Vietnam Assets

Monday, Jul 20 2009 by
16

This thread has been created to discuss the Vietnam assets. These currently consist of:

a) CNV - an operating field in block 9-2 with 155mn boe of gross 2P reserves

b) TGT - a field which is about to enter development. Gross 2p recoverable reserves of 300+mn boe (management think it will ultimately be closer to 500mn) should be confirmed soon, as the final government approval for the development plan is now very close.

c) TGD and the rest of the HPHT appraisal area - huge exploration potential of over 1bn boe P50 recoverable

d) VT appraisal area - a small discovery area likely to be relinquished

I'll fill in more details in due course.

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 »

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467 Posts on this Thread show/hide all

emptyend 6th May '12 208 of 467
8

In reply to highgate55, post #205

drilling of the 5 wells in Phase II will have added to the information on the reservoir. However won't it be necessary to have production data from these wells to really define the recoverable reserves ? If so , how much time would be needed to obtain the necessary information ?

Hi Highgate,

I've highlighted an important phrase. The only way that one can achieve certainty over the reserves of any field is to actually go through the whole production cycle and produce all the oil and gas that one can. That would take perhaps 20 years.

So....we aren't going to achieve certainty. And your question reduces to "how long before uncertainty has been reduced to acceptable levels"......and it is THAT question which lies at the heart of the debates over timing - because there is no single answer.......it mainly depends on the views of potential acquirors.

As you know, I've been expecting a buyer to jump in at an earlier stage than many have assumed. But that hasn't happened - presumably mainly because (until recent weeks) SOCO harboured reasonable hopes for significant TGD upside. So, to answer your question as I have redefined it, the question is what milestones remain to be passed before (probably, because no-one can be certain) buyers can achieve acceptable levels of certainty?

Davjo points to one here:

it will be absolutely crucial to expand production facilities (or hook into Bach Ho) to fully exploit the field within the timeframe available. Although options are on the table, no decision has been made to date but I don't see Soco selling until such plan has been decided upon, one way or the other. That said, any buyer is free to make their own risked reserve assessment at any point in time and put an offer on the table.

....so...starting there and expanding the list, I would say that these could all be important milestones:

  • Agreement on the method of raising TGT processing capacity beyond 55k bopd (could happen anytime)
  • Agreement on producing 55-60k bopd over existing facilities and on associated perforation plans for individual wells (may already have happened and be awaiting execution)
  • Quantifying the fluids production from CNV and agreeing final prices for gas and fluids. This will result in an increase in reported fluids production and the pricing would be backdated to 2009 (worth $50-100mn to SOCO IMO and likely to be achievable within a few weeks, since the separator was due to come online in May)
  • Confidence about start-up of H4 production date in July or August (loading topsides out should happen this month)
  • Reserves upgrades calculatable, arising from production experience and phase 1 and 2 drilling results linked with the 2009 PSDM seismic (70% of any upgrade should currently be achievable and a further 20% when H4 production starts and other zones on the H1 wells are perfed, IMO)

 

I don't think that anything else is actually crucial for a deal. Yes it would be nice to have drilled the undrilled H5 fault block (for example) as that is thought to be around 200mn bbls OOIP - so perhaps 80mn gross recoverable......or c. 20mn net to SOCO. It would be nice to have such things - but I would think that someone would be happy to give at least some value for the potential upside there, even now. The 500mn bbl number is, IMO, mainly going to be down to estimates of the recovery factor - and the company has indicated 40-50+% has been estimated from observed data so far. I believe that this factor on its own could justify a reserves upgrade of around 40% at TGT, if substantiated by the initial production tests on the H4 wells.

It remains my opinion that a deal will be done over the summer months, even though the path to the production plateau remains more unclear than I had originally expected by this time.

ee

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highgate55 7th May '12 209 of 467
2

Mornng ee,

Many thanks for identifying the milestones you consider necessary to make a reliable estimate of the reserves.

Am I correct in thinking that if there is a hold up in raising TGT's processing capacity beyond 55k bopd they can always shut down production from the HI wells while they carry out production tests on the H4 wells ( on the basis that hooking into Bach Ho or providing another FFSO is only a matter of plumbing ) ?

I appreciate the responses from you and davjo and believe I should better able to assess both the content and value of information in the forthcoming IMS and future releases from the company.

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emptyend 7th May '12 210 of 467
2

In reply to highgate55, post #209

Am I correct in thinking that if there is a hold up in raising TGT's processing capacity beyond 55k bopd they can always shut down production from the HI wells while they carry out production tests on the H4 wells ( on the basis that hooking into Bach Ho or providing another FFSO is only a matter of plumbing ) ?

I wouldn't downplay the significance of either hooking into Bach Ho or getting another FPSO. Either are major investment decisions that won't be completed overnight. But, as davjo pointed out, it is the agreement to implement a clear decision/plan which is the key point in the process - and from then on it is a multi-month project to install. Once that decision is taken, then it should be quite clear what the production capability of TGT will be.

In the meantime, you are right that they have flexibility to get to 55k bopd by producing from different wells whilst they test and perforate different horizons.

Sun here on a bank holiday?......it won't last!

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emptyend 22nd May '12 211 of 467
6

Jimbly on ADVFN found an interesting link re the topsides load out:

HLJOC, PVC-MS and the subcontractors are effectively executing the offshore work including transport, installation, hook-up, and commissioning to target the first oil from WHP-H4 in July 2012, one month earlier  than the plan by the Block 16-1 Petroleum Contract Management Committee and 11.5 months earlier than the Early Development Plan, approved by the Ministry of Industry and Trade.

I found another interesting link recently, concerning Bach Ho:

After reaching peak output of 263,000 bbl/d in 2003, the field’s production dropped to an average 92,000 bbl/d in early 2011. It is expected that Bach Ho’s production decline rate will range from 20,000 bbl/d to 25,000 bbl/d through 2014.

...should be plenty of spare capacity in their facilities, then.

ee


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kenobi 22nd May '12 212 of 467

Yes I look forward to hearing what the management have planned for P2 production, and whether anything has been done to the fpso re water capacity, or if there are plans to tie in to Bach Ho infrastructure. I'm not sure how far the tie in point would be but I would have thought that longer term it would probably make more sense to tie in to Bach Ho, is Phase 1 much futher way or is there some other reason not to link that into the same network ?

K

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emptyend 22nd May '12 213 of 467
2

In reply to kenobi, post #212

longer term it would probably make more sense to tie in to Bach Ho, is Phase 1 much futher way or is there some other reason not to link that into the same network

It is more expensive to link to Bach Ho than the other solutions. And the need to do so is really only for the peak (say the next 10 years). Hopefully that will be someone else's decision shortly.

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kenobi 22nd May '12 214 of 467
1

It is more expensive to link to Bach Ho than the other solutions.

Do you have more info on this ee ? is the expense in linking in the pipeline, or is it to do with paying the owners of the infrastructure for it's use ? Once linked you would expect the real costs of using a pipeline to be much lower than the fpso solution, of course it may not be so in terms of the cost to soco, and I guess it depends where the oil is being shipped to, if it's being taken to vietnam then the pipeline makes more sense, if it's going elsewhere then it will still need to be loaded to a tanker anyway. (any idea what magnitude of cost difference there is ?)

I assume that PV have ownership or a share in the Bach Ho infrastructure, so they may well have a preference for using this solution, and paying a higher price, (since some of that price goes to them), I wonder if this is one of the issues causing the slow ramp up and perhaps the compromise we will have to live with, in order to get tgt production above 55k. I presume we are talking about fractions of a dollar per barrel or there abouts ?

Will be interested to hear what is said about the plans to handle capacity beyond the much discussed 55k,

K

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emptyend 22nd May '12 215 of 467
1

In reply to kenobi, post #214

Do you have more info on this ee ? is the expense in linking in the pipeline, or is it to do with paying the owners of the infrastructure for it's use ? Once linked you would expect the real costs of using a pipeline to be much lower than the fpso solution, of course it may not be so in terms of the cost to soco,

Yes - but nothing reliable enough to quote. Suffice to say that the capital costs would certainly be more expensive (tens of mns) - and I guess one should assume that there would be a bigger bite out of operating margins too due to tariffs.

Not at all clear which way will ultimately be picked or what the net costs/benefits would be. Will all have to wait to see the plans I guess.

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kenobi 18th Jun '12 216 of 467
8

Interesting video, showing something of what is involved in the fpso, tgt1,

http://www.youtube.com/watch?v=KJWjKicUL6g&feature=player_embedded

K

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emptyend 25th Jun '12 217 of 467
9

On the matter of production rates at TGT, there are some interesting stats in this article arguing that Vietnam will have to explore in the deep water:

Forecasts indicate that Vietnam’s oil production will decline to only 313,000 barrels per day (bpd) by 2020.1 Oil consumption in Vietnam, however, is set to increase by 69 percent between 2011 and 2020, with annual growth of 5 percent to 7 percent.2  By 2020, Vietnam will consume about 554,000 bpd.........

Vietnam now ranks third in terms of proven oil reserves in the Asia-Pacific region, with 4.4 billion barrels.

Based on those figures, TGT could be producing 25-30% of all VN oil and perhaps account for 12% or so of reserves.........not the sort of asset that will be left under-developed in the context of the supply gap that is forecast......

ee

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emptyend 25th Sep '12 218 of 467
4

There is an interesting BusinessWeek story out today quoting Ed Story:

“There are particular basins in deeper water offshore Vietnam that we think have very significant potential and could change the production decline rate,” Story said. “Some of them are in the claim areas,” he said, referring to parts of the South China Sea claimed by both Vietnam and China.....

Soco is in a better position than many other companies to target prospects in disputed Southeast Asian areas because it has “no interest” in going to China, said Story.

“Of the open areas, you’re talking deeper water and you’re talking claim issues vis-à-vis China,” said Story. “We’re willing to take measures of risk.”

I'm replying to Adam's comment here because the thread title he posted on isn't relevant.

That statement does not seem consistent with a near term takeover, or medium term either as would amount to a poison pill. I don't understand the logic behind this

It is impossible to say whether it is consistent or not, without knowing who might acquire SOCO VN.

The logic is simple - competitors for blocks in Vietnam are being deterred by their interests in China, so there is less competition for the blocks available. It is now clear that there are going to be no serious buyers being considered from China (unless this news is intended to provoke such a move) - but buyers from Europe (such as Perenco) or Japan, for example, are unlikely to be deterred.

More significantly, I think that SOCO are taking the view that a negotiated deal between Vietnam and China is now a realistic possibility (because the Chinese are plainly keen to resolve it and get on) - and there is an opportunity to get sensible assets locked up before there is a final resolution to China's claims. It is my understanding that they think that the recent Chinese moves indicate that the Chinese themselves won't be pushing their "9 dash" claims in all areas, so I'd guess that the blocks that they are mainly interested in won't come to be seen as especially contentious.....you'll note that Story left the exact location of the blocks ambiguous.

It'll be interesting to see - but I don't think we'll have long to wait......I suspect a deal is now quite close, because the potential disposal in Cabinda is IMO a move to reduce overall political risk in the portfolio to balance out the increased risks that may come with new offshore VN blocks.

ee

 

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adam 25th Sep '12 219 of 467
6

OK. That would seem like a good bridge type finesse, except that a later comment in the interview got me thinking that they are getting a bit big for their boots....

 

“If they want to keep what is a very, very significant and current and historical contributor to the balance of payments and the economy, they’re going to have to step out, with people who can take the heat,” Story said. “It’s that simple.”

Following the tenor of your analysis, I would presume you would read that as refering to someone else, not Soco?

 

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emptyend 25th Sep '12 220 of 467
4

In reply to adam, post #219

Following the tenor of your analysis, I would presume you would read that as refering to someone else, not Soco?

Well I think what we have here is a developing situation in which very few of the cards being played are going to show up in public. SOCO are of course pretty well placed to ally with VN on these issues at this stage - and indeed discussions of this sort have been going on in a desultory fashion for a year or two, I believe. I'd guess the recent Chinese moves have pushed it up the agenda more quickly.

However, I certainly don't see SOCO taking deepwater assets very far into their lifecycle (even if no VN deal is done soon)......I see it much more as a sensible portfolio move to add upside potential to the VN portfolio.

It isn't beyond the bounds of possibility that a pretty clear resolution will have been obtained in relation to the blocks concerned before any significant explo spend is required.......so a buyer of SOCO  VN would likely view it as a useful option to have available (perhaps even if they had interests in China - though that may depend on the level of contentiousness of the location).

Anyway....not much to be said for now - lets see what turns up next..... ;-)

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emptyend 5th Nov '12 221 of 467
7

It seems that a deal has been done to sell a chunk of the H1 2013 production from TGT.

Three buyers this time at 10,000bopd each (reportedly) - and at a premium of $4.90 to Brent. IIRC only Shell has bought on a term basis for both periods.

The premium is lower than the H2 2012 contract and the amount is (on the face of it) also lower, meaning that a greater proportion of production will probably be sold spot.

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noidea 7th Nov '12 222 of 467
1

As a follower and an admirer of emptyends knowledge/wisdom I would appreciate advice as to sell now as I am now back in the black after too long in the red. IS THIS SHARE EVER WORTH HANGING ONTO?????

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noidea 7th Nov '12 223 of 467
1

As a follower and an admirer of emptyends knowledge/wisdom I would appreciate advice as to sell now as I am now back in the black after too long in the red. IS THIS SHARE WORTH HANGING ONTO?????

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MadDutch 7th Nov '12 224 of 467
4

In reply to noidea, post #223

I have been in Soco for nearly 13 years, know quite a lot about it and I am definitely not selling.

I am adding to my spreadbet position but do not recommend anyone to do the same, it is very high risk.

MadDutch

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kenobi 8th Nov '12 225 of 467

Lets just hope that the market is starting to see the value and the takeover potential. The market seems to have been spooked by the delays in ramping up production, by socos own forcasts we should be producing 90k per day now, hopefully the market is seeing that there are no production problems other than expanding capacity, which might take some arm twisting, but is much better than geological problems. If the market has started to think that there could be a major reserves upgrade in the pipeline, or a deal , or both, then it's logical that the price should start to creep up, I wonder if we'll see any rns's showing who's buying ?

cheers K

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tiswas 8th Nov '12 226 of 467

K

I would be very surprised if we see any RNS's, IMO the volume has just not been there.

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kenobi 8th Nov '12 227 of 467

tiswas,

I bow to your superior knowledge I haven't checked the volumes, although I suppose if its rising on small volumes thats a good indication that it's in a good position to rocket on positive news

cheers K

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