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Thursday, Aug 06 2009 by
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This thread is intended solely as a place to discuss analysts' notes on SOCO.


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SOCO International plc is an international oil and gas exploration and production company. The Company has oil and gas interests in Vietnam, which includes Block 9-2 and Block 16-1; Republic of Congo (Brazzaville), which includes Marine XI Block and Marine XIV Block, the Democratic Republic of Congo (Kinshasa), consists of Nganzi block and Block V and Angola, which include Cabinda Onshore North Block. The Company's operations are located in South East Asia and Africa. It holds its interests in the Republic of Congo (Brazzaville), through its 85%-owned subsidiary, SOCO Exploration and Production Congo SA (SOCO EPC). It holds its interests in the Democratic Republic of Congo (Kinshasa) through its 85%-owned subsidiary SOCO Exploration and Production DRC Sprl. The Company’s net entitlement volumes were approximately 15,500 barrels of oil equivalent per day. more »

Share Price (Full)
426.6p
Change
-4.4  -1.0%
P/E (fwd)
10.7
Yield (fwd)
4.1
Mkt Cap (£m)
1,414



  Is SOCO International fundamentally strong or weak? Find out More »


736 Posts on this Thread show/hide all

emptyend 1st Nov '11 377 of 736
12

Extracts from analyst notes today (that being the topic of this thread!):

Citi: we see Soco’s current valuation as attractive........base case NAV of £4.52, which assumes US$105/bbl in 2011, US$86/bbl in 2012 and US$90/bbl from 2013 onwards and GBP/USD exchange rate of £1:$1.65. We have assumed a discount rate of 10% for our field models. This comprises a core value of £3.48 (£3.50 for core reserves minus £0.02/share for financial items), £0.91of development/appraisal upside and £0.13/share of risked exploration.........We believe that successful drilling from Phase 2 could lead to higher reserves from the
TGT field. We assume 250m bbls (gross field size) in our core NAV, but if reserves were at the top end of the reserve range for the field (c.500m boe), it could add 170p/share to our core NAV of 348p/share......We include no value for TGD in our base NAV.

BoAML: IMS brings TGT delay but no change to reserves....we reduce our total NAV and PO by 7p (c.1.5%) on the back of thecombination of the slower Phase I TGT ramp up and the dry well in Congo, although recognise that the market will be less forgiving in the current environment. However, with the recurrent M&A interest in the story, as reported previously, the underlying value of the TGT asset alone should continue to support then stock. We retain our BUY rating and new PO/NAV of 498p.

Canaccord: Using a Brent crude oil price of US$87.50 per barrel flat real and a 10% discount rate, we
estimate SOCO International’s net asset value is equivalent to 378p/share.

Numis: We base our target price at a c.20% discount to NAV as we believe significant uncertainty remains over 2012 produced volumes from TGT, we expect greater clarity on plans for ramp-up to 55kbod after a review of the existing development plan which is to be completed by Q112. SOCO currently trades at 0.71x Numis NAV 462p/share.........CNV: Work is underway to install a dedicated test separator on the Bach Ho CPP in order to increasing liquid metering accuracy. SOCO expect to add an additional 2,000bopd to the liquids stream in Q112 - we assume increased liquid volumes in our NAV.

RBC: A decision will also be made as to whether additional wells should be added to the 2012 development drilling campaign to sustain plateau production and efficiently sweep the Oligocene reservoir; this could result in a reduction in our 511p/share core NAV......(MIM-1).... negative result will cut 8p/share from our current 569p/share total NAV.  [so...currently 561p, Ed]

So....estimates of total NAV are:

Cannaccord: 378p

Citi: 452p

Numis: 462p

BoAML: 498p

RBC: 561p

....none of which make any allowance for any value at TGD or any increase of reserves at TGT (both of which remain probable, IMO - and note Citi's "what if" number of +170p on the NAV if reserves do come in at 500mn bbls*). Only Numis (correctly) seems to be incorporating an expectation of additional liquids production from  CNV (though even they seem to fail to incorporate the reserves impact from the resolution of the gas pricing issue - which will add c 50% to reserves at CNV in Q1 next year - so before the AR is out!)....none of the others seem to have noticed the 2,000 bopd in the RNS (at least none commented on the addition).

In sum, no material change to the outlook, save that cashflow next year is likely to be somewhat lower than some will have assumed (but that has little impact on the valuation in the wider scheme of things)

ee

ps.....* and remember that I think it quite possible that TGT reserves will eventually come in at above 500mn bbls, because the management estimate of 500mn reserves pre-dated the 2009 PSDM seismic reprocessing.

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sirlurkalot 1st Nov '11 378 of 736
4

I acknowledge that the various analysts have the various total NAVs listed just above by ee, averaging somewhere in the mid-400s p. However, most of the E&P sector have fallen so far in recent months that a 50% SP discount to NAV is commonplace, and there are even 75% discounts to NAV, so I think there are more attractive shares elsewhere. Largely this is because Soco haven't fallen nearly as far as some other companies in recent months. Nevertheless, whilst Soco seems to be a stogy might-rise-a-bit-but-not-much sort of situation, other E&Ps, coming from more bombed-out current SPs seem more likely to do very well in the next few months. IMO short term traders should take money out of Soco to invest in other E&Ps with better next few months prospects.

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emptyend 1st Nov '11 379 of 736
5

In reply to sirlurkalot, post #378

Nevertheless, whilst Soco seems to be a stogy might-rise-a-bit-but-not-much sort of situation, other E&Ps, coming from more bombed-out current SPs seem more likely to do very well in the next few months. IMO short term traders should take money out of Soco to invest in other E&Ps with better next few months prospects.

That might be so - but I'd happily take the opposite side of that view. Unlike most other E&Ps, there is a pretty well-defined strategy at SOCO International (LON:SIA) which suggests that the valuation gap to NAV may be (more than) closed within a few months as a result of considered management action. The same may not be true elsewhere (though of course opportunistic bids are to be expected if the gaps persist).

Incidentally, I've just noticed in the IMS that it was confirmed that The exploration licence was granted by a decree signed by the Hydrocarbons Minister on 26 October 2011 for block V in DRC. That is a big step forward after the kerfuffle earlier in the year!

ee

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sirlurkalot 1st Nov '11 380 of 736
3

I reckon if in three months time we looked back at how E&P shares had performed in Nov-Feb, we'd get a league table with Soco positioned pretty much like http://boards.fool.co.uk/whats-the-cheapest-now-12394861.aspx . Calling which the leaders will be is obviously difficult, but I reckon Soco will be in the third quartile. The trouble for it in the next few months, relatively speaking, is that it's not coming from the bombed-out position of many others in the sector, so a switch from Soco would IMO be rewarded.  This is a short term view only, and I agree its longer term attractions remain.

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Isaac 1st Nov '11 381 of 736
14

lurkalot

why did'nt you give people your suggestion yesterday when the price was 10% higher?

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extrader 1st Nov '11 382 of 736
11

Hi Isaac,

Coming from someone who elsewhere congratulated himself 3 trading days ago ("Isaac's thread") on a purchase of LLPC, I think your comment 381 is not only uncalled for, but also more than 'a bit rich'.

Have you no shame ?

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davjo 1st Nov '11 383 of 736
9

BoAML: TGT production ramp-up delayed 6 months

Oh dear Mr. House Broker! You didn't really mean it to come across like that did you?

Re the Oligocene. AIUI, this represents approx 10% of OIIP, which would seem to indicate maybe 4% of 2Ps....i.e. 10-20 mmbbls? So, for arguments sake, if one out of three wells isn't performing as expected and remedial work later on fails to cure, then perhaps 3 to 6 mmbbls (1 to 2 mmbbls net to Soco) are at risk? Big deal!!

 

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tiswas 1st Nov '11 384 of 736
3

However, most of the E&P sector have fallen so far in recent months that a 50% SP discount to NAV is commonplace, and there are even 75% discounts to NAV

SirL

For those of us that can not easily get our hands on broker material do you feel able to share a list of the above, even if you do not wish to personally put your name to any of them?

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emptyend 1st Nov '11 385 of 736
1

In reply to davjo, post #383

Re the Oligocene. AIUI, this represents approx 10% of OIIP, which would seem to indicate maybe 4% of 2Ps....i.e. 10-20 mmbbls? So, for arguments sake, if one out of three wells isn't performing as expected and remedial work later on fails to cure, then perhaps 3 to 6 mmbbls (1 to 2 mmbbls net to Soco) are at risk? Big deal!!

I'm not sure that the 10% number is right (especially if the out-turn is 500m bbls or so of 2P). However, your conclusion is certainly correct: Big deal!!

cheers

ee

 

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Fangorn 1st Nov '11 386 of 736
1

I see Soco recovered nicely to end the day only down 3.4% (quite an improvement from the 10% fall first up)

Was sorely tempted to buy a tranche early on, but, unfortunately for me, decided to go shift some manure,and mend some garden fences! (:

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kenobi 1st Nov '11 387 of 736
2

http://www.investegate.co.uk/article.aspx?id=201111011723553101R&fe=1

don't say they don't listen to you,  (issac who was urging soco to buy their own shares)

I'm guessing this helped limit the fall this morning,

K

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fuiseog 1st Nov '11 388 of 736
1

In reply to kenobi, post #387

Great news kenobi, value investing at its best, seeing through all the noise and anxiety in the marketplace and grasping the lowest price opportunity.

I just dare not buy any more as a % of portfolio. For those of us with our boots already full of soco it means we will get a little more oil for our money.

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emptyend 1st Nov '11 389 of 736
4

In reply to emptyend, post #379

Nevertheless, whilst Soco seems to be a stogy might-rise-a-bit-but-not-much sort of situation, other E&Ps, coming from more bombed-out current SPs seem more likely to do very well in the next few months. IMO short term traders should take money out of Soco to invest in other E&Ps with better next few months prospects.

I might add that I also take a risk-adjusted view of such a comparison. No doubt there will be periods when other shares outperform....but on a risk-adjusted basis, I'm certainly expecting SOCO International (LON:SIA) to outperform for the period until a deal finally happens! And that period might be a "few months"....or it might not!

I'm not equipped to make guesses on which stocks will outperform from week to week.

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Isaac 1st Nov '11 390 of 736

In reply to kenobi, post #387

Good on them. I hope they continue and get a lot more aggressive, it is the single best way to add value with hardly any risk - much better then acquisions or spending millions on wells in Africa IMO.

If they were buying back a million or two shares a day I would'nt complain at all as they are putting the cash to use and they are adding value which will be realised once the company is taken over.

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davjo 1st Nov '11 391 of 736
2

In reply to emptyend, post #385

I'm not sure that the 10% number is right (especially if the out-turn is 500m bbls or so of 2P).

That's why my assumptions reflected both 250m and 500m scenarios i.e. 3 to 6 mmbbls (1 to 2 mmbbls net to Soco) are at risk :-)

 

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emptyend 2nd Nov '11 392 of 736
9

Further note from Al Stanton this morning at RBC, fine-tuning his first response:

We still see the potential for transformational cash flow growth in 2012, and believe the stock offers good value - SOCO is trading at a 37% discount to our revised core NAV of 508p/share and a 2012 cash flow multiple of ~3x.....

Our revised PV10% of 558p/share* (down from 569p) comprises three key elements – fields onstream and net financials of 379p/share, development upside of 129p/share (primarily remedial activity on CNV) and exploration upside of 50p/share.

* this compares with 561p indicated in yesterday's first cut comments

I would note that the underlying figures for the comment I highlight are that he has "remedial activity on CNV" contributing 89p per share. I have to assume that this is in fact the separation activity planned for Q1 that will enable liquids production of c 2,000 bopd to be added and the gas sales agreement finalised (and backdated to the start of production in 2009!) - and will also allow additional reserves to be booked.....otherwise it seems too high.

BUT the rest of the "development" number is 33p per share for TGT (and 7p for Mongolia). The 33p number is far too low, IMO, because it is only an 11% uplift on his core valuation that is based on 80mn barrels of reserves at TGT (which implies total TGT reserves of c.320mn bbls). So.....he seems only to be looking at c.350mn bbls gross at TGT potentially - and thus ignoring the possibility that 500-600mn bbls may be the ultimate estimate of 2P. Accordingly I see a much greater potential for development uplift from TGT (though it won't all be achieved, even after phase 2).....

...but, having said that, I see he has another 24p (out of his 50p) for explo drilling at TGT, so perhaps that is a nod in the right direction?

Either way, I see plenty there to back my expectation of a £6-8 valuation....especially when there is zero in for TGD.

Incidentally, he sees 2012 reported net income as being $498.7mn - and $905mn cash on the balance sheet by the end of 2013 (though I'd guess some of that is going to start disappearing on share buy-backs unless the market wises-up quickly)

ee

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Isaac 2nd Nov '11 393 of 736
10

Why does'nt the company back your £6-8 valuation? If they did they would be buying back shares aggresively at almost a 3rd of the top end of your valuation - there not exactly thick are they.

How credible is the £6 number.......Average analyst valuation seems to be £4.70, they have got Soco more right then the experts on these threads over the last few years.

The £6 valuation seems just as ridiculous as the £40/ valuations we used to get in old money 4-5 years ago.

I would be happy to get £4.50 at this this rate with Africa valued at a big fat 0 & nothing for TGD.

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emptyend 2nd Nov '11 394 of 736
10

In reply to Isaac, post #393

How credible is the £6 number.......Average analyst valuation seems to be £4.70, they have got Soco more right then the experts on these threads over the last few years.

I've explained the differences repeatedly, including in the post that precedes yours. The "average analyst" is also running his numbers based on a 10% discount rate - whereas the actual cost of financing for most credible purchasers is likely to be nearer 6-7%!

I don't give a stuff whether you or anyone else agrees my opinion. We'll find out in the end who is right.....and IMO it won't be the "average analyst".

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Isaac 2nd Nov '11 395 of 736
6

That does'nt answer my question, I asked :

Why does'nt the company back your £6-8 valuation? If they did they would be buying back shares aggresively at almost a 3rd of the top end of your valuation - there not exactly thick are they.



Give me £10 notes for £5 and I would be loading up the truck all day long, would'nt you ?

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jseth123 2nd Nov '11 396 of 736
7

"Give me £10 notes for £5 and I would be loading up the truck all day long, wouldn't you ?"

Well, apparently not! The shares are on the LSE under ticker "SIA"...help yourself!

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