Interim Management Statement

13th May '09 by emptyend

17 comments 3483 reads

NO TA ON THIS THREAD PLEASE

http://www.investegate.co.uk/Article.aspx?id=200905130700121378S

SOCO Exploration and Production Congo S.A. (SOCO EPC) has finalised the terms of a rig contract for a two well drilling programme in the Marine XI Block that is expected to commence in late July or early August of this year. The first well is targeting a prospect above the salt layer, whilst the follow-up well will appraise the existing sub-salt Viodo oil field.

So......the FIRST well will be on the explo prospect - which is presumably the lozenge-shaped one that was thought potentially to be c 300mn bbls.

Elsewhere production at CNV hasn't matched expectations:

Wells drilled in the eastern lobe of the field have not performed as well as expected based on previous reservoir modelling. The Hoan Vu Joint Operating Company, operator of the CNV field, will analyse results of the total project drilling and
performance to date, before considering injection and further drilling options
later in the year.

.......which I guess is always a risk given the vaguaries of hitting the fractures and obtaining enough drive from a basement reservoir. At least the recent Bualuang news has taken production there over 6,000 bopd net to SOCO, so total production does indeed now seem to be running at almost exactly 10,000 bopd.....and it looks as if SOCO can book an extra 2.5mn bbls in Thai reserves.

On Nganzi:

several large structures have been identified. Interpretation will continue with drilling likely to commence in the second quarter of 2010

....which confirms the very early indications. Some will recall me asking about this at the 2007 AGM - and I think some of the structures were guesstimated in the 500mn bracket, IIRC .....so a more considered view will be interesting this time round.

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snaj

13th May '09

Hi ee

We'll see soon enough, but my guess is that the market is only going to focus on the CNV production news and having enjoyed a decent run recently, the share could be in for a bout of the flu.

Regards

emptyend

Hi snaj,

The problem only relates to the (north) eastern end of the field....which will be the 2ST well that IIRC was the source of some earlier issues re the extension towards Rang Dong. That is unlikely to trim more than 1,000 bopd off the production and, as with the recent Bualuang drilling, there is probably a solution to it (whether water injection or drilling another producing well). Either way it isn't massive, especially at a time of modest oil prices and when they have just announced a doubling of production from Bualuang that takes the aggregate production to 10,000 bopd (for the first time).

I also note that the seismic reworking on the HPHT area is plainly also covering the deeper fan interpretation to the north of TGD. It will be extremely interesting to hear what they think of the potential of this area by the time of the AGM, bearing in mind that the final interpretation will be out in September!

rgds

rhomboid

Morning ee

As always with Soco the wording of the IMS seems almost neutral in tone, personally I don't see any evidence that the wider investment community has twigged the scale of upside represented by the imminent (!) drilling on Marine XI , lets hope that analyst notes will tease this out...

I'm encouraged by this wording;

"The Company expects to submit the TGT Field Development Plan for Governmental approval later this month. Preparation of the plan for submission has been an interactive process in conjunction with the appropriate regulatory and review committees and approval is anticipated shortly after submission."

This suggests that the process has been streamlined somewhat!

longwayhome

This comment has been moderated

davjo

Morning Gents

Re CNV, with the exception of Bach Ho, I don't think a single basement field in Cuu Long has sustained initial output for very long. So, whilst disappointing, it's not surprising. I would say that PV have a history of being insistent on cautious production rates mind, so as not to over-produce. (I note Soco appears not to have tarted up the production rate by including the gas). My assumption is that the "eastern lobe" is in the vicinity of the 5P well. I don't see them ever drilling the northeast section to be honest...it's certainly not indicated in Phase I. As to a solution, we'll have to wait and see but it could take quite some time to resolve, if at all. They've had big water injection issues at Rang Dong - don't think they injected in the first phase of development though, unlike CNV...or Su Tu Den. One can't rule out the possibility of a reserve downgrade at some future (maybe far-off?) date imo....despite what Tristone appear to say. Only time will tell.

Hi dj,

I've been out all day, so sorry to be late responding .

I have clarified various points:

1. The issue at CNV is due to lower fracturing on the eastern side compared to the early wells (which they had obviously assumed was consistent across the field). Too early to tell whether they will drill more wells (to try to hit more fractures) or take other action - and therefore one can't yet tell whether there will be any production or reserves consequences. It remains a possibility that they decide to produce at a higher rate from the other wells or simply that the reservoir takes longer to drain [nb the issue is NOT that the oil isn't there......it is to do with the speed at which it can be produced from the eastern side]. Field life is reckoned at over 20 years, you may recall.

2. The latest 6P well on CNV has been suspended because they haven't yet decided (perhaps because of the above) whether it is better to use it as a producer or an injector well. The fact that they have a choice indicates that there is no problem with the well.

3. The two-well drilling campaign on Marine XI is targetting a total upside of 250-300mn bbls......however, it seems that at least half of this upside is in fact connected to the Viodo appraisal well, because the S prospect is more like 100mn P50 2P.

4. Nganzi seismic has thrown up some very pleasant surprises - so much so that the technical folks want to drill it without farming down at all!! I'd say that is very encouraging, given the timeline to the first well ;-))

If I may I'll also answer fullbreakfast's questions posed on ADVFN:

a) Total field reserves at CNV are currently 155mn boe. You may remember that I have always thought this is very conservative. IF there should be any reserves impairment, I'd expect that to trim future additions to reserves, rather than to affect what has already been booked - however, it is far too early to tell whether that will be the case at all!

b) There are no wider implications at all! The lower fracturing is clearly a localised issue affecting a section of the CNV field. Since most of the value is in the much bigger TGT field (and the probably even more vast TGD field) ....and these are geologically very different from CNV.....it is completely clear that this is a one-off which is of minor importance in terms of crystalising value in Vietnam.

fullbreakfast

Thanks for the very comprehensive post ee.

I didn't mean to imply in my earlier post on TMF / ADVFN that I thought there would be implications for the modelling on TGT / TGD so much as for the whole of CNV rather than just the eastern 'lobe'. From what you say in your point 1 even this appears unlikely, though.

The snippets on Marine XI and Nganzi are certainly encouraging. I think Nganzi drilling is expected to start either H2 this year or H1 of 2010, unless I'm forgetting some more specific indication?

Kind regards

Nganzi is slated for Q2 2010 per today's RNS. I'm confident that the implications of the CNV comments are highly localised and may also have no significant impact.

I see that Citi said this morning something that indicates that they also over-reacted (by looking at the first 4 months rather than the current production position - and they clearly hadn't investigated the reasons for the lower production at CNV):

CNV Net Working Interest (25%) production of 3.3kbpd for the first 4 months of 2009 on Block 9-2, Vietnam is below CIR estimates of 4.5kbpd. This lower than anticipated output is due to the eastern lobe of the field not performing as expected and Soco has stated it needs to fully analyse field performance before further commenting on expectations of future performance at CNV.

Bualuang Output from Soco's Bualuang field (40% WI) in the Gulf of Thailand over the first 4 months of 2009 of 2.7kbpd was below CIR estimates of 6kbpd. This was a result of a stronger than expected water drive as the field came on stream however, we note recent development drilling appears to have resolved these issues and production of +6.5kbpd in May is more in line with previous guidance.

Hiya ee

Thanks for the detailed clarification :-)

a) Total field reserves at CNV are currently 155mn boe. You may remember that I have always thought this is very conservative. IF there should be any reserves impairment, I'd expect that to trim future additions to reserves, rather than to affect what has already been booked - however, it is far too early to tell whether that will be the case at all!

We've had a discussion or two on this topic a while back in the other place. My view has always been that any 'upside' is highly questionable due to relatively small structure size compared to other Cuu Long fractured basement fields and accompanying reserves, and the apparent discontinuity of viable fracture networks across the whole structure, as seen in the northeast...and now the east?? Also, 5333 bopd from a 1350m horizontal section in Soco's most successful well, CNV-4X(the longest section drilled in the basin?), indicates to me that the fracture networks offer nothing like the productivity per cubic metre of best reservoir found elsewhere in the basin. Very much shorter horizontal sections in RD and STD in several wells yielded more than double the production rates. Vertical wells in the proximity of brecciated zones in Bach Ho delivered 10k+ bopd. There appears to be no such zones in CNV, nor the prospect of finding any, judging from the geology. What this tells you is that there are less fractures of smaller dimensions within the structure. That adds to the nightmare modelling what size needle they need to find in the haystack. I remain therefore, as I have been for a number of years, sceptical of reserves being grown above present levels...unless the high pressured Oligocene above, from which IIRC they recovered 'black oil', suddenly comes back into play?!

I agree very much though, that this is of little significance in the big picture. WShak may wish to reflect on his action!

14th May '09

Tristone research note:

https://research.tristonecapital.com/SIA_09-05-14.pdf

Maintain outperform rating....free option for potentially very large upside

etc etc....

Obviously they have made similar enquiries to the one I made yesterday re CNV, since they also note the relative lack of fracturing!

Good buying opportunity this morning thanks (presumably) to a delayed reaction to the notes that Citi (and Merrill) put out immediately after the RNS - and which hadn't incorporated further research on the points I investigated yesterday!

Re dj's post above, one should note that Tristone's assessment includes a risking reduction from 40% to 30% of the 140mn bbl risked upside they include for CNV......which lowers the NAV in respect of CNV by all of 16p - but, thanks to other changes, their net NAV estimate has in fact increased!

Just a further point on the Tristone note (and one that also applies to other analysts, such as Citi - judging from their note yesterday):

Tristone (and Citi) reckon the total upside potential from the Marine XI drilling programme is worth around £2 per share. However, they base this on an upside potential of only 101mn bbls gross from the two wells. In fact (and I have rechecked this today with the company!) the gross upside potential from the upcoming two-well programme is 250-300mn bbls.......which, on the same price assumptions, suggests upside potential of £5-6 per share, rather than £2! This is a material difference - and the analysts will certainly correct it at some point, at least once they've seen the AGM presentation!

:-)

15th May '09

Incidentally I see (from The Indie) that Collins Stewart moved their rec to a sell yesterday from a hold, citing valuation.....and that this was alleged to have "undermined sentiment".

.......I wasn't aware that they even claimed to cover SOCO. And indeed I see they only recently hired their first oil analysts from JP Morgan - who didn't cover SOCO either!

IMO the blind are leading the blind out there in the "professional" market.

Hey ho.....

lowersharpnose

28th Jul '09

As we glide out of July and into August...

a two well drilling programme in the Marine XI Block that is expected to commence in late July or early August of this year

..does anyone know if we will see a start to drilling activity before September?

lsn

In reply to lowersharpnose (post #13)

Hi lsn,

I checked a couple of weeks ago. It was over-running on Perenco's job, so the best guess spud then was then in "the second half of August".

As you'll recall, it is only a two week well.

SW10Chap

does anyone know if we will see a start to drilling activity before September? [lsn]

You just know what's going to happen, don't you?

It was over-running on Perenco's job, so the best guess spud then was then in "the second half of August". [ee]

Ahhh, it brings a broad smile to my face every time... Oh wait, what's this?

it is only a two week well.

SW10's Law makes that three...

;-)

SW10

Thanks ee.

SW10Chap - a timely reminder, I had not forgotten about inevitable delays in the sharp end of exploration activity. Nor at the other end (planning, political, negotiations,..) - for example, from the IMS

The Company expects to submit the TGT Field Development Plan for Governmental approval later this month. Preparation of the plan for submission has been an interactive process in conjunction with the appropriate regulatory and reviewcommittees and approval is anticipated shortly after submission.

I am probably going to wait until we get a result from one of the Marine XI wells before considering buying more.

29th Jul '09

In reply to SW10Chap (post #15)

perhaps not if its dry though.... ;-)

Interim Management Statement

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Emptyend

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