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Thailand - Bualuang

Monday, May 11 2009 by
1
NO TA ON THIS THREAD PLEASE

More news today regarding Bualuang (SIA 40%) from partner Salamander:

http://www.advfn.com/p.php?pid=nmona&cb=1242022141&article=37654828&symbol=L%5ESMDR

Both horizontal wells, BA-11H and BA-12H, have been completed in the crestal
area of the field with downhole electric submersible pumps and expandable sand
screens. Both wells consist of approximately 250 metre horizontal sections in a
target zone 2 - 3 metres below top reservoir. Both have now been brought
on-stream and the pump rates increased slowly to bed in the sand screens, clean
up the wells and determine well
productivity, which is significantly ahead of
pre-drill estimates in both cases. 

Production rates have been tested at over 18,000 barrels of oil per day
("bopd"), however the two horizontal producers are to be choked back to produce
at a rate of circa 14,000 bopd, which is the optimal rate for reservoir
management and reserves recovery. 
 
James Menzies,
Chief Executivemag-glass_10x10.gif of Salamander, commented: 
"The successful completion of this Salamander operated drilling programme has
resulted in a step change in production from the Bualuang oil field from these
highly productive horizontal wells, from circa 6,000 bopd to over 14,000 bopd.
Their performance will be monitored and incorporated into full field dynamic
modelling, to better understand the ultimate recoverable reserves of the field. 
 

A rate of 14,000 bopd was the orginal target for production at Bualuang but they had lowered the target to c 11,000 after the initial production experience - so.....good news.

There won't be an RNS from SOCO, I guess, but it should help production rates up to 10,000 or so, which I'd guess will part of an update to given at the AGM [which is on 10th June].

ee


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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)
427.7p
Change
-1.7  -0.4%
P/E (fwd)
10.8
Yield (fwd)
4.1
Mkt Cap (£m)
1,425



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


49 Posts on this Thread show/hide all

emptyend 20th Jul '10 30 of 49
2

In reply to repobear, post #29

All I would say is that "they would say that, wouldn't they".

Yes Africa is extremely exciting - but, if that should apply equally to an ENI or an INPEX, then post the Nganzi drilling of three wells may be just the time for someone to offer a sensible acceptable price to buy them out of both VN and Africa at the same time!

I also think Ed in particular is getting to an age where getting over-excited may become medically inadvisable. ;-)

Incidentally - I see that the deal values Thai 2P barrels at $11.54. Perhaps that reflects some lack of competition for this asset but I must admit I could never quite understand why analysts had such a high per barrel number on Bualuang relative to some of the others.

ee

 

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davjo 20th Jul '10 31 of 49
3

value of US$105 million

profit before taxation of approximately US$39 million

There's that 2.5 to 3 year payback rule of thumb I mentioned recently for producing assets!

 

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emptyend 20th Jul '10 32 of 49

In reply to davjo, post #31

2.5 to 3 year payback rule of thumb I mentioned

...mmmm.....but the post-tax profits are less than $20mn, given the 50% tax rate....which makes over 5 years payback.

Still a decent deal for Salamander and, I guess, OK for SOCO given that there are bigger fish to be fried.

......'bout time I bought you that beer, though.....  ;-)

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repobear 20th Jul '10 33 of 49
3

ee,

All fair points. The upshot of the deal is that Soco will be a more focussed entity and a good chunk of the value in the portfolio should be outed in the current drilling campaign. They don't need this $105m to do that and are not the sort of guys to just say something for the sake of it, imv.

I suspect they intend to drill quite a bit next year in Vietnam and sell that asset in 2012 and there is at least a couple of years work to be done in Africa before that reaches the appropriate part of the cycle.

repobear

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davjo 20th Jul '10 34 of 49
2

In reply to emptyend, post #32

...mmmm.....but the post-tax profits are less than $20mn, given the 50% tax rate....which makes over 5 years payback.

I first noticed this commonality 10 or so years ago when Talisman acquired I think it was Petro Canada's N.Sea producing assets on a non-tax basis. I'm sure that deal was 2.5 times before tax consideration, so the 2.5 to 3 holds I think, reflecting various tax rates....purely as a rough guide of course. I wonder how that would translate for Dana's producing stuff, albeit KNOC may have different objectives to your average acquirer. Not for discussion here mind!

 

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emptyend 20th Jul '10 35 of 49
1

In reply to repobear, post #33

All quite plausible - but you can't divorce the matter of timing from the matter of price!

Timing is a function of price - and price is a function of timing. The more they invest in both VN and DRC, the more the price will tend to rise. IF someone takes a macro strategic view once the outcomes of the Nganzi campaign and the TGD drilling/licence is known, then it is perfectly possible that a higher price will bring the optimum timing forward.

They will only have four subs after the Thai sale - two in VN and one each in Congo and DRC....and perhaps each of the two areas of operations could have around 400mn bbls of net 3P resources, waiting to be proven up and developed. That would be a material attraction, IMO - especially as they are clearly going to sell down in VN once they've scoped TGD.

Anyway - we could debate for ages on this. Time will tell  ;-)

rgds

ee

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thegreatgeraldo 20th Jul '10 36 of 49

2.5 to 3 year payback rule of thumb I mentioned

...mmmm.....but the post-tax profits are less than $20mn, given the 50% tax rate....which makes over 5 years payback.

 

Common mistake!  ;-#)) Cashflow & post-tax profits are usually quite different animals

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emptyend 20th Jul '10 37 of 49

In reply to thegreatgeraldo, post #36

Cashflow & post-tax profits are usually quite different animals

Not, I suspect, when it comes to the repatriation of profits from overseas subsidiaries!

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peterg 20th Jul '10 38 of 49
5

Presumably a key factor in deciding to sell is that they must assume they can get a better rate of return from $105m with what they may use it for in VN or Africa than it's likely to produce left in Thailand, were it required no real intervention form the company, so can't really be argued to have been much of a distraction from anything else? So we have to assume that a likely, and potentially profitable, use for the cash is seen, and most likely that's going to be in VN and/or Africa?

Peter

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thegreatgeraldo 20th Jul '10 39 of 49
6

The deal probably suits both companies, Soco probably aren't interested in chasing Bualang satellites & the cash comes in handy. Maybe Salamander see the value more on a par with the analysts? Probably more deals to come from Salamander as they've barely touched the $100 mill they raised earlier in the year, have reduced the cash demands of their ongoing explo programme via farm-outs & have funded this deal with a new 18 month bank facility.

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jonnyt 20th Jul '10 40 of 49
3

I think there is a bigger factor at play and the timing maybe apt.

TGD will be around TD, now and imagine they believe they have hit the jackpot waiting confirmation from logs and testing. What if they can hold onto the rig for another hole and are going to drill the really big part.

Could be way off the mark but why sell now for what will be around the price of a good hole on the biggie?

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Impvesta 20th Jul '10 41 of 49

In reply to jonnyt, post #40

That would be great Jonny but, I think, highly unlikely. They did seem very clear at the AGM that they wouldn't be able to drill a 2nd well on the fan until probably May/June next year. Weather conditions are a factor here apparently. I hope you are right though! :-)

Regards

Impvesta

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emptyend 20th Jul '10 42 of 49
1

In reply to jonnyt, post #40

TGD will be around TD, now and imagine they believe they have hit the jackpot waiting confirmation from logs and testing. What if they can hold onto the rig for another hole and are going to drill the really big part.

Could be way off the mark but why sell now for what will be around the price of a good hole on the biggie?

That was a pet theory of mine for a long while - but it isn't going to happen. I've checked and double-checked.

However......with a fair wind it might be possible to get a rig slot in late November, if commerciality has been proven and the VN bureaucracy runs slightly faster than it usually does. I certainly wouldn't rule it out just yet anyway.

Any indication of a prompt follow-up well would certainly surprise the market and analysts.

ee

 

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kenobi 20th Jul '10 43 of 49
8

sorry I was going to reply earlier, but got distracted,
I pushed ed quiet hard on this, at the agm, after the presentation,
I got the impression there would be no more drilling until the licence was sorted out,
and that would take until next year,

Also got the impression that there was a time limit on the farmee, buying back into tgd,
and if it works, they'll be very factual, but won't go shouting about it, in the hope of staying
below the radar, some in soco, have the impression that they won't be buying back in,
even on a sucess, they certainly won't be doing anything to encourage them to buy back in,
I am all for this approach, we may have to wait longer, we may end up with a bigger slice of tgd,


cheers G

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extrader 20th Jul '10 44 of 49
4

Hi all,

AIUI, the ultimate value to us of TGD will be affected materially by whether PTTEP elects to pay the premium and buy back in, once (=30 days) knowing the outcome of TGD-1....

Meanwhile, SIA has disposed of its remaining Thai exposure at a price that seems, well, underwhelming (with all due repect to davjo ;>).

Could this be a clearing of decks in more ways than one (eg reducing possible 'pressure points' vis a vis the Thais) ?

I yield the floor to davjo, master of conspiracy theories....;>

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emptyend 20th Jul '10 45 of 49

In reply to extrader, post #44

That is an interesting thought!

I'm not sure that there is necessarily a connection, but in the context of potential back-ins etc it may well be helpful to be unencumbered.

I don't, incidentally, think the price is "underwhelming" (even though I was hoping the analysts might have had good reason for bigger numbers)....though I dare say that Salamander's interest has been on the table for a while and Bualuang may not have been of great interest to others. If one takes that as likely then this is certainly a fair point to ponder ....why has SOCO chosen to pick up the deal at this juncture?

Did the INPEX deal have a bearing on timing as well as perhaps the TGD drilling?

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davjo 20th Jul '10 46 of 49
3

In reply to extrader, post #44

I yield the floor to davjo, master of conspiracy theories....;>

AIUI, Ed Story is fluent in Thai language and owns a decent holiday house in the country. His wife Jo reportedly loves the place and apparently has a pet monkey luxuriously homed within the acreage, so I'm struggling to even consider a scenario where Soco decides to kick PTTEP in the nuts ;-)


Tongue in cheek comment, with some truths, but I'm not in the least bit swayed to draw any conspiracy theory over the sale of Bualuang, just as the Tunisia sale* proved independent of whatever was going on in Libya at the time.


Imo, the Thai sale is simply turning assets into cash which can be better invested elsewhere.


*I'd be pretty sure that sale was in the 2.5 to 3 year pre-tax payback range too. Take note!

 

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emptyend 21st Jul '10 47 of 49
3

In reply to davjo, post #46

*I'd be pretty sure that sale was in the 2.5 to 3 year pre-tax payback range too. Take note!

Just a final point on this. There is a huge difference between selling a wasting asset that has a short and clearly defined life (as assessed by the vendor) and selling a wasting asset that has a life that is 2/3/4 times as long. Bualuang is thought to have a 9 year field life and the licence has a 16 year limit.

Payback measures were going out of fashion when I was at business school 25 years ago - and only get referenced because of their simplicity. Obviously, the closer one gets to a set of cash flows that resemble a short term annuity, the easier it is to assume that payback is somehow a relevant metric.

I agree with dj though that the Thai sale is simply a turning of assets into cash, though I'm less sure there are any particular investment plans, given the pre-existing strong cash position!

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marben100 21st Jul '10 48 of 49

In reply to emptyend, post #47

Just a further quick point on the rule of thumb. Clearly, it can't apply to proven but undeveloped, or partly developed, assets (unless one uses a forward estimate of PTP).

Cheers,

Mark

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thegreatgeraldo 21st Jul '10 49 of 49
1

Just a final point on this. There is a huge difference between selling a wasting asset that has a short and clearly defined life (as assessed by the vendor)

    SMDR are probably taking the satellites into consideration?  East Terrace, 7.3mmbbls, CoS 66% & the North prospect 17mmbbls & a CoS put at 25%, as well as looking to increase recovery on the main field

 

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