an Italian oil and gas major, but did not think the offer reflected the potential of the area.

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