H1 Results 2011

24th Aug '11 by davjo

12 comments 10187 reads

http://www.investegate.co.uk/article.aspx?id=201108240700109135M&fe=1

Presentation
http://www.socointernational.co.uk/tmp_downloads/b60c107j23j38e96q78h113h96g69v145o83e15b57t11j41/2011-0824--soco-hyr-presentation.pdf

Pretty well all as anticipated, except some advances in Africa :-

DRC Block 5. Enviromental Impact Assessment approved by government and an
aeromagnetic and aerogravity survey will be conducted later this year and a seismic programme over Lake Edward is planned for early 2012.

DRC Nganzi. 2D seismic acquisition programme is planned for the fourth quarter of 2011, with possible drilling in 2012

Cabinda North. Seismic aquisition has after long delays, finally been completed.

What with Congo-B drilling up to 3 explo wells commencing next month, news flow from Africa with much potential upside should be evident over the next 12 cmonths.

Re TGT in VN, Once there is a reasonable history of production performance on Phase I and some subsurface confirmation from Phase II, we anticipate revisiting the reserve numbers….which is as per expectations. Maybe reflected in y/e 2011 reserves declaration? We’ll see!

As reported on another thread, Roger Cagle is reported on Bloomberg as saying the company may consider share buybacks. I would expect SOCO already have a mandate to buy back up to 10%. Personally, I approve in these particular circumstances. Objections will certainly fall on deaf ears but those arguing against need to remember that directors’ are in the same boat as us and wouldn’t engage in such a programme if their own interests were at risk of suffering.

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marben100

24th Aug '11

On the subject of buybacks...

Given that Soco is a company valued on its NTAV and both shareholders and management seem to be agreed that the NTAV is higher than the current market cap. I don't see why anyone would object to buybacks (that would further increase the NTAV per share), as long as the company has sufficient cash to do so, without impacting its forward CAPEX plans, or running up risky debts.

Cheers,

Mark

emptyend

25th Aug '11

Quite right Mark! It would merely increase the NTAV. Management must be somewhat frustrated that the market seems to obtusely ignore the cashflow outlook - and must also have one eye on the vesting chances of the January 2009 tranche of LTIP awards....which amounts to c. 582,000 shares.

Re the LTIP, the starting price for measurement of TSR was 321.25p - and now includes c 25 comparator companies (one of which was Dana - so there is a relatively high bar to be passed for full vesting!)

The big news for me in the results was this:

The Company's initial environmental and social impact assessment ("ESIA") was submitted to the Groupe d'Etudes Environnementales du Congo in March 2011 and following a period of review and consultation with stakeholders, including various departments within the Government of DRC, a final ESIA was submitted in May and was later approved. An aeromagnetic and aerogravity survey will be conducted later this year and a seismic programme over Lake Edward is planned for early 2012.

...and the completion of seismic in Cabinda.

I might also add that I think this point was a very important one:

We expect to commence drilling TGT Phase II development wells in September, with planned production to commence in the summer of 2012. Once there is a reasonable history of production performance on Phase I and some subsurface confirmation from Phase II, we anticipate revisiting the reserve numbers.

...I translate that as being able to raise the 2P reserves at TGT by early next year, in time for the Preliminary results. That reserves revision will ALSO include the wet gas reserves at CNV (ballpark 10mn boe net 2P increase in itself).

Shaping up for the exit deal to be done in February IMO, unless someone makes a pre-emptive strike (which, as ever, I wouldn't rule out!)

ps...now I finally get round to reading the thread header, I see that the points I've highlighted are the same as the ones picked out by dj.....doh!)

Having failed to make a single mention of SOCO International (LON:SIA) today (the day after its interims) whilst Tullow got wall to wall coverage, the FT finally makes a comparison with SOCO in its comment on £PMO's results, out on their website tonight:

Premier currently trades at 12 times 2011 earnings compared with peer Soco on 15 times, a multiple that drops to 6 times in 2012. If Premier can avoid any more slip-ups on the road to 2014 that looks good value.

Interesting to see they don't bother to consider where SOCO is in 2012 by comparison.

On RBC's Al Stanton's numbers (10th August note) he forecasts 89 cents a share EPS for Premier....and 119 cents per share for SOCO. So....on his figures, Premier Oil (LON:PMO) are indeed on a prospective PE of 5.78 for 2012 tonight.....

....but SOCO International (LON:SIA), based on tonight's 298.5p close, are on a prospective PE of 4.08 for 2012

Pity it was a case of "no comment" from the FT on that point......... ;-)

Oh and, by the way, if you adjusted for debt (in Premier) and cash (in SOCO) and made the comparison based on enterprise value rather than market cap, you would find that SOCO is even cheaper! [Debt makes Premier's EV about 16% more than its market cap, whereas SOCO's cash makes its EV about 12% less than market cap.]

And another thing.......if and when Stanton and others rework their numbers following the results of the last two days, I would bet that they will be lowering their forecasts for PMO and raising their forecasts for SOCO (at least on my reading of their respective results....)

Isaac

On RBC's Al Stanton's numbers (10th August note) he forecasts 89 cents a share EPS for Premier....and 119 cents per share for SOCO. So....on his figures, Premier Oil (LON:PMO) are indeed on a prospective PE of 5.78 for 2012 tonight.....

....but SOCO International (LON:SIA), based on tonight's 298.5p close, are on a prospective PE of 4.08 for 2012

Pity it was a case of "no comment" from the FT on that point......... ;-)

Oh and, by the way, if you adjusted for debt (in Premier) and cash (in SOCO) and made the comparison based on enterprise value rather than market cap, you would find that SOCO is even cheaper! [Debt makes Premier's EV about 16% more than its market cap, whereas SOCO's cash makes its EV about 12% less than market cap.]

Premier has a range of diversified assets in various geographical locations therefore the markets will put a premium on PMO and it will be a better choice for analysts to push rather then an undiversified Soco.

But I don't think the disparity between the prices should be so large.

If you was Soco's financial advisor what would you advise them at this point?

IMO they have two real options to add value, pursue the drilling of TGD and hope it comes good or Sell Vietnam and invest their proceeds in other stocks/Investments.

From their perspective which has a higher chance of success?

IMO selling Soco at £6 and chucking a load of cash at £EO., (min 60% upside), Sterling (100% upside with Romania), Heritage Oil (LON:HOIL) (50% upside), £Sqz (50% upside) & £BP. (50% upside) is a much better less stress route to take then keep driling TGD which could add perhaps 50% from a £6 share price IMO.

The recent decline has thrown up loads of bargains so it makes a lot more sense to sell out sooner and re-invest the proceeds.

extrader

Hi Isaac,

With roughly half of PMO's aftertax revenues seemingly (still) coming from Pakistan, I think its management should be encouraged to continue its asset diversification programme !

26th Aug '11

As extrader points out, a large slug of those are in Pakistan. Whilst they have always claimed (AFAIAA) to have never lost a day's production in Pakistan, it wouldn't be my first choice location for political risk.

No - IMO the principal reason that PMO gets so much coverage and attention is actually because it is the first UK E&P that comes into the minds of most analysts and fund managers. PMO has a very long history as an independent and has been a prominent player since the days when it was run by Roland Shaw. Shaw's obit will give you a flavour. Virtually every fund in the UK will have had Premier shares at some point or another.

Is it worth a premium over SOCO? Not IMO - especially given the probability that Premier Oil (LON:PMO) will stay independent indefintely (because nobody will want to buy its mixed bag of assets).

But I don't really expect the market to agree with me - until finally the one day arrives when it does.

On RBC's Al Stanton's numbers (10th August note) he forecasts 89 cents a share EPS for Premier....and 119 cents per share for SOCO. So....on his figures, Premier Oil (LON:PMO) are indeed on a prospective PE of 5.78 for 2012 tonight.....

....but SOCO International (LON:SIA), based on tonight's 298.5p close, are on a prospective PE of 4.08 for 2012

New note out today with updated numbers - and a much-raised EPS forecast for 2012. He now forecasts that SOCO will make $1.64 per share in 2012.......which is a forward P/E of roughly 3.

He also thinks any addition to the 250mn bbls gross reserves booked at TGT is worth $13 per barrel to SOCO...and forecasts year-end cash of $812mn (unless returned to shareholders).

The share price today tells you that at least some people have read this note with their early morning coffee........it ain't rocket science to spot such obvious undervaluation!

loglorry

Quite a few notes out ee though and not all of them as bullish as RBC to be fair.

Citi have a target of 361p for example. Not saying I'm supporting their view but in the interests of having a balanced view we should probably consider them all.

Quite a few notes out ee though and not all of them as bullish as RBC to be fair..... in the interests of having a balanced view we should probably consider them all.

Perfectly true that others are less bullish (in the process of reading them - arrival of grandson this morning has put me well behind!) - but one shouldn't necessarily take any notice of them because of that. For example, whilst RBC reckon the EPS in 2012 will be c 164 cents, BofA and MS reckon it will be 50/58 cents. IMO that is obviously because they have incorrectly modelled something - probably cost recovery but possibly tax. Look at slide 18 of the interims - management expect to add c $450mn in retained cash next year...which is more than the $416mn MS are assuming in gross sales (so one of them is very very clearly a mile out!)

Run the numbers for yourselves and make up your own minds who is likely to be closer.

Citi don't give an EPS estimate incidentally - but they do say:

We currently 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/sh to our core NAV estimate of 348p/sh.

....remember that I think that the PSDM reprocessing (supported by phase 1 drilling) probably means that management's internal view is now higher than 500mn bbls.....I'm guessing 600mn. And I think that a reserves rise to 450mn gross is well within the bounds of possibility within 6 months, if supported by phase 1 production and early phase 2 drilling.

Hi ee,

I think slide 18 is very instructive, esp. if one follows your suggestion and reworks it (however simplistically) to take account of Phase 2 (if/when it kicks in at the indicated 40k bbl/day) and any earnings over $90/bbl.....

One small quibble re your post above : I think the $450mm figure refers to base case revenue (red line) and not y/e cash balance (green line) , which increases by an eye-balled $200mm (180 to 380) over the year to end 2012.

Citi's $416mm gross sales fig. for 2012 is , however, very close to the 'low-case' scenario of $ 70/bbl and -20% production.....I wonder what $/bbl figure they use for the rest of their 'oilco universe' ? !

ATB

Yes - sorry about that. More haste less speed etc. Now offline for a while.

H1 Results 2011

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Davjo

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