Sound Oil agrees contract deal with Italian engineering firm

Sound Oil, an Italian focused upstream oil and gas company, has announced a funding contract for the Nervesa project with the Italian engineering company CSTI.

Under the agreement CSTI will fund €1.5m towards the appraisal well in three tranches, equivalent to about half of the remaining spend of the well. CSTI will also, as part of the subsequent field development programme, have pre-emption on funding the total cost of the facilities, which are currently forecast to be €4.0m, as well as the associated engineering, procurement and construction contract for the project.

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CSTI will receive its payments as a 'net profit interest', receiving up to 36.5% of the project's net cash flows (net of taxes, costs and royalties) for a maximum of four years. Payments to CSTI will be capped at €19.2m (assuming CSTI fund both the well and the facilities) or €12m (if they fund only the appraisal well).

If no gas is produced, Sound will not be liable to pay CSTI any funds, but CSTI would be entitled to a pre-emption right on one future EPC contract.

Sound will retain 100% ownership and control of Nervesa.

James Parsons, Sound Oil's Chief Executive Officer, said: "This funding contract secures up to €5.5m of additional funding in exchange for an estimated 7 to 8% reduction in the Nervesa project NPV. It also limits Sound Oil's remaining cash spend on the Nervesa appraisal well to €1.4m, therefore preserving cash for subsequent wells.

"We will continue to pursue these innovative structures, which secure additional funding without issuing new equity and without ceding material upside on our core assets."

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