Valuation, sentiment, and SP direction

Wednesday, Jun 17 2009 by
17

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.

 

Moderation note: posts will only be deleted from this thread by the site admins or by agreement from at least three of sirlurkalot, emptyend, djpreston and doverbeach.  If three of this list agree to delete a post, the names of those three and the reason for deletion will be noted in a post on this thread so everything's completely transparent.


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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)
422p
Change
11.0  2.7%
P/E (fwd)
10.1
Yield (fwd)
4.4
Mkt Cap (£m)
1,364



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


1312 Posts on this Thread show/hide all

emptyend 16th Dec '12 1033 of 1312
3

In reply to MadDutch, post #1031

I am getting fed up with the jam tomorrow attitude of the directors.

Rarely have I read such rubbish!

It was, is, and always has been obvious that the company wouldn't monetise Vietnam until it was optimal to do so. The interests of directors in their role as shareholders dwarfs their interests as managers. I'd expect them to signal a distribution of some sort in the next few months, if they don't first do the deal I expect - management are just as keen on doing that as any shareholder is (apart from you, who was keen on seeing dividends well before it was prudent to consider paying any!).

I see no evidence whatsoever of a "jam tomorrow" attitude!

ee

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peterg 16th Dec '12 1034 of 1312
7

In reply to MadDutch, post #1031

12 years is a long time to wait. Too long.

Are you sure Isaac hasn't hacked your Stockopedia account, MD?

12 years ago you could buy 1 new Soco share for 31.5 (you would have had to buy 1 old share, 4 new shares, for 126p). With Friday's close of 368p that reperesents a compound return of 22.7%.

If that's jam, tomorrow, I want more!

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rhomboid1 16th Dec '12 1035 of 1312

In reply to peterg, post #1034

22.7 % compound... and that's before the end game !

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kenobi 17th Dec '12 1036 of 1312
8

Well I have some sympathy with MD myself, while on the one hand I would rather wait until conectivity can be proven, and they can sell up for a bumper price. On the other hand you have to wonder what the likelihood of that is.

The management were also pretty convinced that TGD would be the big one, but in the end that turned out to not work. So I for one would like to hear from the management what the plan is from here on in. They seem convinced and bullish about the connectivity, well what needs to happen to prove or disprove this theory, and how are they going to get the partners to agree to the work required to do this. If they cannot convince the reserves review people, why not ? And how are they plan to convince a buyer ??

I remember Jseth saying at the agm (and I hope I'm not mis quoting), that he didn't want H5 to become the new TGD, the new reason why they can't sell vietnamn, which might run for years. Well I feel the same about connectivity, I would like the management to explain what their plans are re this. so that if it's now another long stretch people can decide for themselves if they want to hold the stock and at least have a feeling of where we are going. It just seems that every time we reach the point we've long been waiting for, to monetise vietnam, there is some other glitch/delay/issue. And obviously, they need to say something about their thoughts on paying some kind of special divi, (or ongoing),

G




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davjo 17th Dec '12 1037 of 1312
3

I remember Jseth saying at the agm (and I hope I'm not mis quoting), that he didn't want H5 to become the new TGD,

No chance! H5 is effectively a one shot TGT extension play.

 

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extrader 17th Dec '12 1038 of 1312

Hi davjo,

Point taken re H5 .....but if it's not drilled until H1 2013 - and then needs 6 months of flow testing to make potential buyers feel comfortable re field characteristics - we could be looking at the latter part of 2013 for any monetisation re Soco VN ?

I 'm with kenobi here, that some news re dividend intentions would now be in order (as I think ee postulated sometime back in November -  his 972), esp. as this is one area that lies pretty much within the owner/managers 'gift'.

ATB

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davjo 17th Dec '12 1039 of 1312
5

ET

Point taken re H5 .....but if it's not drilled until H1 2013 - and then needs 6 months of flow testing to make potential buyers feel comfortable re field characteristics - we could be looking at the latter part of 2013 for any monetisation re Soco VN ?

I don't see it that way at all. It looks to me as if H5 will be drilled as a stand-alone jack-up job...too far away from H4 WHP, hence, optimum location available. Bearing in mind that they'll be pretty clued up as to the target horizons being the same as the other fault blocks (note it's classed as an appraisal well), it strikes me as a one off drill which either strikes or it doesn't. Yes, it could be an indeterminate teaser result but I couldn't see them revisiting for years if so. If it yields a commercial DST that'll be good enough imo for any buyer. As to 6 month testing, that won't be on offer because they won't have any means to offload the oil...no pipeline available. The only possibility I see of time spent beyond a single drill is perhaps an immediate follow up side-track, which in itself would only be perhaps 3 weeks?

 

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loglorry 17th Dec '12 1040 of 1312
2

If drilled with a jackup in fairly shallow water and could be done in 3-5 weeks it puzzles me what they are waiting for. The cost of a jackup for that period would be pretty small. Jackup day rates are what $100K with same again for manpower materials so say 30 days at 200K they could get the whole lot done for $6m and they don't have to pay the whole lot - only their share. All subject to rig availability obviously.

Seems like the obvious thing to do if there is a decent chance of H5 coming in as it will put that to bed quite quickly and in the scheme of a Vn or Company sale it is not particularly expensive.

Anyway I'm sure they know all this a lot better than we do (open goal for ee put down) ...

The flipside (always invert) might be they are not so confident or the partners don't want it drilled of course.

Log

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emptyend 17th Dec '12 1041 of 1312
2

In reply to kenobi, post #1036

on the one hand I would rather wait until conectivity can be proven, and they can sell up for a bumper price. On the other hand you have to wonder what the likelihood of that is.

...err....no we don't. We pay management to worry about that for us. All the vibes from mid-year onwards have been positive re the connectivity thesis - and if they now want more drilling to dot the i's and cross the t's for the sceptics, then I'm prepared to back a judgement that it is optimal to delay rather than cash out.

There have been two delays over the last 6 years in the route to the exit:

1) TGD upside potential - which was c 1bn bbls IF it could be made to flow and

2) the financial crisis.

Nothing could be done about the latter - and the former proved to be a technical challenge too far at present...and was protracted because it took time (at least 2 years longer than expected)  to discover that the geology was much more complex than hoped.

H5 is an analogue of the blocks further north - and, as dj says, it will either flow or it won't. The only remaining question is whether they can show any connectivity to H4 by observing the pressure in production wells at H4 whilst the H5 drilling/testing is done. There won't any extended testing.

ee

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emptyend 17th Dec '12 1042 of 1312
1

In reply to loglorry, post #1040

it puzzles me what they are waiting for.

Cyclone season is December to February! IMO it will be drilled as soon as the weather clears.

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loglorry 17th Dec '12 1043 of 1312

Ummm according to what I've found tropical Cyclones are October-early December and .. in April-May. Also Coastal Energy are having no problem drilling wells in the Gulf of Thailand ( a bit further away). They have just taken delivery of a new rig in fact. Could be wrong though. If not it would suggest a window of opportunity but I guess rig availability is important here.

http://www.terra-weather.com/summ_thv.html

Log

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kenobi 17th Dec '12 1044 of 1312
9

...err....no we don't. We pay management to worry about that for us. All the vibes from mid-year onwards have been positive re the connectivity thesis - and if they now want more drilling to dot the i's and cross the t's for the sceptics, then I'm prepared to back a judgement that it is optimal to delay rather than cash out.

My point is that everything has been pointing to this being proven by now,  (well sept originally but it's slipped), now if they want more drilling to dot i's and cross t's I'd like it explained as to what drilling is needed to prove this theory,  and how come the management is so convinced if they cannot convince the people carrying out the reserves update.   I'm struggling to understand what the issue is at the moment,  and while I'm open to further delays in cashing out,  I'm starting to wonder if they shouldn't announce that the accarage is for sale, and start the process of a sale.   It seems to me if this is the sort of thing that is likely to become clear during the period of a sale, (the block next door took 12 months to sell).   I'm not saying that they don't have good reasons why they want to do this,  they probably have.  But for most of the time I've held soco,  I have had a pretty good idea of what I was waiting for,  usually something to happen to monetise vietnam.  For a long time it was drilling tgd, or getting tgt into production,  or waiting for production data on tgt p2.   Now it's this connectivity proof.  But I have no idea what's required to prove this,  I had until recently thought that they would do the work needed as part of the reserves review,  now it seems not.  or that it will go on for an extended period.   I'm happy for the management to manage the company,  I'll manage my money though,  so all I'm asking is for explanation of what the path from here to monetising Vietnam is,  so that I can decide what I should do. I'm sure others here will want to make the same decisons for themselves.

Cheers K

 

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emptyend 17th Dec '12 1045 of 1312
2

In reply to loglorry, post #1043

Ummm according to what I've found tropical Cyclones are October-early December and .. in April-May. Also Coastal Energy are having no problem drilling wells in the Gulf of Thailand ( a bit further away). They have just taken delivery of a new rig in fact. Could be wrong though.

You are wrong.

The cyclone season off Vietnam varies according to which part of the coast you are on and there is ample evidence over many years that Dec-Feb is the season on SOCO's blocks. Some will recall the delays a few years ago when they couldn't move a rig from 16-1 to 9-2 at this time of year because of the weather...and then there is the IMS statement too.....

The rig has been released ahead of the monsoon season

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emptyend 17th Dec '12 1046 of 1312
8

In reply to kenobi, post #1044

I'd like it explained as to what drilling is needed to prove this theory,  and how come the management is so convinced if they cannot convince the people carrying out the reserves update.

Has everyone here lost their marbles?

The CPR is due in January. It was delayed to incorporate data from 3 wells that were put onstream in October (see the IMS). When the CPR is finished, I fully expect that the company will be very clear on the forward plans, including drilling, proving up (if required) and quite likely issues of monetisation & dividends too.

I'm happy for the management to manage the company,  I'll manage my money though,  so all I'm asking is for explanation of what the path from here to monetising Vietnam is,  so that I can decide what I should do.

What you are asking for is the equivalent of a post-match briefing whilst you know that they are still playing extra time. The 90 minutes may well be up - but the time to ask that question is mid-January, in the unlikely event that there has been no statement by then.

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emptyend 17th Dec '12 1047 of 1312
3

In reply to emptyend, post #1046

ps......I'd also add that 100% of this discussion is based on conjecture. For all we know, they could have been following the "sale route" for the last week or so. I certainly wouldn't want a queue of panting, anxious PIs if I was trying to do a deal - much better to give everyone the idea that nothing is happening.

In other words, the 95% probablity is that nothing is happening - but it can never be 100% probability.

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kenobi 17th Dec '12 1048 of 1312
1

The CPR is due in January. It was delayed to incorporate data from 3 wells that were put onstream in October (see the IMS). When the CPR is finished, I fully expect that the company will be very clear on the forward plans, including drilling, proving up (if required) and quite likely issues of monetisation & dividends too.

well I look forward to seeing this explanation, that's all I'm asking for, 

What you are asking for is the equivalent of a post-match briefing whilst you know that they are still playing extra time. The 90 minutes may well be up - but the time to ask that question is mid-January, in the unlikely event that there has been no statement by then

well, depending on whether they announce the results of the reserves review,  the email I got from them suggested that they might not.   Anyway,  I look forward to an update in January.

 

 

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tiswas 17th Dec '12 1049 of 1312
2

What you are asking for is the equivalent of a post-match briefing whilst you know that they are still playing extra time.

Some people are on the pitch.... they think it's all over..... ...

not yet it's not!

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emptyend 17th Dec '12 1050 of 1312
1

In reply to kenobi, post #1048

well, depending on whether they announce the results of the reserves review,  the email I got from them suggested that they might not. 

I refer you to my comments in 1047.

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peterg 17th Dec '12 1051 of 1312
1

In reply to kenobi, post #1048

depending on whether they announce the results of the reserves review,  the email I got from them suggested that they might not.

Well, it's certainly possible they won't. If a deal is agreed we will never see it. OTOH, if that doesn't happen I'd be amazed if there isn't some information released at least by (or in) the prelims.

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kenobi 8th Jan '13 1052 of 1312
4

Closed period repurchase program announced,

http://tinyurl.com/b9s5yxt

I wonder at what level this kicks in ? perhaps that small buy back before christmas gives us a clue that they might be planning to buy back over 350.
Will be interesting to see if any buybacks take place and at what price,

K

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