2013 interims
Thanks to Alphaville's reporting of Merrill's research piece today, we now have a date for the publication of the interims - which is 29th August.
Merrill also indicate their expectation that the planned distribution will be announced at the same time - and, frankly (after today's update), I can't see much likelihood of them wanting to publish the details of that any earlier ....and they've already told the AGM they won't leave it any later......
.....so I'm starting this thread for people to post details of matters they expect to be covered in the interims.
We will know by then the test results from TGT-10X and we should know whether Lideka East has anything worth testing. We may also have by then the gas sales agreements for TGT and CNV - and we should have the results of the volume implications of the splitting tests done on the wet gas from CNV. And I would think that we'll have the results of the latest round of FPSO testing, aimed at raising TGT capacity to 70-75k bopd.
What we won't know until Interims day is the extent of the cash position and the plans for the distribution. Alphaville today quote Merrill as saying:
we continue to believe the quantum of the dividend to be announced
with 1H13 Results on 29th Aug-’13 could surprise the market to the upside.
....as do I. .......So the question is "how much?"
My starting point is that they had $350mn cash at the end of May (per the AGM presentation). By the time that the end of August comes around, I'd guess that may have grown to c. $430mn (depending on timings of tax payments, drilling costs etc).....which would be about 85p per share.
I could see them paying out over 50p per share though, if they wanted to indicate they would maintain the payment at the same level in 2014, prudently they may want to pay 10-15% less than that.
Whatever the case, by the time we get to the start of September we could be looking at a much more positive scenario than has recently been the case - and IMO the market will start paying some keen attention ahead of the reserves reassessment which might emerge during Q4, given that they expect to complete the revised reservoir modelling by the end of September.
What would the market pay for a stock that was expected to double its 2P reserves (aka assets) and pay out 50p p.a.? We may yet get to find out as early as September.
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
142 comments
I'm surprised Coastal (CEO.l CEN.TSX) has not been mentioned? After all it did fend a $23 bid nearly a year ago, is currently ignoring a $22 approach, and has some very powerful shareholders.
But the weighing in my portfolio suggests there's nothing to touch SIA.
Apologies ee - I meant to say it might not matter what you hold (assuming it's producing oil and gas!)
Clearly, jam tomorrow exploration stocks aren't going to reap the rewards WHEN (not if) the majors come knocking.
There's huge amonuts of dross out there.
I'm thinking the likes of in no particular order:
HOIL
GKP
SMDR
COP
GENL
OPHR
The prospects for each and every one of these is decent
....mmmm....that may be your view - but I can think of some very significant negatives in almost every case. In particular (and coming back to the MadDutch's assertion that SOCO International (LON:SIA) has no peers), none of them are paying material dividends and all of them (I think) still have very substantial ongoing commitments. And then there's the politics.......
I am in agreement with Ed Story's assertion that SOCO is in a league of its own. No other company has both the substantial payout commitment and the likelihood of strong reserves growth in the short-term. SOCO is never going to turn into "the next Tullow" - but then nobody wants it to....
I suppose the point I'm trying to make is pick a few from the sector and sit back and wait.
Whilst Soco remains my largest holding and probably short term will do very well I like to spread my risk across the sector.
Anyway.. given the number of thumbs down I'm clearly boring people so I'll leave it there. ;-)
"I suppose the point I'm trying to make is pick a few from the sector and sit back and wait.
Whilst Soco remains my largest holding and probably short term will do very well I like to spread my risk across the sector.
Anyway.. given the number of thumbs down I'm clearly boring people so I'll leave it there. ;-) - See more at: http://www.stockopedia.com/content/2013-interims-75430/?comment=127#127"
not at all, the purpose of these boards is:
discussion
and that is about it in a nutshell!!!
Yep, I'd concur with most of those choices...GKP, Hoil, Genl and Ophir.
Haven't followed Salamander so cant comment - they're Thai focused?
Don't think COP will set the market on fire on bid front - too much political risk there at the moment as every Centamin Egypt shareholder knows... :)
....but not many that are returning as much to shareholders though..... -
Exactly. On an attractive risk/reward basis I find it hard to see beyond Soco.
I own some GKP shares but the risk/reward balance there is completely different and I would never invest as high a proportion of my portfolio in such a risky company.
There's plenty of life out there beyond Soco. Yes, it's probably one of the better prospects but the sector as a whole is valuable right now. Once the M&A surge kicks in it might not matter what you hold ;-)
As one of those who has predicted such a surge at least twice in the last decade, I would say that is very far from being the case! Although there have been a couple of flurries of M&A interest, the general picture has been that the companies that get taken out are those with assets that have largely been developed and put into production. Fortunately for shareholders here, SOCO International (LON:SIA) is now in that category (barring some dotting of i's and crossing of t's).
The only exceptions that come to mind are companies like Cove who rode the coattails of others to find massive resources and companies like Dominion who were bought out cheaply for their supposed analogous acreage off Kenya.
So...IMO...it very much DOES matter what you hold.
I'd also note that there is another factor which is important, even if you have potential world-class geology and/or existing proven assets/production.....and that is politics! As can be seen from the coverage of yesterday's announcement by Centrica, political risk isn't confined to far-off places! ;-) And it must be said that, despite all the foot-dragging and bureaucracy, Vietnam has proven to be a vastly more stable political environment than many expected 15 years ago!
ee
Exactly Fangorn. The whole sector looks great value right now. Hence it really does depend what you mean by
"better prospective oil company"
There's plenty of them out there!
....but not many that are returning as much to shareholders though.....
....but not many that are returning as much to shareholders though
Not at this time but that can all change once large scale production comes on stream (as we know from Soco) ;-)
Personally I'm very much more interested in why various databases continue to show SOCO International (LON:SIA) as a zero yield stock when shareholders are being given the chance of a 40p dividend.
It would seem, as I think you may have said yourself, that the various databases are not set-up to accommodate an unusually structured payment such as Soco's. For example, I was pleased to find that Barclays Stockbrokers were showing in my account that my Soco holding went "Ex-div" on 26 September, but contradictorily when I look at their market data for Soco it shows the company as Zero Yield with ex-div date as N/A.
If the software's not set-up to cope I doubt they'll be rushing to change it, however misleading it may be to those who don't know the facts.
Good points of course, Redhill.
However, just because it doesn't fall neatly into the box marked "dividend" (at least in part because it was announced with the interims not the finals) that should not absolve databases from amending it. After all, a yield of nearly 10% being reported as 0% is a humungous error on a FTSE250 stock - and, if they aren't going to bother changing that, then where is their trigger point for taking action to protect the integrity of the data they are selling?. If it was one-hundredth of the size, then certainly I could see it wouldn't be material - but not in these circs!
What does "better prospective oil company" mean?
Aren't you missing the point? Surely Mike is trying to raise awareness of Soco and get people looking at it. You could better ask your question in response to Mi8ke's question on the FT site and get some discussion going.
Aren't you missing the point? Surely Mike is trying to raise awareness of Soco and get people looking at it.
Whether I'm missing the point or not it's not Mike's job to do that. That's a job for the board if they wish to.
It is actually more of a job for their PR company. And if the company don't like the results, the PR company won't be retained.
ee, there is an important difference between me and a PR company; I do not expect to be paid. Indeed I would refuse payment if it was offered.
To quote Ed again; we have a unique investment in Soco.
Part of my intention in my original post was to discover whether there is a better investment in the world.
I do not believe there is. A 10% dividend yield, leading to a doubling of the share price befoe it can equal Shell or BP's 5% yield, and 2 new, promising discoveries.
A good advice to my old friend PM;
"He who wispers down a well,
about the things he wants to sell,
Will not make as many dollars
as he who climbs a tree .... and hollers!
True enough, of course (apart from the dodgy spelling ;-))
However, IMO it is a waste of time going out of one's way to requote management. The figures (and RNSs) should speak for themselves.
Personally I'm very much more interested in why various databases continue to show SOCO International (LON:SIA) as a zero yield stock when shareholders are being given the chance of a 40p dividend. Accordingly I have taken it up with two data providers so far (including the FT's) and will continue to pursue it. I'm not really interested in directly encouraging people who can't be bothered to do their own research - but I think that those who can should be entitled to expect data sources such as Reuters, Morningstar and the FT to be reliable and accurate.......and, at present, they are just downright misleading.
Every time I have to pull up such organisations about their poor data, it highlights the fact that their data simply can't be trusted. If they can "miss" the fact that a stock is yielding over 9% then frankly there is no point in anyone paying for their data!
ee
Of course, but by company I was implying "employed on behalf of the company"
I'm not sure of the value of private investors posting how great Soco is as an investment (without backing it up) but each to their own
it's not Mike's job to do that. I will do what I want, when and where I want and it is for you to complain there if you think I am wrong.
That's a job for the board if they wish to. and if I want to support Ed Story, our CEO, I will do so. It his business, not yours, to tell me not to support Soco on the FT.
See more at: http://www.stockopedia.com/content/2013-interims-75430/?submitted=122#122
Thank you redhill; It is about time someone told the world that we have a unique investment, as Ed Story did recently.
I have just checked, PM has not contributed to the discussion on the FT, I am talking to myself there. Sadly, I don't think he will.
No reply to my Soco post on the FT, so I am stirring it up with this:
Michael Van Moppes (My real name) | September 23 10:23am |
Here is a fun competition; a 10 liter box of very good wine from my French village, to anyone who can beat this;
I am challenging all of you here, to post a better prospective oil company than Soco International.
Red, rose or the new aromatic Muscat sec.
Here is a fun competition; a 10 liter box of very good wine from my French village, to anyone who can beat this;
I am challenging all of you here, to post a better prospective oil company than Soco International.
Red, rose or the new aromatic Muscat sec.
What does "better prospective oil company" mean?
Hi Nigel,
I mean, anyone who can post the name of an oil company with better prospects than Soco, will win 10 liters of a very good quality wine.
Are you my old friend PM from HemScott days?
Mike
Are you my old friend PM from HemScott days?
No.
It his business, not yours, to tell me not to support Soco on the FT.
Not strictly true. Whilst he holds a huge amount more than I do, we both own part of the business.
You do as you please. I think you are wasting your time though.
I am challenging all of you here, to post a better prospective oil company than Soco International
I'll take that challenge MadDutch
GKP, far better prospective prospects imo.
Let's revisit this in January/Feb 2014, post move to Official List, with 30-40,000bopd hitting the bottom line.
Current share price 203p/sh
F2
I posted this on the FT.com website forum, this morning;
Why does the FT never mention FTSE-350 Soco International? It is so awash in cash, it is paying a special dividend of over 10% yield based on the price before the market started to wake up a month ago. I am the irritant who attended the last 3 AGMs, to ask for a dividend!
Ed Story, the CEO, has said that 50% of the free cash flow will be paid out in dividends or returns of capital in future; he also says that his company is unique in oil exploration; the only one with a good exploration upside as well as the free cash distributions. There is a new fault block at Soco's TGT oilfield offshore Vietnam, and a discovery offshore West Africa. The Stockopedia website covers Soco comprehensively. I am over invested to the point of unwiseness in Soco, and this is not a recommendation to buy; DYOR. Do Your Own Research.
I think that questions like this are fascinating and much to the point!
I cancelled my FT sub after the appallingly-irrelevant Michael Kavanagh piece that purported to cover their 2012 interim results.......the photo of the hippo took more column inches than the words (of which only about 5% related to the financials or Vietnam).
I think the main answer to the question is that editorial standards at the FT have plummeted in recent years and that they have binned most of their coverage of companies outside the FTSE100 (except for the occasional piece of (usually uninformed) gossip in their markets column).
However, it is certainly true that Premier, Cairn and Ophir all attract much more FT coverage than SOCO - and that can't all be explained by Premier/Cairn having had a much longer history with UK investors (because Ophir certainly hasn't!).......and I don't really know why that is - other than the fact that it may seem pretty dull to the dilettantes on the FT to be writing about a Vietnamese cash machine.
Still.....I take some comfort from the relative share price performance over the year since I cancelled my FT sub:
Salamander -37%
Ophir -35%
Heritage -12%
Premier - 9%
Cairn - 7%
Afren + 3%
SOCO +22%
If that is what having "no publicity" produces, then I'm all for it. ;-)
....though I'm minded to think that if & when the databases (eg Morningstar) actually start including SOCO's distribution history in their data instead of wrongly ignoring it, there will be some belated publicity even in the FT from the same hacks who coouldn't have cared less when the relative share price was very much lower.
We'll just have to put up with it, I guess........;-)
ee
ee, there is a lot of similar criticism on the FT forum; which they publish.
May I suggest you copy this excellent posting of yours, onto their thread? I know the editors do read forum posts and are beginning to answer them;
http://www.ft.com/cms/s/0/be163988-237a-11e3-98a1-00144feab7de.html?ftcamp=crm/email/2013923/nbe/EnergyMining/product&siteedition=uk&siteedition=uk#axzz2fhIHT76d
I think this could be a good time to get the FT management's attention.
Mike
The relevant paragraph:
Soco for example at initiation was trading on less than 8x earnings with 15% of its market capitalisation in cash. Full year results earlier in the year had highlighted the company’s intention to return excess cash to shareholders. Interims during the month signalled a 40p special dividend (c10% at current prices) and a commitment to return 50% of free cash flow going forward.
http://www.matterley.com/bin/pdf/original_pdf_file/fp_factsheet_august_2013(16_09_2013)
Gives a flavour for what one fund manager thinks , not a fund I'd looked at but seems to have a decent track record
Cheers
Hi Rhomdoid,
For some reason your link didn't work for me, hopefully this will:
http://www.matterley.com/bin/pdf/original_pdf_file/fp_factsheet_august_2013(16_09_2013).pdf
Hi peter must be some copyright witchcraft as your link doesn't work for me...!
T,
Best to consult the circular that can be downloaded here. The GM agenda is on p45.
There is only one resolution, so I would expect it to be an absolutely de minimumus meeting with no presentation and only 3-4 people present from the company. That doesn't mean there won't be a chance to meet and ask informal questions - so, if you are minded to attend, I'd suggest asking Carol Fan who is expected to attend from the company and check the format expected.
Between now and then I expect there to be one or two announcements about well-testing......so there could easily be some items of interest to discuss.
rgds
ee
EE
do you know the agenda for the General Meeting? is it just a single item of formal business or is there possibly going to be a presentation or a chance for discussion?
I was unable to attend the AGM so am keen to take any opportunity that presents to keep abreast.
T
FWIW if people are completely tax-neutral as between the income or capital options for receiving the distribution, I understand that it would be a marginal benefit to the company if the investors took the income option (something to do with future tax capital and future costs). No doubt this is one reason why the income option is the default choice.
Hi MadDutch,
Thank you for your suggestions.
I too have a view that my house should not be risked but I have in the past borrowed c10% of the house value to invest in Soco when I thought it was miss-priced. The borrowing was repaid out of income and the no exposure of house capital rule was restored. The mortgage idea this time was to allow investing of say 50% of my rights income back in Soco before the Dividend is paid and so the borrowing would be for 4/5 weeks.
I haven't given much thought on what to invest in next. I am currently gambling on Soco as it is too high a proportion of my net worth. My previous attempts at diversification have been a mixed bag (mostly bad) and include: BP neutral, Dana (+), Circle (-), Aminex (-), and Falcon Gas (-).
My ideas include some boring UK shares: National Grid and Unilever and possibly an emerging market ETF. If there was a pull-back of the US market I would look seriously at PepsiCo.
I need to start reading the PYAD pages of the Motely Fool rather the Oil and Gas pages. Oil exploration companies are a white knuckle ride and I would not like to wipe out my pension pot now that I have one.
Tom
Hi Tom, I share your thoughts on oil explo; I am focused entirely on Soco, Tullow and Afren, ie reliable generators of profits. When I invest in others I always lose money. Investing in high yield dividend growth businesses is a no brainer; I have held good ones through the 2007 -12 crash and rise, holding and not giving a damn about the share prices, so 6 years at 7% divi = 42% gain in an ISA, plus any share price rise.
I like Nat. Grid, SSE, Glaxo, and a dozen similar businesses. I do not like Unilever at all. Such a profitable business should pay far more than 3.21% at a 1.6 times cover; I wonder where they hide the real profits and do not touch it with a barge pole.
I do not touch foreign shares either as currency risk is outside my competence and control and costs are higher. I stick to what I know and understand, and I make a lot of money in all markets.
Last week, I had a guest in my French home; I employed him at age 14 and he was exceptional. He is now a senior banker, and not one of the corrupt variety who should be in prison. He very strongly warned me off ETFs, saying that I cannot tell whether they hold real assets or derivatives, which he described as "bus tickets," worth no more than the assets of the issuer, which is why they are so cheap.
Have fun with your investing!
Mike
tomke, I would never borrow to buy shares; and especially not using my house as collateral.
I have invested all my free cash into Soco and funded my 2013/14 ISA allowance with them.
I may reinvest into Soco, but 30% of the money invested is there already. I currently like REITs.property investment trusts which have to pay out 80 to 90% of their income, then either live off the income or reinvest into penny shares with high growth potential. Firms like Oxford Catalysts (gas to liquid fuel technology), Quadrise (a new type of fuel mainly for ships), and Alkane (a profitable coal seam methane electricity generator with shale gas potential.
Good luck!
MadDutch
I agree with the return of capital to shareholders and I understand that part of its objective is to promote the shares to a wider audience and hopefully re-rate the shares but it does present a problem on what to do with the cash!
I explored borrowing from my mortgage and bank an amount to allow me to re-invest part of the dividend before it arrived. Barclays have taken over my Standard Life mortgage and my 'flexible' mortgage is no more. My bank Cahoot, I know it is not really a bank but they do not charge me, has frozen borrowing to all customers and borrowing £2k on my overdraft was not what I had in mind.
It is what I experienced many years ago. You think you are solvent and that £10k is neither here nor there and then you try to borrow £10k from a bank and they just don't want to know.
Assuming that we are not all going to be boring and reinvest the dividend back into Soco how about starting a 'Life after Soco' thread?
Tom
First of all thanks to EE whose invaluable advice got me into SIA then kept me in. The result is that my SIPP and therefore my propective pension now looks a lot healthier than it did.
The results of H5 and Likonda are both happy surprises on the upside (I'm a pessimist by nature) so I topped up yesterday although like Tournesol I have far too much SIA in my portfolio (>30%).
If I have a concern its about SIA's ability to overcome the inertia of PTTP and PV; the latter may be due in parts to a dispute over the considerable sum owed to SIA by PV for historic gas and condensate which seems to drag on and on.
I won't enter the earnings speculation race; so much depends on the POO and £/$ exchange rate.
Thanks too to the other erudite SIA posters...you know who you are.
Samurai
ee - I think most analysts are applying some pretty big discounts to NPV10 values of assets for most companies out there. The discount varies a bit depending on explo upside, maturity of assets, politics etc. but I don't see 450p target price based on 539p NPV10 as all that unusual.
On the gobbledegook point I'd agree they are meant to analyse the value not just come up with some random discount to NAV which they then apply to make the target price look more attainable. I do note that Goldman tend not to do this so much but then this leads to some pretty big price targets.
Log
That wasn't my point. I was noting the non sequitur of
1) a 539p NAV (at a 10% discount rate that, in a 1% risk free world, could be considered very conservative) and
2) the idea that new investors would be attracted in by the 10% yield, coupled with
3) a 450p target price (at which the yield would still be 8.9%)
IMO the term "price target" is a complete and utter irrelevance - and completely meaningless and opaque to boot. NAVs at least have a rational basis and stated assumptions - and so investor can readily adjust/discount them to fit their own views.
Some babble emerging: http://zolmax.com/soco-international-rating-reiterated-by-bnp-paribas-sia/103310/
Seems as though BNP rushed to finish their homework a bit too early...
SW10
I've commented elsewhere that these consolidated bot-driven summaries aren't really very useful. Who the hell are Beaufort Securities for example?
FWIW I understand that RBC have an "outperform" rec and a NAV (10%) of 539p. Their note is sub-headed: "Our View: 10% yield set to attract new interest to the E&P sector." ....not sure how those two comments square with their "price target" of 450p - but then most analyst forecasts seem to be irrelevant gobbledegook these days.
yes, I must say it's rather odd that the current price is so little above the 350-360 price that the shares were trading at before the H5 result, as well as before the Lideka East result. (Although, it's not clear if this is a commercial discovery yet, so far so good), the share is trading 10 % above the pre h5 result, even though the h5 result is significantly better than expected, and has Ed Story talking up the possibility of 1BN barrels of oil in place,
cheers, K
HI EE,
I had a beer with my Premier guy tonight at the tennis club and he was very complimentary about the results and not through gritted teeth ... he thought it was 'coming together nicely'.
Tom
EE
what you're saying is that it makes eminent sense for the co to buy in the market now so as to get shares for a net 360p.
much the same logic as I used to justify my top up this morning :~)
T
Of course on this logic they haven't yet paid more than a net 310p.......but an additional 50p doesn't seem a huge premium given that the results of two wells are now largely known and positive. But I guess they are probably in a close period due to well testing continuing..... :-( ........the bane of directors' lives.
Yes filling their boots with a buyback at this level while there seems to be a willing seller seems like a good idea
K
Soco International Plc (SIA), a U.K. oil explorer focused on Africa and Asia, plans to maintain a dividend yield of as much as 10 percent as it pumps more oil in Vietnam. The shares rose the most in a year in London trading.
http://www.businessweek.com/news/2013-08-29/soco-to-maintain-10-percent-dividend-yield-on-vietnam-oil-output
“It's taken us 17 years (since listing) to get here but we are where we want to be now” said Chief Financial Officer Roger Cagle, also a beneficiary thanks to his 5 million share holding.
He said SOCO was now unusual among UK-listed exploration and production companies offering a significant dividend yield that sets it apart from “white knuckle explorers”.
Analyst Michael Alsford at Citi said in a note: “Soco offers a differentiated strategy to the other mid-cap oils, targeting a sustainable return of 2.5-5 percent yield while still offering exploration and appraisal upside from ongoing activities in Vietnam and West Africa.”
http://www.iol.co.za/business/international/soco-surprises-with-shareholder-payout-1.1569991#.Uh9HxPtwYxg
Seems a little odd.
ET
"Alexander Holbourn, analyst at Bank of America Merrill Lynch said the size of the cash return was a surprise even compared to his optimistic forecast of 25p a share. He estimated the company could return a total of $6bn within six years."
/www.ifamagazine.com/news/soco-reveals-40p-a-share-return-flags-more-to-come-281905#sthash.8DUhCcGs.dpuf
ee
I'd like to see his note if someone else spots it before I do....
Oh, Im sure you will see them soon enough.
I assumed that the $6bn was a typo or miscalculation. Interesting to see the numbers if it isn't
I guess the results of TGT-10X are going to emphasise the need for another FPSO or tie in to Bach Ho. Has anyone heard more about their intentions?
I'm not rushing to think that $6bn is a miscalculation.......
.......suppose that production can be doubled by 2015 (not impossible, given spare capacity already and the H5 results). That might give annual free cash flow by 2015 of about $600mn pa. It isn't unreasonable to think that someone might pay $5bn or so for a project that can generate that cashflow for 20 years.
Absolutely. You will recall that I asked at the AGM. It is fairly clear, I think, that another FPSO will be required (and will take the production from H4 and H5). Assuming a similar spec, that seems likely to give capacity for about 130,000 bopd (net of Talisman's throughput).
Exact plans will still be speculative for now (pending the two tests to come on 10X) but slides 6 & 9 show their thinking.
Turns out it is a typo. He said he expected them to return their $2bn mkt cap within 6 years. However, the way I see it is that a sale could round that out to close to $6bn return anyway...... ;-)
More down to earth, though I prefer your earlier estimates!
However, that still seems to equate to an average pay out of over 60p per share over 6 years (if the back of my envelope is any good at calculations). Not to be sniffed at, and I'd guess a good bit more than most analysts are currently assuming.
Peter
Hi Peter,
It seems to me that most analysts are quite light at present on their future estimates of FCF (which is capping their yield forecasts)
Merrill suggest that revenues will rise from $650mn in 2013 to $1.1bn in 2015 - and that the FCF yield will nearly double from 9.5% to 18.3%.
FWIW
I'll be interested to see their fuller post-presentation estimates in due course.
ee
As will I ee. As will I.
Cant see that there have been any new notes issued however. Guess they might have to do a bit of number crunching first of all.
Yes - I'd expect most notes to be out on Monday (or later, if sector notes are being compiled).
The thought also crossed my mind whilst out trying to find a flaming post office open in this town (the main one and my usual alternative are both unexpectedly closed!) that there could be worse ideas than resuming share buybacks for a short period, especially given some volume being available. After all, any buybacks would effectively be at 360p (the 40p wouldn't be paid out on those shares) - and they've announced two important discoveries since they last made buybacks at just under 350p......
....and the prospective yield on buyback shares must be in the 8% area (rather better than available on deposits!).
ee
ps....though of course they may be soon back in a close period, assuming they didn't just maintain it.
Edited
FWIW, I can see that both sides of this debate are right.
SirL is right in that a dividend being announced and paid going forward would have sent the shares upward.
Take it as a gift - you can buy shares probably worth somewhere between £6 and £9 for £4
I'm not at all sure about that! I suspect there are other reasons behind the short-term stalling at £4 (such as forced liquidations by funds or some institutions who have swallowed the WWF propaganda).
It is debateable whether that is a fair statement based on newsflow to date - I doubt they would get to that level on their own, based on current reserves and production plans. Looking forward (to and through a final exit) I've got no doubt you are right though.
Fair points ee.
When the market throws you an opportunity it seems silly to reject it.
I'd argue given the recent news and what was announced today (and expectations of reserves upgrades) that actually the valuation today is at deep value level. Not as good as the £2.60 seen this time last year but significant.
Over on TMF a very capable and experienced (and enormously successful) investor who used to be an institutional fund manager is providing a good demonstration of how II's view the world differently from PI's
It might take a long time for II's to get their heads round something which is not a plain vanilla ordinary dividend and in fact it might never happen - they might be colour blind in the part of the spectrum where returns of capital are found
But none of that matters because the end game for Soco is not to gain admission to the FTSE-250 high yield category.
Do your own thinking (DYOT)
ee
I wonder how long it will take the market to react to the situation you have been predicting for months.
The lack of a significant SP reaction seems very surprising... IMHO
Cheers, Martin
Yes surprising......but OTOH is is clear that someone is shifting some large blocks (2.2mn on the LSE already).
I can only think that this is either Blackrock or some other institution pressed either by redemptions or by the WWF's misrepresentations. Either way, they are moving prematurely - but that is to the benefit of anyone looking to buy into a story that offers further very positive news in the coming weeks.
In reality I've effectively taken the capital return announced today and re-invested it into more shares.....
Coincidentally I've done the same. No real logic to it, it just feels "right". I keep telling myself that 400p is too cheap. This time next year..........
I have had >30% of my portfolio in Soco for some time but I just could not resist buying a few more this morning - there is something appealing about nice round numbers of shares isn't there?
I'm rationalising my action on the basis that the risk/reward ratio has been shifted by today's various announcements.
In reality I've effectively taken the capital return announced today and re-invested it into more shares..... which I expect to yield a decent ongoing "dividend" or get rerated in the short term. Or both.
if this was a poker game I'd be seeing my hand as a royal flush.
tournesol, I thought I was reading my next post, when I read yours! I have a similar sized holding and did the same as you this morning. Even my share club will get a £2000+ dividend!
MD
It is worth considering for a moment the implications of the comments about the test results on TGT-10X (which Ed regards as "exciting") ....and based on which they now seem to be considering a 4 well appraisal programme (per presentation).
These were the test results of the wells at H4:
...and the first test on 10X has produced:
There would appear to be a further 60m gross interval to be tested in the Lower Miocene (in two stages). It would not be unreasonable to assume that the two remaining intervals to be tested are similar to the two that were tested in TGT-6X, which seem to have tested a similar 58m gross interval - and which produced a combined 14,490 bopd on test. If the TGT-10X can produce similar numbers then, added to the 6,179 bopd (+gas) tested in the Oligocene, this is pointing to a potential 20,000+bopd from the combined three test zones.
Hope that explains my earlier comment about the first test results "pointing to" 20k overall.
When they announce the results of the final tests on the Miocene, I will be looking carefully for phrases such as "in pressure communication" or "connectivity".........if the H5 fault block is connected to H4 (as I have a hunch they may think) then this is most likely to be observable in the Miocene testing.
ee
slide 7 says "Gas contract negotiation completed"
is this the thing that's been going on for years to end the situation where SIA was effectively getting nothing for its gas and the condensate that came out within it? If so, does anyone know more details?
Yes I noticed that too but:
a) it relates to TGT (which is nice) but not CNV (which is the one with the back story) and
b) negotiations may have been concluded but that implies to me it hasn't yet been signed.
Accordingly it is still in "watch this space" IMO
rgds
Great news that we have a discovery testing in drc, hopefully this will turn out to be commercial and is the first of many discoveries in the african portfollio,
I am surprised how modestly the price has moved as yet,
K
It is Congo, kenobi, not DRC....
Presentation now on the website
Slide 9 makes it completely clear that (as most of us thought at the time of the AGM) Ed had misspoken or was smoking something, re the timeline for getting a platform on H5 (though, charitably, perhaps he was talking about another drilling rig). First oil from H5 would be c. August 2015.
Or used for sensible acquisitions?
That would make it capex, Nigel....and therefore not part of the free cash flow.
Obviously it gives them flexibility to be opportunistic though.
It would but I was referring to the difference between maintenance capex (ongoing costs) and expansionary (investments) - the maintenance part being rolled up in the existing 50%. I tend to consider the two very separately.
Anyway, a techie point and just shows what cash is being thrown off here.
ee that's close to what I had guestimated (mine a bit lower) but if one pays 400p today and strip out the 40p then that 30p/year comes out at over 8% dividend yield covered (by definition) 2x by free cash flow. I'm pretty sure everyone can live with that sort of level of return until assets are sold and there is probably upside in reserve numbers given early 10-X testing to results.
I'm sure analysts will see it that way too and it will appeal to funds a lot more now it is producing a cash flow stream.
This is why I bought back in at the open at 405p. I'll probably only hold until this re-rates though.
Log
Yup - I agree the logic of all of that in terms of supporting your purchase at the open. As I suggested on the other board (more politely), this is the sort of scenario when TA range-traders should be getting their rear ends handed to them.....
......at c.£4 it is a no-brainer. And when analysts write their notes after this morning, it is difficult to see how they can say otherwise. As ES said:
....name any other company with material drilling upside potential and a 7%+ yield.
So what happens to the other half of free cash flow that is not (by definition) spent on Capex or distributed?
So what happens to the other half of free cash flow that is not (by definition) spent on Capex or distributed?
Prudent contingency reserve against production setbacks or explo cost over-run. The surplus will just roll up until (as now) being partly distributed or increasing company value in a sale.
Can we put an approximate number on the current annualised cash flow?
Not really Mike. Firstly it is "free cash flow" (basically cash flow minus investments) and secondly it is going to be very dependent on production levels. You'll recall from the AGM the claim that a platform could be on H5 in about 9 months.....and that must be a timeframe close to starting now.
Post-tax free cash flow in H1 was $123mn, after capex of $31mn and repayment of $48mn for the convertible. That suggests something over $400mn pa, before capex - so perhaps $280mn (net of capex) at current production rates and with Brent at c.$105.....
....but if Brent is $10 higher (as now), that would increase free cash flow by about 13.6% (because the price effect would apply to the pre-capex numbers).
Best guess I can come up with, assuming no step change in production, is a free cash flow of about $300mn pa - so paying out about $150mn next year (around 30p per share).
rgds
Thanks for your always dependable answer, ee.
The point I made at the AGM was that I hope for dividend growth, because it will bring Soco into a large segment of the stock market which has not been interested in Soco until now; pension paying funds and people investing for a growing income in retirement. I said "that will be positive for the share price."
Obviously, we do not know the future level of inflation (probably much higher than now), but if it remains at today's level, a dividend increase of 5% to 6% per annum will be enough to make the shares attractive to the market I am discussing.
In a good year, I would move surplus balance sheet funds into a "dividend reserve account" and use it to fund dividend growth in lean years, but no doubt ee will have reasons for not doing that! ;-) I would do it to show dividend buyers that I am serious in looking after their interests, and thus attract more investors to buy the shares
MD
40p per share. EE was spot on.
Don't overlook the successful test of the Oligocene C at TGT-10X either.....puts the aggregate well test from all three zones potentially on course for around 20,000boepd in my view. And decent pay to be tested at Lideka East too......!
Accounting profits were a bit down on my guesses, partly due to lower revenue (tbh I hadn't really factored in the Q1 to Q2 move in Brent).....but so far it looks good - and should be taken well, I'd think.
I must admit to a small glow of satisfaction when I see headlines like this:
;-)
ps...note the Bloomberg headline too:
AFIAW each shares entitlement is equal, even the single share owned by WWF -:)
Can special distributions be selective--ie to share holders of a certain term, or do they have to be to all shareholders as of an ex dividend date?
Sadly fuiseog is correct on this.
It is a nice thought that loyalty would be rewarded but basically anyone can buy now and get whatever is distributed.
Of course the price might be a bit different once the facts are known and the guesswork can stop....
Hi tournesol,
Did mine a few weeks back - wanted to do so before the pre-results rise (which has failed to materialise until about an hour ago.)...!
If the news is basically good but ill-received by an underwhelmed/distracted Mr Market, I've got some more spare change to play with.
Mind you, I'm a firm believer in delayed gratification - so long as the eventual gratification is commensurate to the delay.....
ATB
Anyone else considering a little top-up today?
I made a nice little top up yesterday.
MD
Hi all,
Today's Weekend FT magazine reports that the "12th annual Anantara King's Cup elephant polo tournament takes place between August 28 and September 1 in the Thai city of Hua Hin...."
Guess that it'll be left to RC to field analyst/press queries post IMS !
ATB
The Tempus article in today's Times compares this year's share price performance of four oil explorers( Cairn, Ophir, Tullow and Genel) and also mentions Afren under the title " Oil explorers keen to know when investors will gush over them ".
I can't understand why Soco seems to be so far under the radar that even with a well publicised announcement due within a week it doesn't warrant even a brief mention. As Fergie used to say " it is squeaky bum time" but not long to wait.
To be fair, Highgate, the four mentioned are all larger in market cap terms by at least 50%.
Of course there is also the point that in H1 2013, Cairn lost $107mn at the operating level and $219mn overall ......and Ophir lost $19mn.
Genel at least made a $107mn operating profit and $109mn overall ......and Tullow reported an operating profit of $500mn and a post-tax profit of $313mn....but then it has a market cap of £9.3bn
Where will SOCO International (LON:SIA) sit in that mix and how should its market cap (currently £1.23bn) compare with Ophir (currently £1.85bn) and Genel (currently £2.0bn).....
We'll see.....
The simple takeaways for me from the Bloomberg news:
- H5 fault block encountered a remarkably thick oil section
- Testing in 3 different zones
- Latest well goes a long way to confirming upside number for oil in place
- Soco targeting a recovery rate up to 50%
- Dividend hopefully significant and sustainable
- Looks like we have a large breadbox ? I'm sure EE can explain this technical bit.
Reo
:-)
Bread = money....
.....so breadbox = place where money is stored
HTH
The important thing is to eliminate all the mystery about the size of your bread by drilling and testing and, when you know the size of the breadbox that contains your bread, you can sell the whole breadbox to someone because they know that getting the bread out of the breadbox has been reduced to a simple plumbing job....
...thats what I've understood Ed to be saying over the years, anyway ;-)
First week in sept? I thought we were expecting divi news with other news on the 29th,
It is not material, but would like to know as there may be an opportunity to trade before news fully digested,
Will be interesting to hear how far the independent experts think the reserves band has narrowed (at some point), and how that complex resevoir model is coming along,
K
I think the remark about "by the first week in Sept" is probably just sloppy reporting/wording. 29th Aug certainly fits with that, and I'd be very surprised if a div announcement ended up being made a day or two after the interims.
Am I the only one that is concerned that, if true, material price sensitive information like that is released in a Vietnamese media setting rather than via a 7am RNS?
Well the only bit of "news" appears to be the idea that they have identified 3 zones that will be tested. The rest is just optimistic noise or repetition. We knew they would have at least a couple of sections to test, as the other wells with smaller gross pay had tested at least two sections. We knew the thickness of the oil section - and they have always been looking at other assets in the region.
It isn't really news - but it is encouraging mood music, IMO.
I think you're confusing what Ed said with the words that the journalist put in to pad out his article!
It looks as if the article was sparked by a few reported snippets from an interview that Ed gave to local media in Vietnam.
In my view that article is a very strong indication of excellent news for holders, albeit not surprising!
Enjoy the Bank Holiday!
Cheers
p.s
by the way, I still hold a heck of a lot of shares, at least by my small standards( apart from from funding my life style for the last 5 years so I am not complaining, just voicing an opinion) so I am not a detractor, far from it . But a concerned investor, perhaps reading too much between the lines>>??
Any opinions please??
Philip
I am not trying to be negative, but my thoughts on previous quotes from SOCO were that
a dividend was a game set match scenario
not a
"Soco is looking to boost output from Vietnam to generate sufficient cash for a dividend while funding further expansion in the Southeast Asian country and in Africa"
Philip
Since many will have been away and the results are due next week, I'm just reminding people of this thread so that expectations and discussion gets posted here rather than distributed elsewhere.
It is surprising that the start of work in Cabinda hasn't been announced, but otherwise the header comments still pretty much hold - it is looking like a pretty intensive period for newsflow over the next few weeks.....
Thanks Asagi,
Thats the comment I recall, so that would suggest we might hope considering the H5 result was pretty good so far, certainly at top end of expectations, assuming it flows well too . so if that's at a 40% recovery, it suggest this well would prove up 1100MB oil in place. Lets pick a figure out of the air, lets say it's at the very top end, say 75M above the mid figure.
so perhaps 1175 mb oil in place, at 40% recovery = 470 recovery, 30% to soco, so 141 to soco,
we would have to remove what has already been produced (say 365* 50k= 18.25M, 30% or this, say 135 left to be conservative then add what we might produce from cnv , dependent on results of infill well I guess),
at $20 a barrel that's $2.7BN for tgt, of course, if we started to convince people that 50% recovery was likely, then that's a 25% uplift to these figures. (plus whatever we add for cnv, can't see much sale value in africa at the moment, but that might change soon).
$180M cash in the bank, mid june anyone want to suggest a extractable reserves value for cnv, perhaps before and after the infill well ??
cheers K
why are the shares drifting down ? this must be close to pre results figures ? is it just lack of interest in holiday times ? or are there concerns about test results at H5 ???
K
from slide 8 of the AGM presentation:
Future activities will significantly de-risk high case:
Additional 10 infield and step out wells (e.g. H5 (50-150 mmstb)) planned in 2013-14
Continued drilling beyond 2014
Gas contract signature
mid-range success case on H-5 and at the high end of current estimated STOIIP range,
recoverable reserves would be approximately 440 mmboe @ 40% rf
from memory I think they said something like a successful H5 would up the minimum on the range by 100MB could that be right ? anyone remember, I can't find my notes at the moment and I'm a bit busy to be honest,
I'm assuming this related to reserve figures not oil in place ?
K
IIRC one of the AGM slides referred to three factors that would narrow the range, but I'm currently on mobile with no copy to hand. Think the three points were H5, development drilling and the gas sales deal.
No. At the point of announcement 30p would be 8% of the current share price - though of course the share price may change between now and 29/8. :-)
Indeed, but the more I think about it, the more it makes me think they were vaguely talking about a divi based on current share prices of that kind of yield, but I accept your points, re the board hadn't officially discussed it at that point, though of course they've had years to consider/discuss it among themselves. But it's all academic, lets wait and see. Personally a sustainable 30p divi would be great, especially if the rest of the cash can be used to generate more cash longer term.
I take your point re the fpso, especially the cash held by partners, I'm trying to consider the options for use of the cash and why it might be better used by soco than by me !
I'm afraid we're going to be a little at the mercy of what the partners want to do in terms of growing production, but this has always been so.
Thanks for your thoughts re H5, will be very interesting to see what the reservoir model, I recall some notes I made about how a sucessful H5 would narrow the band of possible reserves significantly (I guess a negative result would have too but in a bad way). I don't think there's anything in the presentation (having just checked), so I'll need to dig up my notes,
K
I'm not sure that "fear" is exactly the right word for a distribution of over 8%.
absolutely right, not the right choice of words at all, as the money will remain in the company anyway, not disappear ! 8% eh ? well I suppose it depends on the share price after the announcement ! ;-)
I take your points re capex and the fpso, I don't know what they are thinking or what the options might be, but for example having cash at hand there might be more cost effective options to leasing an fpso ? I really don't know.
Do you think the sucess of H5 effects the endgame timing at all ? The obvious assumption would be that the timing is pushed back and the reserves and price are pushed up, but I guess that might not be the case.
Personally I would like to see the cash put into farming into assets that require some proving up and capital to get them to production, that would be much lower risk than pure explo, but I know the management are not keen on that kind of investment. They've previously said if they are good assets there's no problem getting the money, if they're not, we're not interested either !
cheers K
>>>....mmmm...well in the post I was replying to, you said you were "expecting a 400p price".
Well this was trying to get into the head of the management and work out what they might have meant or what they were trying to suggest by quoting a divi like a major. The only way it makes any sense is if they were proposing a divi that they thought wouldn't significantly more the share price. Otherwise they would just be guessing how the market would price the shares surely ?? shame no on picked them up on this at the time. I still wonder if this is what they meant, but then I went on to discuss possible prices based on divis based on amounts in pence. I still have a nagging fear that soco have in mind 30p, or certainly closer to 30 than 40 p, but lets wait and see.
I still think the divi will be something based on this, with perhaps a little upside suprise, or a one off special payment as suggested by jonnielite.
The interesting point to consider is the extent to which the potential upside from "more bang for the buck in exploration" offsets the lower diversification/risk aspects in comparison with the majors. After all, what sort of yield does explo darling Tullow trade on?.........
Yes, but realistically I'm not sure there's anything in the price for africa at the moment, I would expect this to continue until some commercial quantities of oil are discovered, I don't follow Tullow, but I guess if they're expo darlings, they've found a substantial amount of oil ?? I would put this at the higher end of my guesses up top, where by the divi then becomes seen as ongoing as other fields replace tgt in the future. I am very much hoping that this will happen, as that surely would completely change the picture.
One word of caution is that SOCO are financially conservative which is not a bad thing, so they're more likely to pay out less than the more optimistic projections. But I guess that might still depend on the testing of tgt 10x, and the well being drilled in africa now, (re how much capital might be needed to fund development of any discoveries).
The other big thing I guess is will soco be able to convince the partners to spend money to increase production on TGT, We know they are reluctant to do so normally, will they want to fund another fpso ?
Short term this could significantly change the value of the asset.
K
One could almost characterise this situation as the age of imminence.......
:~)
...PS - last year they notified the market only a week before and held only a conference call for analysts. Prior to that they didn't bother to pre-notify.
Interesting to see that they've made a formal announcement of the interims results date this time around. With more than a months notice (and a date after the August bank holiday), proper professional analysts (sic ;-)) will have absolutely no excuse for missing the briefing on what should be the most important results announcement in Soco's history!
To be fair in my above comparison I have made a basic error, that is to assume that you get no return on the money being paid out as divis, if you factor this in, say same assumptions 5% divis,
that gives you a total return on soco of 16.88, an altogether different figure from the previous 11.20,
I think I have that right, anyone wants to double check let me know !
of course the big prize is, to get out of soco at a healthy premium, and "find the next soco" which hopefully gives a good return over a shorter period if possible !
cheers K
Extownie, interesting point of view, but taking a middle figure there, 70p, over 16 years, that would be 11.20, not bad on a share that's at 360ish today. There would doubtless be some upside, they would probably be higher oil prices later, but also some costs, shutdown and pay off costs. However a sale at say 700p and then investing in some blue chips like glaxo, or voda , national grid etc, giving say a 5% divi ?
well that works out at 15.28 , and that's assuming the divi rates and share prices are flat for the next 16 years, (a reasonable assumption until recently for glaxo at least !!), even a sale at a rather modest £5, would give us 10.91 over 16 years, assuming none of the shares you pick do an rbs or marconi ! Of course on the other side of the coin, they might well do a national grid and grow strongly over the next 16 years.
Attractive though is seems to get high divis for 16 years, if have to consider that a proportion of those divis are your capital. This is one of the things that for me makes soco very hard to value, that and not really knowing what amount to put in the reserves box !
K
If none of their growth opportunities work out and SOCO International (LON:SIA) effectively becomes just TGT and CNV, then presumably a slimmer management structure would be appropriate and they could just set about distributing almost 100% of excess cashflow for the next 16ish years, while holding a set amount, say $250m in reserve. If this meant that they could distribute 60-80p per year then I wouldn't be too concerned by the lack of a suitable offer.
ET
Well my guess is 30p dividend with a possible one off special dividend of maybe 20p on top. By my estimates the 30p would cost about $150m which is roughly half the current annual free cash flow therefore could certainly be deemed sustainable given the potential for increases in the future. If the African campaign goes badly, the scope for an initial return will of course increase - hence they could return the excess cash they have now as a special dividend.
On the reserves front, I would be very pleasantly surprised by a doubling of reserves. A 50% increase is more what I had in mind. This would be more consistent with the 500Mbo TGT estimate. Anything more is a Brucie bonus, presumably based on increasing the expected recoverable rates.
I would like to hear more about all of these 'other initiatives' that they keep talking about that never materialise. The number of wells they actually drill is very low for a $1bn company. I'd like to see them work harder on generating opportunities for further growth, even if that means bringing new blood onto the board as part of their succession planning. Hoping / waiting for a takeover is note enough IMO - what happens if they don't get a suitable offer?
JL
>>>This is completely the opposite way round to your assumption, Kenobi, that the market price divisor is the fixed element !!
Not at all ee !!!
I suggested the price will be around 400p until the divi is announced I then suggested the price the shares might go to given different payouts, indeed I even suggested a price of 700p if a payout of 50p became seen as sustainable, not a million miles from what you've suggested above.
>>>>Taking the centre of my distribution range (43p) and the centre of my yield range (6.5%), this suggests a share price in the order of 660p
I don't think there's much between our views, except that I'm more cautious at to what to expect in terms of divi. I'll be more than happy to be proved wrong on this issue !
The issue we're not talking about is the cost of replacement of reserves being produced, this has to be factored into the valuation. If they find no more oil in africa, and if we settle down as a one trick pony on cnv and tgt, ok short term there might be some upside, and longer term oil prices might be higher, and actual reserves might increase a little over time, BUT, at the end of the day we're producing from a finite resevoir, this needs to be factored in, in trying to calculate what the market will pay for these shares.
Cheers K
...PS you seem to be making the same error as Kenobi...... FIRST we get the distribution figure THEN we get the share price adjusting - and only then can we see what the effective yield is!
...PS you seem to be making the same error as Kenobi...... FIRST we get the distribution figure THEN we get the share price adjusting - and only then can we see what the effective yield is!
I am not making this mistake at all !!! re read my post, I specifically say, the divi expectaion based on current price, and then give other possible divi levels and where that might leave the share price !!!
and for that matter nor is highgate, who starts from a divi of 30p, and works out the price/yield that this might drive the market to. This is the correct way round, the company sets the divi in pence, the market sets the price, which given the divi gives the yield.
K
....mmmm...well in the post I was replying to, you said you were "expecting a 400p price". And Highgate suggested that a yield of 6-7% was "more optimistic" than a yield of 5% - whilst if the process in my post was followed then the exact opposite would be the case (because a 5% yield would imply a higher share price than my more conservative assumption).
Fortunately once the distribution number is out and public, we'll be able to do without such misunderstandings....
The interesting point to consider is the extent to which the potential upside from "more bang for the buck in exploration" offsets the lower diversification/risk aspects in comparison with the majors. After all, what sort of yield does explo darling Tullow trade on?.........
Highgate - if the share price settles at the sort of yield the majors trade on, I would be both surprised and delighted!
ee
Thanks for your para 2. I agree entirely with your view that the share price will find its level after the initial distribution is made although I think a 6-7% yield may be a little optimistic as it is much higher than that paid by the majors. I would be more than happy with a 30p sustainable dividend and a yield of 5% which would equate to a share price of £6 !
extruder
Thanks for your reply re payout ratios.
I agree that the SIA case is out on its own at present.
Peter I agree,
To be honest, at the time I thought, why are we talking about yields at all we should be talking about pence and the yield depends on the price. However I assumed a share price around where it was at the agm, to pick a round figure 400p. hence 25p would give a 6.25 % divi. I would imagine that this might push the price up a bit, say to 450, droping back to 425 on going ex div. (all guesses of course).
Now for a min, lets assume that the divi is more like the 50p ee is expecting, well then might we expect the share price to jump to say 525-550, perhaps dropping back to 50 less than that on ex divi.
I guess then the share price would move with the oil price in pretty consistent way, with other moves such as discovering more oil or reserves upgrades moving the trading band up or down.
If we started getting success in africa, and it looked like that would eventually replace vietnamn after an eventual sale or after the licences expire, then you must be starting to look at an ongoing oil company, and at that point if the 50p divi is sustainable, could we be looking at 700p ? (7% divi ?)
all guesses but I guess at that point there would be people here either topslicing or selling out altogether.
Re agm, it's possible they meant 25p, or also possible they meant to suggest 25p so that a 40 or 50p divi would be seen as an upside surprise. ??
K
Hi highgate,
Some payout ratios are : Ecopetrol 76 %; Total 40%; Sinopec 37%; RDS-B 37% and BP 55%. These companies all show between 10% and 20% net debt : equity.
FWIW (1) ENI had a payout ratio of 137% (probably some technical/one-off reason) (2) Soco is in a presumed 'harvest' mode, so arguably none of the above are relevant......
I think the SIA case is pretty much sui generis, so don't think we'll find much in the way of useful/relevant/applicable comparisons ;-<
Mr Market will have to make up his collective mind.
ATB
peterg
I attended the AGM and came away with the same impression as Kenobi that the board was aiming for a dividend yield comparable to the oil majors ( which I took as meaning a yield of 4 - 5% ).
Taking your view , I would be very interested in what proportion of free cash have BP and Shell returned historically as a dividend and has this varied much over the years ( I think we should exclude BP figures post
Deepwater Horizon). Do you have any figures ?
>>> What would the market pay for a stock that was expected to double its 2P reserves (aka assets) and pay out 50p p.a.? We may yet get to find out as early as September.
What 2P figures are you thinking of (before and after the doubling), the reserves report showed a wide band, It has been said that a sucessful ? H5 would narrow this band, and put us well onto the road for 500M on TGT, hopefully this will be the case, I'm not holding my breath re an upgrade based on a resevoir model, data is being collected and work done all the time, but I made the mistake of expecting an upgrade in the fall last year, so lets wait and see on that front !
I am struggling with what the valuation would be, the problem is that for every barrel of oil extracted, after costs and tax we might expect $40, but of course that's a barrel off the 2P figures, so that would be $20 off the nav ? I'm just guessing figures here, obviously 40 is more than 20 so that's good but now is better than later for getting the money. And in terms of value added if you believe that tgt might sell for 20 per barrel when we agree on a number of barrels then the the money we're getting in divis, more than half of it is coming out of nav, (being spent on other expo, of course this could produce massive upside if it discovers oil - but I cannot imagine the market paying much for africa at this point), so a bit of a conundrum.
Re divi payout, the impression I left the agm with was one of divi like bp, I'm expecting a 400p price, and so I wouldn't want to count chicks over 25p myself. I do hope there's an upside surprise, but lets see. Could be an opportunity to top up at pre discovery levels before long, if the price keeps drifting off,
Cheers K
Re divi payout, the impression I left the agm with was one of divi like bp, I'm expecting a 400p price,
I wasn't at the AGM, but surely any comments on comparative dividend policy would have been in relation to the proportion of free cash returned to shareholders, not in terms of a market price based yield? Since managment have no direct influence over what the SP is any comments based on a likely dividend yield would have to include too many assumptions to be meaningful.
Peter
Was out last night during this debate, but to comment:
1. The February report was NOT a reserves report (though many expected one). The work on reserves is ongoing - and the upgraded reservoir modelling (including interconnections) is due to be completed by the end of Q3 (per AGM answers). Total VN reserves at the end of 2012, minus 2013 production, will be around 110mn bbls across the two fields. With the gas/liquids issue solved on CNV and agreements for gas covering both fields, that will automatically raise reserves. In addition H5 success and connectivity proof will add quite a bit to the OOIP numbers - and IMO will assist RPS in raising their estimates of the recovery factors. I'd guess that year-end 2013 2P reserves could be around 220mn bbls - though of course a chunk of that will depend on the extent of connectivity across the reservoirs - and on having the data to prove it! TGT-10X is really quite an important data point in that regard - if connectivity can be proven by examination of test pressures across a 5-6 km step-out to the south, then that should make a material difference to OOIP estimates!
2. Re the "divi like BP" question, I pointed out to the company immediately after the AGM that this was not a particularly helpful way of styling things.....because (to existing shareholders) a 5% yield at 400p is not the same thing as a 5% yield at 600p....or indeed a 5% yield at 800p. IMO they will be making a payout somewhere in the range of 36-50p - and the market price will then have to find its own level. This is completely the opposite way round to your assumption, Kenobi, that the market price divisor is the fixed element! Whilst I agree that the AGM comments were talking about "major-style" distributions (being uniquely coupled with material explo upside potential), it is my expectation that the share price will come to rest at a level which would give a 6-7% yield once the distribution level is known! Taking the centre of my distribution range (43p) and the centre of my yield range (6.5%), this suggests a share price in the order of 660p. Perhaps those may seem optimistic numbers, but it is my very firm belief that a payout of 40p+ is most probable (though even I would be surprised if they paid out close to 50p, given that they are probably $70mn short of where they might have been with a Cabinda sale, so please nota bene that 50p is not my "expectation"......though I will stick to 40p+).
3. Re extrader's sui generis point - that is precisely what the company were saying at the AGM. There is NO other company that will both pay a higher and sustainable dividend than the majors, whilst offering a significant explo upside with the capacity to "move the needle" on the net assets side. What that is worth, and to whom that might appeal, we should find out in a month or two.....
TBH I think that the most interesting thing that may start to become clear with the interim results is NOT the quantum of the distribution (though, like Merrill, I expect the market to regard this figure as an "upside surprise").....it is the extent to which the company can start to talk more confidently about connectivity - because that has the potential to have substantial implications for NAV estimates.....and for the ultimate exit price!
ee