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Valuation, sentiment, and SP direction

Wednesday, Jun 17 2009 by

Detailed discussion of Soco's assets should take place on other threads, but this thread is to discuss the latest valuations both by ourselves and analysts, sentiment (ie will the shares go nowhere because there's not much upcoming news) and likely moves in the share price in the next six months.  How should the shares be valued?  How reasonable is it that any drilling without a firm commitment further than several months away is ignored by the market?

I haven't seen many recent analysts' reports on Soco, but I have one from Cazenove with a core NAV of 1370p and no doubt considerable explo NAV on top of that.  I imagine that's approximately concensus, but maybe with crude rising again these concensus NAV figures will start to rise.  Has anyone any other recent broker estimates?

My view, as stated elsewhere, remains that in the absence of much to get the market excited the shares will wander aimlessly for the rest of 2009.  I've previously guessed that if crude were $65 at Christmas 09, then Soco's SP would be somewhere near £13 then, and I'm still very happy with that guess.  What does anyone else think?

Of course unexpected bids and other events may overtake this, but these sort of events may happen to any company, and perhaps Soco (where management seem unlikely to accept bids since they believe there is considerable value not recognised by the market) is one of the less likely companies to be affected by the unexpected.  The key new news for Soco might be (a) a bid (IMO unlikely), (b) some sort of presentation by management of the drilling data they claim to have that demonstrates a significant strike has been made at E, currently ignored by the mkt, or (c) possibly hitting oil off the Congo.


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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 »

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1292 Posts on this Thread show/hide all

tournesol 17th Jan 1273 of 1292

In reply to snodgrasse, post #1269

...There is much speculation in the press at the moment about an imminent decline in the oil price....

No there isn't.

....A price of $60-$80 per barrel for 2014 and beyond seems to be a consensus....

No it doesn't.

There is a famous aphorism to the effect that the plural of anecdote is not evidence.

Incidentally are you Lazy Lycosa when you post on TMF? Just asking because a similar post was made there a few minutes ago citing a newspaper article that is over a year old to support the thesis of an imminent price fall. It actually shows that bearish comment recurs and is then proved werong time after time after time.

Predicting that the price of oil will fall is like predicting rain. Do it long enough and you'll be right. But that does not make it insightful.

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emptyend 17th Jan 1274 of 1292

In reply to kenobi, post #1270

Shale oil seems to be reversing declines in production in the US, and no doubt eventually it will be used elsewhere.
I am guessing that this will mean less unconventional (tar sands etc), will be developed, but even so, it's easy to conclude that supply will increase.

I'd completely disagree with all of that, save for  agreeing that the USA has had a short-term production boost. One of the reasons that recovery costs have been rising is because shale activity is hoovering up drilling resources, raising production costs across the sector. Note, in particular, today's disappointing results from Shell - and consider this article from the FT of a few months ago which is headlined 

US shale is a surprisingly unprofitable miracle

I've put that in great big bold letters, because to listen to the popular press...and to the UK Government.....and to BBC's Question Time last would think that shale fracking is some sort of magic bullet for all our energy problems. And it most definitely isn't!

The clue as to why it isn't lies in the FT article I refer to above:

That a company with the technical ability and cash of Shell would find production from fracked shale had not “play(ed) out as planned” should give pause to the investors and commentators who have become believers in the shale miracle.

Mr Voser commendably took responsibility for a $2.1bn writedown on the value of the company’s US shale assets...

Mr Voser told the FT: “[Shale well] decline rates are very high, so after 18 months your production drops very sharply, which means you have a business model of constant investment.”

That is demanding enough for a highly diversified investment grade company such as Shell; if your company is junk-rated, it is much harder.

Once again, I have emboldened and enlarged the key point here!

Whilst shale is in its very early stages, it looks like a miracle. New wells are drilled and fracked at a furious pace and this activity leads to very rapid production increases. BUT the flipside of that is that the very rapid production falls are just around the corner, as the former Shell CEO indicated. Whilst new wells are drilled and fracked fast enough to outpace the impact of production declines, everything looks hunky dory......but when that production curve rolls over and declines????.....boy, is it going to have an impact - especially on the USA where the psychology seems very much focused on shale as the guarantee of cheap gas prices!

So I am in complete agreement with the conclusion of the FT article:

Beyond next year, though, there is a steep wall of capital demands for new pipelines, reversals of existing pipelines, export terminals, nearby chemical plants, and gas-fired power plants.

What really surprised the industry was the continuing supply of new capital from lenders and return-short investors. This interrupted what would have been a typical oil and gas drilling cutback phase.

In other words, yes, there is a big Marcellus effect, but it may turn out to have been superhyped by quantitative easing. 

...and I am completely and utterly relaxed about the price outlook in the context of SOCO International (LON:SIA) 's likely forthcoming deal in Vietnam.

As for the tar sands point mentioned by kenobi, the environmental lobby is queuing up to object to developments - and in any case they are completely uneconomic if oil prices were to fall significantly. The reserves that SOCO International (LON:SIA) is sitting on in Vietnam are some of the lowest cost reserves anywhere in the free world (ie outside the Middle East) and for that reason they will be highly sought-after, even if there happens to be a very short-term dip in oil prices.


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tacheman 19th Jan 1275 of 1292

The MacQuarie presentation is now up on the Soco site.

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tournesol 19th Jan 1276 of 1292

In reply to tacheman, post #1275

Thanks Tacheman

The Macquarie presentation is a strong performance from a self evidently relaxed and confident management team.

Not a massive amount that strikes me as new, but one or two things caught my eye (there is an old joke about that.....)

1) TGT development drilling will continue for another 4-6 years

2) Partners have agreed to drill CNV 7P well to access undrilled fractures and increase production

3) Uganda Block V activities suspended because of M23 insurgency

4) 2nd stage capacity test of TGT FPSO pending

5) acquisition of new ready-to-drill high potential exploration prospect is expected

6) annual return to shareholders will target a MINIMUM of 50% of FCF


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emptyend 19th Jan 1277 of 1292

In reply to tournesol, post #1276

The Macquarie presentation is a strong performance from a self evidently relaxed and confident management team.

Not a massive amount that strikes me as new, but one or two things caught my eye (there is an old joke about that.....)

Yes - and mine.

But the main thing that I notice is the whole thrust of the presentation. I am reminded of the prior comments about Yemen being a "plumbing job" - especially when I look at the relationship between proven and possible/potential in slide 8 ;-) 

Vietnam is clearly in the departure lounge, ready and waiting for take-off. Mostly just waiting for the last bits of luggage to turn up (principally the RPS reserves report and the H5 development plan)

I also note:

  1. The cogent investment case presented in slides 3-5
  2. Details on Litchendjili on slide 13 show drilling planned for mid-year and 50-60mmboe upside in our block. Remember that ENI have already put the field on production in their block.
  3. Slide 15 giving details of MPS target and plan...drilling in about 12 months targeting 100-300mn boe (in which SOCO International (LON:SIA) would have a 60% WI)


2014 should be a very rewarding year, IMO.



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Asagi 19th Jan 1278 of 1292

reported as "Currently drilling the second well of the two well programme, Dinge 20-7 well" in Cabinda.

That puts me right, who was thinking that both wells had been drilled but no results made public on either.

I'd like this to work for SOCO as it would demonstrate some success outside Vietnam.

Asagi (long SIA)

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emptyend 19th Jan 1279 of 1292

reported as "Currently drilling the second well of the two well programme, Dinge 20-7 well" in Cabinda.

That puts me right, who was thinking that both wells had been drilled but no results made public on either.

IIRC the timeline suggests that, even with Sonangol inefficiencies, 20-7 can't be far off completion. So the question will then be: what can be announced for both 20-6 and 20-7? We know that 20-6 was worth some testing.

I'd like this to work for SOCO as it would demonstrate some success outside Vietnam.

I'd prefer to see a success made of MPS - assuming we still own it by the time of drilling. Ideally I'd prefer everything to succeed but really Cabinda (17%) is a sideshow at this point.


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flyinghorse 19th Jan 1280 of 1292

I also picked up (my interpretation) :
Preference for oil over gas (slide 5) that would also exclude gas from many farm ins.

TGT H4S would appear to be crying out for a well,but nothing I can see in 2014 plan


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emptyend 19th Jan 1281 of 1292

In reply to flyinghorse, post #1280

I also picked up (my interpretation) :
Preference for oil over gas (slide 5) that would also exclude gas from many farm ins.

My understanding is that this preference is mainly expressed in having a higher threshold size and in requiring a clear channel to market. In other words, there will be no blue sky LNG or sub-scale gas......and you are right that this certainly excludes many situations

TGT H4S would appear to be crying out for a well,but nothing I can see in 2014 plan

It may be the case that wells to develop H4S would be drilled from a platform installed for H5. So, until that is agreed, there won't be a firm plan to drill H4S. I would also note that is there should happen to be connectivity from H5 (as I think there is) then that implies that some sections of H4S are connected to H5. If that is the case, you may find that the analysis of the H5 well tests cause some degree of upgrading of the H4S "possibles" without further drilling. The answer to that point lies with RPS at present...

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ExTownie 19th Jan 1282 of 1292

Do we have an idea when any change to the reserves would be announced? I had end of Q1 in my mind, not sure why, or would this be an AGM item?



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emptyend 19th Jan 1283 of 1292

In reply to ExTownie, post #1282

Normally (ie for the last 15 years...except last year) updates on reserves have been made with the (printed) annual report.

My understanding this time round is that the RPS report conclusions will emerge with the prelims - or perhaps before?  Last year the RPS report conclusions were made public in mid-February as part of an Operations Update that included comments on CNV and Cabinda. Perhaps a similar thing will happen this year?

In sum, my expectation is that the reserves update will come out sometime in the next 6-8 weeks.....most likely (IMO) after a board meeting sometime in February.  FWIW



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ExTownie 19th Jan 1284 of 1292

In reply to emptyend, post #1283

Thanks ee

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emptyend 23rd Jul 1285 of 1292

Rather tricky to know exactly where to park stories like this, but I somehow suspect that this one is a bit more than merely "incidental" to SOCO International (LON:SIA) 's interests:

Talisman/Repsol rumours:

Shares in Talisman energy were briefly halted on the Toronto Stock Exchange Wednesday after reports that Spanish oil conglomerate Repsol SA is considering buying the company.

Published reports Wednesday suggested that Repsol had hired investment bank JP Morgan to advise it on plan.s to make international purchases. Calgary-based Talisman is considered to be at the top of that list, Bloomberg reported early Wednesday.

IIROC, the regulatory body that oversees the TSX, halted Talisman shares at mid-morning Wednesday, citing "pending news" from the company.

"Talisman acknowledges that it has been approached by Repsol with regards to various transactions,"

My bold!

Talisman is highly likely to be a seller in Vietnam - and it may very well be that this is one of the "various transactions". If that is the case, then it is quite possible that Talisman's interests aren't the only item on Repsol's shopping list.

Talisman is currently up 11% today on the TSX, but has been up more.

I'd guess that the fresh interest in SOCO International (LON:SIA) seen this week isn't entirely unconnected....... also:

Recent news on Talisman's plans to sell Asian assets & Recent REPSOL entry into Vietnam lubricants

<TommyCooperMode> .....Ah-hah!  ;-)

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emptyend 23rd Jul 1286 of 1292

In reply to emptyend, post #1285

It is worth noting that there is now a considerable amount of speculation out there about Talisman's attractions to Repsol - most of which is completely self-contradictory! Virtually all of Talisman's assets are held up as particular attractions - but IMO there are too many problem areas and too much gas in their portfolio to be of interest to Repsol.

Talisman is also too big - maybe $15bn or so to buy, for a company that is barely $30bn or so itself. Repsol has about $9bn in cash though, following its exit from Argentina...... so perhaps one might think they have more modest ambitions centred on particular asset areas? Buying out an oil-rich, long-life development asset with explo upside would seem to fit the bill (though arguably the political environment may not, with Repsol having indicated a preference for OECD-style stability) - and they would still have a few billion to spend on specific assets to add to that.

But then I would say that......

Repsol's results are out tomorrow, and will doubtless be scrutinised for clues by Talisman's army of analysts. Look out for any indications that parts of Asia might be favoured, as that would blindside a number of Repsol followers, it seems*.

*FWIW I wouldn't have picked Repsol as an obvious candidate for SOCO International (LON:SIA) , mainly because SOCO's portfolio doesn't align well with Spain's historical colonial map....

I might also add that if the Talisman assets in Vietnam are a block to a biggish deal with Repsol, then there may also be the possibility of them being picked up cheaply (which may have operational benefits re capacity management).

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emptyend Thu 11:33am 1287 of 1292

In reply to emptyend, post #1286

Further comment from analysts below, quoted on FT Alphaville just now (my bold):

.......the Repsol webcast (starting in 20 mins) may have some illuminating Q&A, for those with the time to listen in?



RBC takes us through the bullet points.


Here are the pros of a combination.


TLM would add ~370kboed, so effectively doubles Repsol upstream
production for ~40% of its EV. We have consistently highlighted volume
as a key driver for Repsol.
• Repositions Repsol more effectively as an upstream company - presently
has highest downstream exposure (20-25% of group op income) and
exposed to challenged European refining.
• Repsol specifically identified "US, Canada, Norway, other OECD" which
is footprint TLM could bring.
Also referred to "taking Repsol into new areas", which would fit Asia
Pacific (28% of TLM production in 2013, 4% of REP) and in Malaysia/
Repsol looking for early increase in volume, not early-stage exploration/
• All-cash offer at a 20% premium to yesterday's close would take REP
gearing to just over 40% (including consolidated net debt) - high but not
• Better balance would be 50/50 cash/stock - EPS neutral and gearing
optimal at 30-35%. But unlikely to get much traction with TLM holders?
• Repsol now sees itself as having done good disposal deals following YPF;
could claim to generate value from portfolio rationalisation.
• Repsol's financial target for an acquisition - "must return the cost of


And here are the cons.


Repsol is already at the low end of the oil/gas production ratio at 40%,
and will want to increase that.
TLM is ~66% gas so would take Repsol in
the wrong direction.
• Repsol is less able to optimise value from gas production. No access
to LNG exports in US/Western Canada, and no domestic marketing. No
presence in Asia (little production and no LNG).
Repsol is looking to access DW assets where it can learn from those with
more experience, rather than turn round very assets which have been

At just 3% ROACE (2014E), TLM has lower returns than Repsol. Dilution
takes Repsol even further below the pack on ROACE


And Credit Suisse, which doubts the financing stacks up.


Bottom line, we do not think a companywide sale is likely to occur
here given the funding gap that still exists within TLM. We further postulate
that it would make very little sense at this juncture for TLM to part ways with
certain core cash generative assets in North America and Asia Pacific while
keeping more capital intensive non-core assets such as in the North Sea as
this would further exacerbate the existing funding gap. We note the North
Sea and Kurdistan alone represent ~30% of TLM's capex. Net of dividends,
we forecast a funding shortfall of over ~US$1 billion this year and next which
will require asset sales or further debt to balance cash inflows/outflows.
Management is targeting to reduce D/CF further with any sale proceeds.


TLM's Assets for Sale: We remind investors that TLM has previously
messaged it was aiming to monetize ~US$2 billion in assets in the coming
12 months which could potentially include a JV in the Duvernay, sale of its
Marcellus midstream assets, and Kurdistan farm-down. While the North Sea
is viewed as non-core at this juncture, we think more work needs to be done
to improve asset performance and outlook before the region is saleable.


Valuation: TLM shares currently trade at 5.9x 2015E EBIDAX, in line with
Canadian large-cap peers at 6.0x. Our target price of US$12 equates to 6.5x
2015E EBIDAX, a ~10% discount to Canadian large-cap peers, and is set in
context to our risked NAV of US$14.14/sh. At strip, our risked NAV equates
to US$14.58/sh.

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kenobi Thu 2:16pm 1288 of 1292

I might also add that if the Talisman assets in Vietnam are a block to a biggish deal with Repsol, then there may also be the possibility of them being picked up cheaply (which may have operational benefits re capacity management).

apart from the bit on tgt, what is the size/value of the talisman assets in vietnam ?
I wonder if a deal might involve buying the lot having pre sold, or planning to sell chunks of the company to make it more affordable. Interesting idea.


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emptyend Thu 4:41pm 1289 of 1292

In reply to kenobi, post #1288

Since writing the point about SOCO possibly picking up the Talisman assets, I now think that is unlikely.

It may be of come interest to look through a couple of recent Talisman presentations on the region:

October 2013


May 2014

Proved oil reserves in "other SE Asia" (excluding Indonesia, which is big but mostly gas) were 22.6mn bbls plus 139 bcf of gas....FWIW...from the Talisman AR 

Reportedly, Talisman think their whole SE Asia business is worth about $4bn - and I suspect that they think Vietnam may be worth 20-25% of the total, due to high netbacks. I'd be very interested, though, if someone can find some hard info on what Talisman think their VN 2P bbls are worth!!

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MadDutch Tue 7:15pm 1290 of 1292

ee, I thought HST was "a pimple on TGT's arse" according to our favorite CEO, or is my memory playing tricks with me? If not, it must be a rather big pimple!

Would you trust Talisman's claimed figures?

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extrader Tue 9:36pm 1291 of 1292

Hi MadDutch, must be a rather big pimple!

Or a humongous arse.... ?


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emptyend 54 mins ago 1292 of 1292

In reply to MadDutch, post #1290

I thought HST was "a pimple on TGT's arse"

It is. But Talisman's SE Asia numbers include a bunch of other things too - and even the 15-2/01 block includes HSD.

A fuller description of their VN assets is on their website. Their total VN production is only 8% of the SE Asia total - and 85% of that 8% is produced via "our" FPSO:

Talisman holds a 60% interest in Block 15-2/01 as a partner in the Thang Long Joint Operating Company (‘‘JOC’’), which operates the Block. Block 15-2/01 lies in the Cuu Long Basin, the predominant oil producing basin in Vietnam. The Company holds a 49% operated interest in Blocks 133 and 134, 40% in Blocks 135 and 136, and 40% in Block 05-2/10 in the Nam Con Son Basin. In 2012, Talisman acquired a 35% interest in Blocks 45 and 46/07 adjacent to PM-3 CAA in the Malay-Tho Chu Basin. In July 2013, Talisman acquired a 55% operated interest in Block 07/03, including the Red Emperor discovery, adjacent to Blocks 135 and 136. Block 46/02 was relinquished to PetroVietnam in November 2013.

In 2013, the HST/HSD project, situated in Block 15-2/01, was completed under budget and ahead of schedule, producing on average 8.5 mbbls/d (net) of oil for the year. Overall, Vietnam production averaged 10 mboe/d in 2013, accounting for approximately 8% of Talisman’s total Southeast Asia production.

In 2013, three exploration wells were drilled, and subsequently plugged and abandoned, in Blocks 45 and 46/07. The Company also drilled the first appraisal well and subsequent sidetrack following the acquisition of Block 07/03 in July 2013. The final exploration commitment well for the block commenced drilling in January 2014.

Two exploration wells and seismic studies are planned for Blocks 135 and 136 in 2014, complementing Red Emperor appraisal activity in Block 07/03.

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