Incidental stuff

Thursday, May 21 2009 by
25

NO TA ON THIS THREAD PLEASE - (edit) and no pointless speculations either!

I've created this thread just to park stuff in that is only tangentially-related to SOCO's interests and doesn't relate to any of the specific assets.


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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)
430p
Change
-2.0  -0.5%
P/E (fwd)
10.6
Yield (fwd)
4.1
Mkt Cap (£m)
1,434



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


1286 Posts on this Thread show/hide all

davjo 17th Jan '12 887 of 1286
7

One thing we should note is that the "deep water and larger complex opportunities" comment was Morgan Stanley's, not SOCO's. AFAIAA, SOCO have always shied away from deep water as too expensive, so I'd be amazed if they went down that route. Ditto "complex" unless it was basement but I doubt there's much opportunity anyway.

I thinks there's two possibilities here. One, they're looking for some early production to support explo activities poste a SV sale, or, this is the hoho bit, they're looking to sell the whole company and they're just sowing a $100m poisin pill in order to hurry a buyer into action ;-)

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kenobi 17th Jan '12 888 of 1286


Well we're all in favour of them buying assets that prove fruitful, none of us want them to invest in assets which are not productive.

perhaps some company where they have found oil, but cannot fund development and so have a low share price would be a compromise where SOCO could provide expertise and funding at much lower risk (and return of course ) to soco. An example might be Encore recently sold because they couldn't raise funds to develop its resources.

obviously soco wouldn't have been interested in the encore assets, that's just an example,

K

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REO100 17th Jan '12 889 of 1286
1

I think it all comes down to whether you trust management, cash is king, SIA are generating plenty and in this market IMO that is a major positive. As mentioned in post 887 I took the view management were perhaps just reminding potential suitors that it might be time to show their hand.

I also understand to some past holders and investors it might not seem such an attractive investment, that is always their choice and the grass maybe greener elsewhere, but rightly or wrongly I feel quite comfortable that eventually management will realise the believed value in due course. Simply I am happy to see 2012 play out and go from there.

Reo

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davjo 17th Jan '12 890 of 1286
2

I'd also remind folks that there wasn't, apparently, unanimity within the boardroom regarding buyback of shares. Hence, investing $100m in tangible oil assets might represent the thinking of those on the other side of the debate?

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extrader 18th Jan '12 891 of 1286
3

Hi davjo,

Thanks for adding some permutations ! Isn't it great (hello, Mr Market !) that Soco can AFFORD to do all these things at the same time....;->

ATB

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LongbeardRanger 18th Jan '12 892 of 1286

In reply to peterg, post #885

If they come up with a worthwhile deal, great. It may come to something in the hands of SoS, or it may just get sold on with the rest of the company, but either way it has the potential to bring in further value (and to ensure that any buyers can see that a sale is not the only game in town and that they will have to be serious in what they pay).


I can't deny the logic of this. It will certainly be interesting to see what they come up with. Part of the difficulty we all face, ISTM, is that we simply don't know a lot of what is happening behind the scenes. That can lead to incorrect conclusions about management priorities.  For example, I feel concern that focus should be on TGD, rather than new ventures, but for all I know the decisions could effectively have been made re TGD and require little further input from management. The fact that there haven't been significant announcements about TGD doesn't mean it hasn't been high up on the agenda!

SOCO International (LON:SIA) certainly seems to be an odd case - very large cashflows relative to market cap, and a seemingly undervalued asset base, but little immediate prospect of the market recognising the value. It's interesting to speculate as to what would cause the market to reassess the share price - it seems to me that neither imminent demonstration of the cashflows in the interims, nor the likely revisiting of the reserves, will have much effect.  No doubt a successful TGD well would get some attention - one would hope so at least, given the potential size of the structure ;-) - but short of that or an external catalyst such as a bid, the undervaluation is likely to continue for some while. So I guess new ventures are a logical decision, and surely if anyone can put $100m+ to good work in this market, it's SOCO's management.

 

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kenobi 19th Jan '12 893 of 1286
1

$100M, sounds like a lot, isn't it roughly the cost of the last attempt at drilling TGD ?

just from memory, I could be wrong,

K

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nigelpm 19th Jan '12 894 of 1286
1

In reply to LongbeardRanger, post #882


And with respect, I do hope management aren't so blase about $100m as you appear to be...;-)


It's not really about being blase. To own equities you need to have trust in management otherwise you might as well forget it.


So I guess new ventures are a logical decision, and surely if anyone can put $100m+ to good work in this market, it's SOCO's management.


I notice you've now done a complete 360 degree turn on your own views. ;-)

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emptyend 19th Jan '12 895 of 1286
5

In reply to peterg, post #885

In reply to LongbeardRanger, post #882

 what is a little concerning about these noises is that it suggests their focus isn't on outing the value already in the company, when we have all been assuming that that was what they were focussing on.

I think an essential part of outing the value is to continue what they do best - act as an E&P. 

They currently are throwing off large sums of cash. They have 3 options:-

- Say the growth game is over and start paying out out as divs (may suit some but I'm out of here)

- Sit and twiddle their thumbs and wait for an offer (not, surely, the way to get the best deal)

- Or go on doing what we, the shareholders, pay them to do and look for productive uses for that cash.

Peter has summarised this well. A number of comments appear to suggest that "new ventures" (which have now been flagged for over a year, BTW) and "monetising assets" are mutually exclusive.....they are not!  Equally importantly, they are the responsibility of different people within the company. I'd expect monetisation to be a CEO/FD jod - and I'd expect exploration opportunities to be down to the explo/operations people (such as Antony Maris, who was quoted on the topic).

If people stop looking at what may be ahead of them then they are generally stopping or looking behind them! In the circs, it is 100% right and proper that such opportunities are seriously considered - and, if the terms are right, they may well make sense to do (though that would be a board decision in the circs at the time - which I'd suggest will be after April when everyone is clear re TGD plans).

One should also not forget that there are some substantial opportunities out there, according to the FT's thesis that there are capital constraints on explorers - and SOCO's position (with very strong cashflow in relation to their commitments) makes them probably the best-placed of the FTSE350 companies to take advantage. Whether that will be worth anything only time will tell....

The other factor to bear in mind is that new ventures will, IMO, require a new exec management team to take them through. This is another reason to think that VN monetisation will be accompanied by a "son of SOCO" with new management - if they don't do a lock stock and barrel deal.

ee

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kenobi 19th Jan '12 896 of 1286
3

I agree with the article, cash is king, but I would very much prefer they invested in relatively lower risk investments where the company has already found oil, a la encore, but needs development cash, as opposed to just buying some bits of acreage, if they want to do that, they can just bid for blocks. That would give us the opportunity to add value to blocks who's value is suppressed due to having no access to capital. (again like encore),

I don't need to teach the management to suck eggs, they know way more about these things than I do.
I'm just concerned about spending money on acreage, and then finding very little, (like the african assets so far),

K

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peterg 19th Jan '12 897 of 1286
4

In reply to kenobi, post #896

I'm just concerned about spending money on acreage, and then finding very little

I'm sure we all are, and Ed Story and Roger Cagle (a lot) more than most of us. Surely that's always the worry for any E&P when looking for new acreage. But if you let that be a reason not explore then there wouldn't be many E&Ps around and the price of oil would make what we pay today look like they were giving it away!

It comes back again to the question of what management are paid to do and if you trust them. If you don't trust Soco's management to make sensible (not risk free) decisions about potential new projects then you probably shouldn't be holding the shares.

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kenobi 19th Jan '12 898 of 1286
2

I'm sure we all are, and Ed Story and Roger Cagle (a lot) more than most of us. Surely that's always the worry for any E&P when looking for new acreage. But if you let that be a reason not explore then there wouldn't be many E&Ps around and the price of oil would make what we pay today look like they were giving it away!

>> yes I agree, but we're in an unusual situation here, small oil companies cannot raise cash easily, this is perhaps a once in a lifetime opportunity, and SOCO is lucky enough to have strong cashflows, so can fund other developments. This is the point of the FT article, there are bargains to be had, Encore was one, excite doing a heavily discounted share issue to get cash. My only point is that I would prefer this kind of investment, and it has to be a much better valuation than soco, (which doesn't need cash), otherwise we might as well just buy shares.

I'm not telling management what to do, read my last paragraph. I am just expressing my preference, why buy risk if you can buy a heavily discounted sure thing ? (or certainly much lower risk),

K

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peterg 19th Jan '12 899 of 1286

In reply to kenobi, post #898

 there are bargains to be had, Encore was one, excite doing a heavily discounted share issue to get cash. My only point is that I would prefer this kind of investment

There is logic in that. However, we don't know what sort of new projects are being considered, they could include what you are suggesting.

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kenobi 19th Jan '12 900 of 1286
4

yes agreed Peter, there could well be,

In the end it all comes down to price and value, if there are expo blocks available at great prices I won't be against that, I'd just rather be buying assets where someone elses money has derisked it for me, even if I have to pay a premium over unexplored acreage. Also shortens the time to production. (no seismic to shoot no arguments about the expo plan etc)

K

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wistman 19th Jan '12 901 of 1286
3

The original article said "in excess of $100" so $100 is a floor. Any informed views out there on what a ceiling might be. i.e. how BIG a purchase could SOCO manage from a financial point of view?

I'm just filling an idle moment with a little idle and probably fairly dull witted speculation here....

West Africa-might they be looking at a slice of Namibian action? Plenty of smallish outfits with a bit in there.
Or how about Bowleven, £279million at present-would that be too much of a mouthful?

Egypt-could be smart.Prices have been hammered by political fears. Circle oil at £139 million mkt cap? Melrose at £133 million, lots of debt and a fair bit of non-Egypt stuff.

South East Asia-Burma has already been mentioned. I suppose getting an early involvement there could prove very worthwhile and would be quite a SOCOish thing to do. Probably the most likely SE Asian target.
What about a revisit of Thailand? Salamander at £379 million market cap would be too big ,I suppose.

Of course it may be buying into ventures rather than buying whole companies.

Does anyone have some possible targets in mind?

w

 

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wistman 19th Jan '12 902 of 1286
3

Hmm, just noticed the header "and no pointless speculations either"

Whoops!

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loglorry 19th Jan '12 903 of 1286
3

Buying a company is one thing but having the money to develop their assets is another. Look at DEO you can buy it for peanuts but you need quite a bit of money to develop its assets. Might not be big enough for Soco but certainly there is a lot of money to be made snapping up companies which have good assets but no cash to develop them and taking them further.

Serica also springs to mind. Buying them or farming into their Namibian license might be attractive.

Log

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Spurticus 19th Jan '12 904 of 1286
5

A bit of actual news to break up the speculation:
http://af.reuters.com/article/energyOilNews/idAFL3E8CJ58Y20120119?sp=true

- Vietnam's PV Oil sold three cargoes of Te Giac Trang crude for March loading to Shell.

Two of the cargoes were sold at about $7.50 a barrel above dated Brent, while the premium for the third parcel was above $6 a barrel. The cargoes will load on March 1-7, 12-18 and 23-29.

And now, speculation resumes with this.. looks a little interesting?  

http://af.reuters.com/article/energyOilNews/idAFL3E8CJ0X120120119

Spurticus

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ExTownie 19th Jan '12 905 of 1286
1

I wonder if they meant those to be premiums to MINAS, rather than Brent? Otherwise the premium appears to have dropped.

ET

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emptyend 19th Jan '12 906 of 1286
4

In reply to wistman, post #901

Does anyone have some possible targets in mind?

Not me.

Hmm, just noticed the header "and no pointless speculations either"

Whoops!

Yes indeed....  ;-)

Re Burma/Myanmar, I understand that the only blocks they were interested in were withdrawn from those offered - so that can be crossed off.

Namibia, though, is perhaps likelier.

Project farm-ins rather than whole companies, I suspect.....

Re TGT cargoes:

I wonder if they meant those to be premiums to MINAS, rather than Brent? Otherwise the premium appears to have dropped.

ET

It will be Brent, as reported. I believe that Minas has now been dropped as a benchmark. Premia will vary depending on the exact supply position - and that applies to Minas as well as TGT.

ee

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