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6th Aug '09 by emptyend

736 comments 241847 reads

This thread is intended solely as a place to discuss analysts' notes on SOCO.

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Emptyend

Premium Member

736 comments

peterg

31st Jan '13

Hi K,

PS I would be interested in hearing why they think soco is now neutral and worth .5% less, anyone know ?

I'd imagine th shift to neutral reflects recent price strenght, rather than the chang in target. Presumably they have a model into which various numbers are plugged to produce the target, and one has changed (a bit) - oil price, discount rates, exchange rates etc. In other words I'd be pretty sure this doesn't represent any real change in their valuation, or indicate that anyone has spent any real time on it.

emptyend

1st Feb '13

I'd rather hear something about the reserves review, which was due, last time I asked, at the end of Jan, which will be today then. It may slip a bit further and be a little while before we hear about it , but hopefully the wheels on something significant are turning quietly in the background

Yes - certainly it is due around now. I think there is a pretty good chance that there will be a corporate update at some point next week, including the CPR, the outcome of the Cabinda discussions and most likely several other things (which may or may not be significant!)....eg CNV. There may also be a revised drilling plan, IMO, given that the Congo well has slipped and the VN monsoon season is close to ending.

I believe we have H5 pencilled in for drilling in H1 of 2013, so maybe that will be a significant discovery, and then once this is done and they've tried to squeeze as much throughput out of the fpso, well then there's a solution to the production bottleneck.

I have the impression (can't recall where from) that the H5 well is likely to be the first in the 2013 VN drilling programme and I'd guess that is now 4-5 weeks from starting. I would think the outcome would lead to a fresh look at production plans (and should take the mystery out of the capacity requirement).

The other minor factor in all of this is something that we haven't paid attention to for a long while - and that is the remaining $48.7mn of convertible bonds which mature in May. The conversion option expires on 10th May - and is only of any value if the shares are trading above 546p.....so not very likely to get there unless there is a whole company sale before then. It is probably neither here nor there in the wider scheme of things but may be worth bearing in mind, especially for those looking at dividend prospects (because unless converted $48.7mn of cash is needed for the redemption in May).

emptyend

18th Mar '13

Another stab at guessing the payout today .... from RBC (3rd in a week) :

Forecasts: We await the production update before revising our 2013 earnings and
cash flow forecasts - currently we assume TGT averages 53,000b/d this year.
Higher output would increase our SOCO NAV and the size of the proposed
payout. Based upon our existing forecast, ~$100/bbl Brent, and some draw down
of the company’s $270m of (current) net cash, we estimate that SOCO could
return $0.50/share to shareholders on a sustainable basis. Today this equates to a
yield of ~8%. Given higher production levels and a firm grip on exploration
spending this figure could be increased, and we understand that management is
targeting a ~10% yield.
Updated numbers: Our new NAV is 546p/share, we continue to take a cautious
view on TGT output (and additional drilling on CNV)

Note that their 50 cents per share and ~8% numbers don't take account of the possibility of a production rise at TGT after FPSO testing.

Another longstanding shareholder asked me yesterday what my bottom line and best guess numbers were for the potential payout and, as things stand, I put a number of 30p per share on the minimum (versus the RBS 50c/33p). I see these as the key unknowns that may lead to a significantly greater payout:

a) will they sell Cabinda? Analysts have plainly been steered towards a two-stage deal being done by the end of March and bringing in around $50mn (versus book value of c $32mn)

b) How will the FPSO tests go? I understand those will start in the next week and gradually be ramped up towards 70k bopd (if possible) during the following days.

The outcomes of both the above should be known in 2-3 weeks

c) Will they finalise the gas sales agreement (including back-payments) before the summer? It looks a little unlikely, but could be material - given that they have been supplying wet gas from CNV since late 2009 and they think that the liquid content could add 500bopd to their net entitlements (should be worth $30-50mn pre-tax if they get a decent deal?).

d) Outcome of the well on H5. In a success case that will substantially raise resources/reserves - and may also open the door wider for greatly enhanced production going forward (say they can produce c. 90k bopd gross from TGT's existing wells, then H5 might tip the balance towards adding capacity across Bach Ho and avoiding the FPSO constraint.

RBC seem to have included $50mn for Cabinda in their thinking already - but the production upside isn't in as yet. If the FPSO can be debottlenecked to produce 70,000 bopd in short order then I think we'll be looking at a minimum of 40p per share.

MadDutch

18th Mar '13

Thanks for the encouraging news, ee; it is good to see your positive attitude to dividends.

An 8% or 10% sustainable yield? That will do nicely!

MD

peterg

18th Mar '13

Hi EE,

Note that their 50 cents per share and ~8% numbers don't take account of the possibility of a production rise at TGT after FPSO testing

My reading of the note was that the 55k assumption, going forward, also assumed a successful increase in FPSO throughput to around 70k, to cope with Talisman's production. Though, having read it again there is some lack of clarity on the issue!

Impressive payout figures either way, though.

Peter

emptyend

18th Mar '13

it is good to see your positive attitude to dividends.

I can't think why you would think that I have ever been opposed to dividends - other than being vehemently opposed to paying dividends prematurely! There was never much point in paying a paltry dividend - but a return of 8-10% pa would focus any number of minds! And, thanks to management "holding fire" despite pressure for dividends, that is now a realistic prospect, given the accumulated cash pile and ongoing revenue strength.

As it happens (given that we are still looking several months into the future) I continue to think that there is a high probability (c.60%?) of a full sale of VN occurring before any dividend is actually paid out - but I'm in no doubt at all that the correct thing to do is to align the company towards returning large chunks of cash to its shareholders, irrespective of whether that actually occurs.

That would not have been the case even as recently as 6 months ago but, clearly, as time passed and cash balances and earnings continued to pile up, it became an obvious and unavoidable thing to do.

kenobi

26th Mar '13

Soco International Lowered to Neutral at Nomura (SIA)

http://www.mideasttime.com/soco-international-lowered-to-neutral-at-nomura-sia/6280/

Nomura downgraded shares of Soco International (LON: SIA) to a neutral rating in a research note released on Friday morning. They currently have $6.42 (421 GBX) price target on the stock, up from their previous price target of $5.92 (389 GBX).

Another downgrade, they're curious because many of them have raised the share price above the current price, but not much above, so it's understandable that if they see the upside as 4.21 that it's not a big buy at current prices. I'm disappointed that the price has dropped off lately, 20p off on Friday and down yesterday and today too (at the mo),

cheers K

emptyend

26th Mar '13

Yup. Most people noticed that last Friday.

The link you refer to is an autogenerated newsfeed (which converts everying to USD several days after first publication).

I'm disappointed that the price has dropped off lately, 20p off on Friday and down yesterday and today too (at the mo)

I'm surprised that it has, given the obvious and large errors in Nomura's note. But in an ideal world I'd like to hope that the strong closing auction just finished is the result of the company having swept up 200,000 shares today in a buyback - which wouldn't leave me disappointed in the slightest!

kenobi

26th Mar '13

sorry I hadn't realised it was the same analyst note, been a bit busy today and just caught this, thought it was another one,

K

emptyend

26th Mar '13

Easily done. I've stopped reading those "late links" from that source.

cheers

emptyend

16th May '13

IMS out today

Posted here because I'd expect there to be follow-on comment from analysts.

They have generated $161mn of additional cash between year-end and 15th May and say:

a capital return to shareholders is a priority and will come to fruition in the second half of this year. The Directors intention is for this to be a sustainable capital return programme that will distribute excess cash to shareholders on an annual basis.

Given that they appear to be producing "excess cash" at the rate of over $1mn per day, I'd expect analysts to start taking a closer interest in estimating the annual "excess cash". Conveniently for them, $1mn a day translates through to about $1.10 per share per year...........

ps...they will also be spudding two wells in the second half of June (Lideka East and TGT-H5). in fact they will quite possibly be drilling three wells - as the Cabinda sale seems not to be going ahead and there is a two well programme about to start....

pps......I understand that an announcement about the "excess cash" distribution can be expected with (or before) the announcement of the interims - I've pencilled in early August, with payment in early September. Still expecting them to come out at 40-50p per share - though they could plainly afford a bit more unless the summer wells indicate ongoing large development costs.

sander4709

16th May '13

40-50p would be very nice indeed.

shanklin100

16th May '13

ee

What's the minimum number of years SIA could reasonably be expected to be able to afford to pay 40-50p per share in the absence of some fundamental corporate action such as being bought out?

TIA. Martin

emptyend

16th May '13

What's the minimum number of years SIA could reasonably be expected to be able to afford to pay 40-50p per share in the absence of some fundamental corporate action such as being bought out?

That would require some guesses on the production plans for TGT - which must be extremely uncertain, pending drilling H5 etc. You will note there was no comment on the updated reservoir modelling - and I would remain of the view that the combination of those two events could trigger plans for a big production upgrade....which in turn might raise "excess cash" substantially.

In the absence of that, based on what we know at present, I would have thought 15+ years. But I think it is a pretty academic question for anyone apart from an industry buyer.

The point is that, going forward, the "floor is in" for production at TGT - ie 60,000+bopd. The question will soon become "where is the ceiling?".....and then we can move on to "how long is the corridor?", which is what you want to know.

The other way of looking at it is that, at my age, a capital return of 40-50p per share pa would produce a decent retirement cashflow.......and probably (or perhaps hopefully) with matching decline rates ;-)

ps....just noticed thanks to Megusta on ADVFN that I had missed the point that the tie-in of Talisman's production is likely to happen in June - following which the next phase of the FPSO test will commence. Lets hope they can get to 75k bopd....

emptyend

16th May '13

RBC comment:

First Impression

Production exceeding expectations: Output in the year to date has averaged 18,540boe/d, on a working interest basis; we are currently forecasting 18,000boe/d in H1/13. We note management reiterated that working interest and entitlement production volumes are the same (as reflected in our NAV and cash flow forecasts); confusion about this calculation drives variations in analysts' numbers.

Cash-rich: Having redeemed the remaining $48m of convertible bonds, SOCO is debt-free with cash equivalent of ~$330m. We were forecasting $340m at the end of H1/13, after adjusting for the delayed ($36m?) Cabinda disposal. Quill Trading Corporation, SOCO's minority partner, was expected to acquire SOCO's 80% interest in SOCO Cabinda; however, it has not yet completed the transaction.

Developments: Following minor modifications to the TGT FPSO separator, production capacity should increase to 60,000b/d. In Q3/13 third party volumes, the Thang Long JOC’s production stream, will be utilised to test the facilities' ultimate capacity. On CNV the operator has received the required approvals for the CNV-7P development well, which could help increase production and shore up 2P reserves estimates.

Drilling: Offshore Vietnam, a rig has been secured to commence a well on the undrilled TGT H5 compartment before the end of June; our SOCO NAV includes upside/risk of +51p/-34p per share for the well. Offshore Congo Brazzaville, the Marine XI partners have agreed to accelerate the drilling of the Lideka Marine East 1 well (SIA 40%, operator); this Q2/13 well will test stacked plays with combined upside/risk of +69p/-10p per share. On the Nganzi Block, 2D reprocessing is ongoing and a decision will be made on potential drilling locations prior to year-end. Onshore Cabinda, preparation has now commenced for the drilling of the 20-6 and 20-7 exploration wells in the Dinge area, and drilling is expected to start mid-2013.

Outlook: Although a planned capital return to shareholders differentiates SOCO from its peers - management says this 'will come to fruition in the second half of this year' and we are forecasting 50 cents/share - exploration and appraisal drilling could also generate some welcome newsflow in the coming months.

June and July will be key months.....

shanklin100

16th May '13

Thank you ee

10-15 years of 40-50p per annum with plenty of upside potential should protect the downside here.

Martin

highgate55

16th May '13

shanklin 100

If we can expect a dividend of say 30p per annum for the next 10-15 years, wouldn't we expect the share pirce to rise to about 600p , equating to a dividend yield of 5 % ( comparable to BP, Shell, GSK etc) ? Note this excludes any upside from exploration successes in Vietnam , Congo, Angola .

kenobi

16th May '13

Well really I would think that it depends if they find other oil in drc h5 etc, you need to model the valuation of the company with falling reserves, at the moment soco is a one trick pony, using up it's reserves. obviously a good result on h5 reverses some of this, and a big find in africa would change the picture dramatically. But given what we know for certain now, 30p per year for 15 years would give you 450, what would the company be worth then ? 200p ? 100p ? doesn't seem such a great return. You would only invest at these levels expecting further explo success.
Although hopefully this is likely, the last exploration phase in Africa tells us that it is not certain.
Of course the possibility of a sale of vietnam is always there, lets see where the resevoir modelling takes us later this year, It is not clear to me that the info we have now supports the managements hoped for recovery rates.

Looking forward to the agm and hearing the managements views re where next for soco.

K

kenobi

16th May '13

http://www.mideasttime.com/soco-internationals-hold-rating-reaffirmed-at-jefferies-group-sia/20504/

highgate55

16th May '13

Thanks for your comments .

I am also looking forward to the AGM and hope that there will be a further RNS beforehand.

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Emptyend

736 comments

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