Sound Oil Update

This article is a follow-on from 'Sound Oil - Not So Sound After All'
http://theel1tetrader.blogspot.co.uk/2012/09/sound-oil-not-so-sound-after-all.html


Traders have benefited well from Sound's recent share price rise, but the increase still remains a drop in the ocean for longer term investors locked in at higher prices. Since the blog reviewed Sound, the share price has risen from 0.39p/share to the closing price today of 0.55p/share peaking intra-day at 0.57p/share. The closing price represents a respectable rise of 41% since the review. It was up 271% to 1.45p as at 14/10/12. Take profits. A few RNS' have been released since the last review so this post will briefly address these.

Following the review on 11/09/2012 the first news statement to be released concerned operations in Indonesia. Operations to drill four development wells in the Bangkanai PSC were 'progressing well'. Sound has a 5% interest in this block. A following holdings RNS was released following the initial large share price rise where one block of over 50m shares was traded. The holdings RNS referred to a rearrangement of shares within the institutional body of the company.

However, it was the next two RNS' that were of more importance. The half yearly report shed light on the company's financials with a cash balance of £5.1m and no debt noted. However, 'the loss after tax for the first six months of 2012 was £2.1 million, which includes £1.4 million in administrative expenses and a £0.6 million foreign currency translation loss.' As mentioned in my previous article, Sound simply cannot keep having such a significant administrative cash burn as it is unsustainable whilst the company is this size and will eventually lead to more and more fundraising. (Administrative Expenses refer to costs incurred with the administration of the business such as salaries and rent). 

Today, Sound released a further Indonesian operations update. It included the following statement. 'The Company has received approval from the Marche regional authorities of its Environmental Impact Assessment for the re-start of gas production from the field. It is expected that the final approval from the Italian Ministry of Economic Development will follow in approximately one month. Operations at the site will then commence with a view to achieving first production before the end of the year.' This will be a significant milestone for Sound - funding is definitely needed and this project can provide it. However, I would be sceptical on the timescale given. Approval from governmental bodies often take longer than anticipated. In my opinion before year-end is quite ambitious and a more likely timescale is January. Perhaps the highlight of the RNS is the gas price that will be achieved - $11.30/mcf. This represents a massive premium to gas prices that are achieved in economies such as the US and reflects growing gas demand in Asia.

Ultimately Sound has made decent progress since the last update, but there are still a multitude of issues that need to be addressed. Reducing the Italian workload should be a primary focus also. From a technical point of view the chart looks positive. A period of consolidation and a retrace may be forthcoming, but a further rise is likely before this. Traders who purchased at the bottom would do well to take a portion of their profits out soon especially considering the FTSE and DOW markets are trading near or at multi-year highs.

7 comments:

  1. Sold out today along the same lines of thinking - thanks for the tip, boguht in at 0.44

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  2. Easy to get carried away with sentiment so i think i will take out a third and only put it back in if the h&s formation happens. Very neat timing on the review

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  3. made a fair chunk off sound :)!

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  4. and its up massively today!

    Top blog

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  5. WOW - up over 100%!!

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  6. Congrats on highlighting this one - your followers will be happy bunnies today.

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