Why Sound Energy has now lost 60% in one month
19th November 2018 14:05
by Lee Wild from interactive investor
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It delivered a quickfire 540% profit for shareholders in 2016, but the rally has unwound. Lee Wild discusses how Sound Energy's share price might perform after this fresh dive.
Spirits were high when Sound Energy began an exciting three-well exploration campaign at Tendrara, onshore Morocco. A month later, and the shares are down 60% after the first well - TE-9 - turned up dry.
Sound had been hoping to prove that huge gas resources in neighbouring Algeria extended into eastern Morocco, but it'll need another crack, moving onto TE-10 which is already prepared.
The two wells are not correlated, so an initial failure does not derail the whole campaign. Indeed, TE-10 is targeting estimated volumes of 2.6 trillion cubic feet (Tcf) mid case gross gas originally in place (GOIP) - 5.0 Tcf GOIP gross upside case and a 1.2 Tcf GOIP gross low case.
Sound also has $30 million of cash, so funding is not an issue.
It also confirms that preparation for the Final Investment Decision (FID) for the TE-5 discovery continue as planned. Front End Engineering Design (FEED) conducted and paid for by the Enagas consortium is due to complete around the end of this year.
• Potentially transformational for Sound Energy
As interest was building ahead of the Tendrara campaign, we looked at price potentials for Sound Energy, but were not convinced that a tick up in the share price to around 37p confirmed bullish sentiment.
To change our minds, we wanted to see a break above 43p. It didn't happen (the subsequent peak was 38.66p), and by Friday's close the share price had drifted to 24p. At their worst after today's news, they'd fallen a further 37% to a low of 15p and levels not seen since spring 2016.
The incredible three-month rally from 16p to more than 100p over summer/autumn 2016 has now completely unwound. No surprise then that the shares currently sit at 16p, a level which provided solid support in the six months leading up to the 2016 surge.
Levels of previous support on the downside have been 13p, then 9p and 4.4p below that. On the upside, 19.5p looks like first stop if bargain hunters appear, then 22p after that. Get that far at 24p, then 33.4p come into play.
Much will depend on results from T-10.
Source: TradingView (*) Past performance is not a guide to future performance
*Horizontal lines on charts represent levels of previous technical support and resistance. Red represents trendlines.
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