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)
418.5p
Change
2.6  0.6%
P/E (fwd)
10.7
Yield (fwd)
4.2
Mkt Cap (£m)
1,380



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


1284 Posts on this Thread show/hide all

emptyend 1st Nov '12 925 of 1284
2

IMS out.

One or two minor items, such as a new interest off Congo and the fact that production at TGT has exceeded 60,000 at peak. Cash numbers lower than one might have expected (though can't tell why from the info provided - possibly drilling costs on development wells).

The elephant in the room remains the upcoming reserves report - and there are no clues there.....

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shanklin100 1st Nov '12 926 of 1284

It would certainly be interesting to see a cash flow breakdown for the last few months.

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loglorry 1st Nov '12 927 of 1284

Nothing much new and nothing to get excited about unfortunately. I'm puzzled why cash flow wasn't stronger. Hey ho bit dissapointing.

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nigelpm 1st Nov '12 928 of 1284

In reply to shanklin100, post #926

Agreed. Seems a little lower than I was expecting.

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nigelpm 1st Nov '12 929 of 1284

Anyway, production well on track as expected and cash flows can be lumpy quarter on quarter so generally positive.

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emptyend 1st Nov '12 930 of 1284
6

In reply to nigelpm, post #929

cash flows can be lumpy quarter on quarter

RBC note that cash is "flat quarter on quarter despite acquisitions totalling $104mn" (though in fact it was $178mn at the half-year).

As you say, they can be fairly lumpy - and you can't tell from the outside exactly when cash calls are being requested and paid for things like the development drilling on TGT which has just finished (and which I omitted to allow for anyway in my earlier comments re cash).

FWIW the RBC headline is:

IMS Confirms Steady Production Growth And An Eye For A Deal

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emptyend 1st Nov '12 931 of 1284
5

In reply to emptyend, post #930

Just revisiting the RNS, I note that WI production was 18,824 BOEPD week ended 26 October

......quite respectable, considering H1 production was 14,375 boepd.

And, at TGT: production for the last 24 hour period reported (30 October) was 58,867 BOPD (gross) ....and ....16,317 BOPD (net) for the week ending 26 October 2012.  If nothing else this indicates that they are doing a fair amount of playing around taking wells on and off production (the net number for w/e 26/10 is around 53,500 bopd gross).

This is also an important comment:

60,789 BOPD with no issues seen in either the reservoir performance or the FPSO operability

...which suggests that they wouldn't necessarily hold back from putting well combinations onstream that produced at even higher rates.

They also flag a well on the H5 fault block "early next year".....which I assume would imply a spud after the weather clears. Not clear from the RNS whether this is a certainty at this point.

I'm also interested to see Fox Davies' comments:

Balance Sheet Strong but Exploration is missing link - Production for 3Q was up 400% y/y to 13.7m boepd driven by production commencement from the second platform on Te Giac Trang field and we are confident of company meeting its full year production target of 16m boepd. On the exploration side, outlook appears muted, we don't see major exploration activities on any block in the near term. The Company needs to expedite exploration activities and acquire few assets to secure medium term growth. With positive operating cash flow and Net cash of $170.0mm, Soco has comfortable liquidity position.

....I don't think they have a clue about the outlook or the company's agenda!!  ;-)

I've yet to see any analyst speculate on the upcoming reserves assessment (or even pay much attention to it!)

ee

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adam 1st Nov '12 932 of 1284

With positive operating cash flow and Net cash of $170.0mm

no,really?

must be netting $300m+ p.a. at current production levels.

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Asagi 1st Nov '12 933 of 1284

I've yet to see any analyst speculate on the upcoming reserves assessment 

I think that is significant, given management has been so open about the assessment taking place.

It would be a brave analyst that stepped out from the rest and put a figure in print - especially if that meant suggesting anymore than, say, +15%.

What they tell clients in conversations is another matter. Especially as we are so often told that the research reports are just a fraction of the service that the analysts provide.

Asagi (long £SIA)

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kenobi 1st Nov '12 934 of 1284
5

>> I think that is significant, given management has been so open about the assessment taking place.

well yes and no, they raised it at the AGM, and have answered questions about it since. BUT if they were being so open about it, would you not have expected a mention of it in todays IMS ???
if they wanted analysts to talk about it, I wonder if there was some way they could have reminded them that this was going on, and we're not sure when it'll be finished but maybe by year end say ??? hum, how could they have bought it to their attentions ? if only there was some kind of document they periodically release, where it could be snuck in just to get people thinking on those lines ......
ok, sorry about the sarcasm, you know what I'm saying, they obviously don't care if the analysts are talking up the stock or not, or they would have put this on the radar ? unless they think they're a possibility the outcome will disappoint so they prefer to under promise and over deliver ?

anyway, joke/sarcasm aside, I think they could have mentioned the review and expected date as part of the ims, especially as it's probably the most significant issue at the moment,

still, what do I know ? (answers on a postcard as they used to say)

K

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Asagi 1st Nov '12 935 of 1284

Fair post kenobi.

Asagi (long £SIA)

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redhill 1st Nov '12 936 of 1284

well yes and no, they raised it at the AGM, and have answered questions about it since. BUT if they were being so open about it, would you not have expected a mention of it in todays IMS ???

FWIW, I still don't think we will hear anything on the reserves update this side of the year end despite the teasing hints from the company at different times over the last few months of something sooner.

My guess is a reserves update will be mentioned as part of the Operational Update within the Preliminary 2012 results (for 2011 these were announced on 15 March 2012).

But who knows.........?

Redhill

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emptyend 1st Nov '12 937 of 1284
2

In reply to redhill, post #936

FWIW, I still don't think we will hear anything on the reserves update this side of the year end despite the teasing hints from the company at different times over the last few months of something sooner.

They'll be hearing from me if we don't!  They've been pretty clear on at least a couple of occasions that something can be expected by early December.

Kenobi:

they raised it at the AGM, and have answered questions about it since. BUT if they were being so open about it, would you not have expected a mention of it in todays IMS ???

I would, TBH......but OTOH there is virtually nothing that could be said without giving a hostage to fortune (which is something that companies generally try to avoid doing in RNSs!! ;-/)

Asagi:

It would be a brave analyst that stepped out from the rest and put a figure in print - especially if that meant suggesting anymore than, say, +15%.

Yes - I'd agree that analysts are unlikely to be brave enough to hazard a guess in print. However, I'm surprised to see virtually no references to the review, especially since the company seemed to be confident enough about the reserves outlook that they swept up the minority first!

However, kenobi has probably got the gist of matters here:

they obviously don't care if the analysts are talking up the stock or not

...why would they, given that the views of analysts will make no difference to the final outcome?

ee

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davjo 1st Nov '12 938 of 1284
1

In reply to emptyend, post #937

I still don't think we will hear anything on the reserves update this side of the year end

They'll be hearing from me if we don't! They've been pretty clear on at least a couple of occasions that something can be expected by early December.

As of 6 weeks ago, when December 1st was first mentioned, the company also said that the form of what we release (i.e. SVn as a whole or TGT and CNV individually) and the timing (i.e. on receipt or 2012 Prelims) is as yet undetermined.

I'm not aware of anything changing since then.

 

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redhill 1st Nov '12 939 of 1284

In reply to emptyend, post #937

They've been pretty clear on at least a couple of occasions that something can be expected by early December.

And before that they suggested September, then it was "the Fall", then it became November, and more recently apparently December.......To me that implies they didn't know and were talking without having any certainty.

I hope it is soon (i.e before year end) but I can see that it may not be, whatever the company's current intentions. In the absence of any other catalyst, as yet unknown, I can see the logic of waiting until the Preliminaries.

Redhill

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tournesol 2nd Nov '12 940 of 1284
5

In reply to redhill, post #939

Redhill

I think your comment is a bit off target

at the AGM they said that

1) they would need to resolve the connectivity question before they could confirm reserves

2) they would need 6 months production in order to draw reliable conclusions about connectivity

the inference is that the earliest that reserves can be restated taking into account any potential connectivity is 6 months from the start of production - which is December

I asked if that inference was reasonable and they said yes

Seems crystal clear to me

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redhill 2nd Nov '12 941 of 1284
2

In reply to tournesol, post #940

Tournesol, thank you.

I wasn't at the AGM but noted one attendee reported at the time that September was suggested. And someone on this BB reported subsequently that he'd just been told November by the company, Hence my doubts about hearing it will be December.

I want to make it clear I am not criticising Soco for how long the update may take. We'd all agree that doing it thoroughly and comprehensively is more important than doing it quickly, and as I've said before I know from experience that such projects almost invariably take longer than anyone involved reasonably anticipates at the outset.

I'm simply saying I'm not banking on any announcement in December and wouldn't be at all surprised if it's Q1/ 2013. We'll find out in due course.

Redhill

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emptyend 2nd Nov '12 942 of 1284
5

In reply to davjo, post #938

As of 6 weeks ago, when December 1st was first mentioned, the company also said that the form of what we release (i.e. SVn as a whole or TGT and CNV individually) and the timing (i.e. on receipt or 2012 Prelims) is as yet undetermined.

AIUI the bits you have in brackets are your interpretation, not what has actually been said.

IMO "timing undetermined" means exactly that - and could be earlier as well as later than the indicated completion date (as it would be in my "early bid" theory). Similarly, I take a different view of what is implied by "form"...which is a much more open-ended expression than your interpretation implies.

FWIW I last asked 5 weeks ago when "something publishable" would be ready and was told "early December". Exactly what is published and when will IMO depend on:

a) what the CPR actually says

b) where matters stand in relation to any deal being discussed

c) macro factors in the sector/market

d) expectations for other newsflow (eg H5 well timing or indications regarding a distribution)

e) whether there are any "year-end" considerations (including option matters)

My guess is that something will be published on 6th or 13th December, if not earlier in conjunction with other news. If nothing is out by then, I'd think it will be in the New Year.

What is completely clear is that the release of important news will be very carefully planned, as it is a key element in the process of monetisation. Timing (and perhaps form) will depend on when it is thought the greatest positive impact will be achieved (so it won't, I hope, emerge on Christmas Eve ;-)).

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kenobi 2nd Nov '12 943 of 1284
4

Its more important to prove connectivity than to get a report out. With that in mind, it might have been possible in 6 months, it might have taken less (sept/fall), but if there really is the prospect of a deal based on the new figures, we might have 10% or more riding on the results. So, as far as I'm concerned, do all the work you need. get the best result you can for reserves, it might be our last chance !

I'm guessing much production from different zones and pressure comparison is going on.

My one reservation is that if it is going to take longer and into drilling H5, the management have put return of funds on the agenda in some form, and I would like to see this take place. (as I'm sure we all would)

K

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loglorry 4th Nov '12 944 of 1284
1

Sorry for the OT question but can anyone remember what the Dana 2P reserves were at the time of the takeover by KNOC and roughly what % of them were developed and how much was gas?

Searching the stockopedia website for a reference doesn't come up with much. It looks like KNOC paid about $10/bbl for them but obviously this has little meaning if we don't know how much cappex was spent on them and what % was gas and which was oil etc. I'm just doing some research on takeovers and what sort of valuations they obtained.

Thanks in advance

Log

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