AIM-listed gas explorer Sound Energy attracted a lot of trading-related chatter last week when the company’s shares plunged to the lowest level year-to-date after it said it was considering selling its concessions in East Morocco.
Like with many early stage oil and gas exploration companies much of the enthusiasm for Sound Energy shares was built on hope and that hope evaporated sometime after three of the most recently tested wells proved either dry or not commercially viable.
Sound Energy’s Morocco turning point
Sound Energy is focused on finding gas in West and East Morocco and while the concessions in West Morocco discovered commercially viable gas, the eastern part has mainly been a drain on resources. In the western part the explorer is talking to the Moroccan government about a gas sales agreement with a view to eventually selling the gas to local power plants.
In terms of the eastern Morocco concessions, Sound Energy is now at a turning point where it will either have to cut its losses or end up sitting on unproductive land. Given the history of the east Moroccan exploration, the obvious question is why would another explorer buy a concession that so far did not prove feasible, particularly given that Sound Energy’s partner Schlumberger was involved in early testing on the sites?
The share price has been reflecting this conundrum, gradually eroding from a peak of GBP30.78 in early January to GBP17.28 before the news in May. It then swiftly lost another GBP7 and is now trading at around GBP10.50.
Where next for Sound Energy shares?
The explorer’s chief executive James Parsons, not to be mixed up with US actor James Parson who plays Sheldon in the Big Bang theory, will address the question of where to next for Sound Energy at the company’s fireside chat event for investors next Monday.
Parsons, who also holds a number of non-executive chair positions in other exploration companies including Echo Energy and Coro Energy, recently said the company is considering whether or not to sell Sound Energy’s East Morocco concession before a final investment decision on the Tendrara TE-5 production area.
Financially, an income stream for the company is still a long way away. The non-binding offer from the Moroccan government has yet to become a signed contract before Sound Energy can look into building a power plant in Western Morocco. A better analysis will have to be made closer to the time when gas prices, gas availability and the reliability of the local players will also come into play.