This thread is intended solely as a place to discuss analysts' notes on SOCO.
Hi EE
Just on a back of the envelope, if the fan is potentially worth 400mn bbls net to SIA at $12 per boe, then on a risked basis a move from 4% risking to 25% risking would be worth around $1bn in terms of risked valuation.....
May I ask why you have used $12 in the above rough calculation, I thought $20 was nearer the mark in Vietnam?
Regards
Unwize
Hi Unwize,
I've just used the same figure that the analyst seems to have used himself (it isn't explicitly stated in his note)...though on looking back I see I picked his assumption for CNV, rather than TGT (which was c $16.60). It doesn't really matter at present - what matters is that the derisking of the fan (if it happens) is a big deal in valuation terms - and one which is presently omitted by ALL the analysts (AFAICR)!
rgds
ee
what matters is that the derisking of the fan (if it happens) is a big deal in valuation terms - and one which is presently omitted by ALL the analysts (AFAICR)!
Absolutely correct! One cannot underestimate the importance of this. If TGD-2X comes in 100% successful, i.e. they get flowing oil right down to the deepest section of the well supporting the fan interpretation and PTTEP subsequently takes up its option to back in, paying Soco c.$350m in the process, analysts will be falling over themselves to significantly upgrade the prospect.
Not wishing to get ahead of ourselves though, so we'll wait and see if the result justifies the sort of excitement we'd hope for!
Hi EE & Davjo
I spoke to someone at Soco yesterday to see if they had released any information on the possible size of the fan, they said they hadn't calculated it yet as they were waiting for results of the current well.
I seem to remember reading somewhere that it could be 1 Billion barrels, has my memory made this up or has this figure been suggested before?
Regards
Quite right, of course, for the company to await results of the well at this point. However, the range that I work with (having asked Ed Story at last year's AGM) is 1.2-1.5bn bbls recoverable.....though it is all understandably quite vague* until there is more drilling data to support the seismic analysis.
*note that AFAICS it could be more just as easily as less.....
Alternatively you could look at slide 9 from the latest AGM presentation and, armed with the knowledge that the fault block on the left side is thought to be (P50) 100mn bbls recoverable, you could make your own guess.
rgds
ee
ps.....you might go back to the Roger Cagle interview thread and consider the response to SW10's question in relation to the fault block being drilled by TGD-2X:
EC: We had some technical questions submitted regarding this well. You had a drilling rig contracted in February 2010 and now the monsoon season is over there, the well is expected to spud soon. Regarding that slide from the results presentation, it shows a fault off to the right of the proposed well’s trajectory which could be highly significant in terms of the extent of the reservoir. If it’s not a sealing fault then the potential could be enormous. There were comments made at one point that the company doesn’t believe it to be a sealing fault. Is that still the case?
RC: Yes it is and further, when we did the reprocessing in seismic and the reinterpretation based on pre stack depth migrated seismic then it seems even more compelling. So there is no evidence from seismic interpretation that this is a sealing fault.
......and it is worth noting that, if indeed the fault is not a sealing fault, then TGD-2X will also drain some of the adjacent fault block - and be closer to the P10 200mn boe recoverables figure indicated on its own!
....not long to wait now - at least in theory! ;-)
It is also worth perhaps just noting one chart from p11 of the RBC note (interpreted by eye!), showing the potential NAV and timeline......
| Present NAV |
Jul-Aug 2010E |
Sept-Oct 2010E |
Nov-Dec 2010E |
| 575p |
830p |
1000p |
1200p |
....and bearing in mind the point that even this omits the upside derisking potential of the TGD fan - which may be perhaps ANOTHER £2 a share even before another step-out well has been drilled.....so, prospectively, we might be looking at a NAV estimate of about £14 by around year end?
Plenty of analysis will need to follow the drilling results in order to get to that point - and of course the drilling results themselves are crucial[!!!].....but it isn't that often when one might look at a FTSE350 share and reasonably contemplate the possibility of it trebling in value in 5 months.....
Cross fingers ;-)
ee
emptyend
What Oil price are those NAV based on? What are the assumptions on those NAV ?
I suppose they don't include a bid premium in the eventual sale?
I would be willing to hold another year if need be, my main concern is the markets collapsing and staying down.
Assumptions
• Oil price: We base our valuation upon a Brent oil price assumption of $78.10/bbl in 2010 and $83.75/bbl in 2011, remaining flat in real terms thereafter.
• FX Rate: Our outlook assumes an average exchange rate of $1.46/£ in 2010, $1.50/£ in 2011 and $1.60/£ thereafter.
• Discount rate: The future cash flows are discounted at 10% from January 1, 2010, which reflects our view on SOCO’s cost of capital: it is in line with the discount rates that we use for well financed mid-cap exploration and production companies.
I'd observe that their FX assumptions look likely to be wrong for the next year or two - but, more importantly, the discount rate assumption is clearly for a non-bid valuation. They include a sensitivity analysis, which shows on their figures that if a 5% discount rate is assumed instead of 10% (and this might be rather closer to the average NOC's cost of capital) then this would raise their NAV estimate by over 40%. [nb....the same point is relevant when considering the Dana/KNOC situation, IMO]
If you wanted to assume that oil prices were $100 per barrel and the right discount rate was 5% then their NAV estimate would be 995p vs 575p per the assumptions above, FWIW (given it will all change in a few weeks).
ee
Hi,
With all the excitement about Nganzi and TGD drilling, there is also HOPEFULLY an upgrade of TGT 2P resources by up to 150m bbls gross to look forward to, isn't there? (or have I dreamt that?!) Any idea if that is factored into the valuations above? I assume it will be a few months before we hear about any possible upgrades? (fingers crossed)
unwise,
I asked Ed several times at the AGM for an estimate of the size of the Fan, he was cagey, and kept changing the subject, pretending to mis understand the target I was talking about, there were other people there too, so I couldn't really press him too much, anyway lets drill the hole and we'll worry about the size if it works out,
cheers K
there is also HOPEFULLY an upgrade of TGT 2P resources by up to 150m bbls gross to look forward to, isn't there? (or have I dreamt that?!) Any idea if that is factored into the valuations above? I assume it will be a few months before we hear about any possible upgrades?
Yes there is - and it is (to some degree at least) embedded in the valuation estimates. As per the recent RNS, the first TGT well will spud mid-August and 7 wells will be drilled back to back - but it will be the first 2-3 that matter most in validating the new seismic interpretation.....so should be a good picture by year-end.
ee
he was cagey, and kept changing the subject.
I'd caught him on the hop over it the previous year, and I strongly suspect that the party line in recent months has been very much to downplay the potential of the fan. I expect that continue until December, even if the well is stunningly successful!
However, I think the numbers/expectations given in post 181 are as good as any at this point.
ee
It is Roger that is usually cagey whereas Ed will tell a good story :-) sorry i'll get my coat!
Roll on drilling news need to pay off the mortgage before rates rise.
Apparently today...
New coverage of Soco International by Panmure Gordon to "buy".
Panmure Gordon have given Soco International a recommendation of "buy", with a price target of 510
...sorry no details...
You have to wonder if people are finally starting to wake up to the very attractive risk reward profile of Soco and the very immediate catalysts.
Al's note was by far the best (though jpm's was pretty good on the risk reward aspect). Haven't yet seen the Panmure note (out of the office).
Given the low liquidity in the stock and the absence of many due to the Summer holidays, anyone wanting a decent slice of stock is going to struggle. Existing holders have been in for years anticipating the news round the corner, they aren't likely to bail at 1800p in old money when three or four weeks could see hopes and patience rewarded.
anyone wanting a decent slice of stock is going to struggle
I recall EE saying almost those exact words a year or two back. I'm not disagreeing though.
I recall EE saying almost those exact words a year or two back.
....mmmm.....more than I do.
Though I might have said it several times over the years as big news approaches. I'm always a bit mystified why people seem to leave it to the last moment to take a position .....As MS said back in February at £13 in old money: We may be a bit early to recommend buying the shares - but we'd rather take a position early than be too late.........yes indeed!
I'm always a bit mystified why people seem to leave it to the last moment to take a position .....As MS said back in February at £13 in old money: We may be a bit early to recommend buying the shares - but we'd rather take a position early than be too late.........
Well the reason I can think of is there are individuals out there who shift around their cash and people who like to trade on T20s and take short term spreadbets.
It is why those investors who are prepared to take a position 2-3 months before a significant drill in an E+P can take an easy 10-20% by selling just before results are due out.
Ofcourse the big money is made by the individuals who buy and sit it out, ride out the drilling and providing the drill bit brings success they make a lot of money.
"Ofcourse the big money is made by the individuals who buy and sit it out, ride out the drilling and providing the drill bit brings success they make a lot of money".
or not of course..........!
Morgan Stanley:
Even without Nganga, the 12 month exploration and
appraisal campaign remains potentially game-changing
– and is worth nearly double the current share price on
an unrisked basis. The net effect of last week’s Nganga
and TGD updates lowers our NAV to 552p/sh (from
565p) – however, this still implies 26% upside.
....'nuff said! ;-)
