8th Jun 2015 07:15
LONDON (Alliance News) - Sound Oil PLC Monday said it has entered into a farm-in agreement with the Moroccan Oil and Gas Investment Fund on the onshore Tendrara license to operate and acquire up to a 55% stake by funding exploration costs.
The company has also completed further work on the second appraisal well at the Nervesa discovery in Italy, which has shown it is gas bearing but has low permeability and Sound is now deciding whether to initiate a well test directly or to utilize stimulation techniques.
The onshore Tendrara license includes two stranded gas discoveries with "low risk appraisal potential" and "significant blue sky exploration upside" that has the potential to hold trillions of cubic feet of gas. The license covers eight blocks in the North East of Morocco and seven wells have been drilled to date.
In May, Sound had been granted a 30-day exclusivity period to potentially acquire the stake in the Tendrara licence.
Following the deal, Sound Oil will, subject to regulatory approvals, assume operator-ship of the Tendrara license and to take a 55% working interest. The Moroccan Oil and Gas Investment Fund will hold a 20% stake whilst the Moroccan National Office of Hydrocarbons and Mines will retain the 20% stake it already held.
Sound's 55% working interest will be granted in two tranches, with an initial 37.5% awarded on completion of the transaction and the remaining 17.5% granted once Sound Oil commits on the second exploration phase, which would include the drilling of further wells.
Under the agreement, Sound Oil will pay 100% of the cost of three wells, of which only the first well would be a firm commitment. Sound will not acquire the second 17.5% stake in the project unless it commits to the drilling of a second well on the license.
The first well is to appraise the larger of two existing discoveries in the Tendrara Licence with a view to addressing "residual reservoir uncertainties" and proving up sufficient reserves to properly size the design of the infrastructure required to commercialise the gas. Sound Oil's commitment to fund the second and third wells will depend upon the results of the first well.
The first well will be drilled in the fourth quarter of 2015 at a cost of around GBP6 million, all to be paid for by Sound.
"This transaction is our first transformational deal in pursuit of our Mediterranean gas strategy," said James Parsons, chief executive of Sound. "The Tendrara asset, with two existing discoveries and resource potential of multiple trillions of cubic feet of gas, has a very attractive risk and reward profile, builds on our core technical and commercial strengths and dovetails well with our Italian portfolio."
In a separate statement, Sound said it has completed seven intervals in the lower section of the reservoir at the onshore Nervesa discovery in Italy where the most significant gas shows were identified from its second appraisal well where the company identified gas shows in multiple intervals in the Upper Miocene San Dona Formation in May.
Initial gas flows have identified that multiple perforated intervals between 1,929 and 1,988 metres depth, are "indeed gas bearing, but are however of relatively low permeability", it said.
"Clean-up operations are underway and, similar to the first Nervesa well drilled in 2013, are expected to continue for a few days. After the clean up the company will decide whether to initiate a well test directly or to utilize stimulation techniques beforehand," it said in a statement.
Sound Oil shares were down 3.8% at 19.25 pence per share early Monday.
By Joshua Warner; [email protected]; @JoshAlliance
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