Analysts reports

Brilliant ee. Classic you!

Mike

Financial Times, 2nd July.

Oil Explorers Hit Rock Bottom. My contribution to the debate.

http://www.ft.com/cms/s/0/a95e039e-fbc0-11e3-ad9b-00144feab7de.html?ftcamp=crm/email/201473/nbe/EnergyMining/product#slide3

Guy Chazan and Michael Kavanagh have today presented a list of misery but have missed the enormous success of FTSE 250 explorer and producer Soco International, with its TGT oilfield offshore Viet Nam. It had a 20% free cash flow in 2012/13, and since this is a company that pays out 50% of that cash as a dividend or tax efficient return of capital, paid a November 2013 10% dividend, which the market missed by failing to see the divi and ticking the capital return box instead.

In 2013/14, the dividend will be 5% (and probably still the biggest % of any oil producer, including BP and Shell) due to a delivery bottleneck at the FSPO Floating Storage Production and Offloading vessel; a problem being solved as I type this. In 2013, Soco drilled the most successful well ever in Vietnam; tested at over 27,000 barrels of light crude per day, and that will be in production in 2015 by pipeline to Bach Ho or another FSPO.

Frankly, I wonder at the competence of the journalists that miss stories like this.

I also thank them, it is very nice to buy shares at today’s depressed price, so thank you, Michael, Guy and others. That is how serious investors make serious money; Buy low, collect big dividends which cannot be taken away by market falls and sell high when the lazy market finally wakes up. Personally, I hope it never does, another 10% divi is probable in 2016 with the 27,000 barrel well in production and many more being drilled now, 10 in the next year extending the edges of TGT. Furthermore Soco’s African ventures are not included in the share price, so any success there will be cost free.

http://www.wkrb13.com/markets/328646/numis-securit...

Numis re iterates add , and a round up of some other analysts,

K

http://www.wkrb13.com/markets/328646/numis-securities-ltd-reiterates-add-rating-for-soco-international-plc-sia/

Numis re iterates add , and a round up of some other analysts,

K

ok glad to clear up the mis understanding,

I don't doubt that you have a different, probably better clearer view of things, but I find sometimes not just you, but we as the soco BB, have a very optimistic view of the future, where you say ....

"if XYZ doesn't happen as has previously been indicated then that is because management weren't being honest". Such conclusions are almost invariably wrong

Well  I don't want to argue if they're honest or not,  but to take this example, it seems to me at least,  well shall we say,  broad brush,  and missing what could turn out to me some pretty important detail.  

The problem with these complex issues is that they can hang about for year after year,  like the liquids in the gas issue,  really it's come to the point that is just bad faith,  and you shouldn't be treating partners like that.  Realistically what would this cost PV a few million quid a year,  of which they'd get a third back ?

I think you're being very charitable saying that the situation is/was changing.   What are you suggesting that they did have joc / fpso owner agrement on tariffs and now they don't ?   It's clear from what you've told us today they don't now,  and they didn't then so at best it would have been a wip.  There is no doubt ongoing negotiations,  in which case I,  (and maybe it's just me)  would have been happier if they'd said,  ok  we've not got much more capacity behind the pipe, but there's also an agreement that we're negotiating with the fpso owner.  Rather than what seemed to me to pretend it's all hunky dory.   Following on from this, they could have said,  we've not formalised this deal yet,  we're weighing our options,  and to be honest at the moment we're thinking of the pipe line option because we think we can strike a better deal with them,  and some of the money then goes to PV which might give us leverage to do a grand (ish) deal,  and who knows maybe we'll even sort out the gas issue you've hassled me about for the last 5 or more years (you git  -  and just to be clear this is ed story talking to me !).

Just to be clear my frustration isn't re an low share price although I guess it is that really because the market is valuing soco quiet reasonably.  It's in the lack of progress on reserves upgrades and production increases,  and things they keep telling us which don't happen.   As I've said before I think SOCO are a great company and the way they got tgt 1 and 2 into production on time, albeit producing lower volumes than expected was a great job.   BUT

you have to look at it from the perspect of they promised XYZ last year we've got X .5 Y  an no Z,  this year they're promising ABC,  realistically perhaps we'll get AB but no C. 

I'm not saying they're lying,  though on the production issues,  there is a bit of omission there.   

You just have to temper your expectations of them delivering on promises based on history. 

I think in your view SOCO have much more influance than I believe they have.  They provide the capital so they can veto expenditure,  unfortunately  its usually the last thing they want to do,  like the cnv well,  it's usually soco pushing to do it  for a few years before it happens. 

Maybe PV are right to be conservative and soco are wrong ? 

probably the truth is that they just have different objectives. 

Anyway enough,  thanks for looking into this issue,  I do wish you'd got a different response re this issue,  but that's life.   We have to hope that the management can push the joc in the direction of increasing production whether by the fpso or the pipe line or some other scheme.   We know nothing will happen on the pipeline for a year at least until H5 is ready to produce so lets hope something can be agreed on the fpso before then. 

K

I wasn't party to that conversation, so don't know precisely what was said. However, you've referred somewhere in one of the posts above to the partners needing to reach agreement - was that something that was said?

Nope that's something I said based on experience and my skeptisim that the no brainer will be a no brainer for PV,

I should also point out that the "lack of agreement" relates specifically to whether to pay the additional fees needed to produce at 60kbopd. You simply cannot just jump to the conclusion in your point 5), which is very much broader and open-ended.

well,  ok pt5 should be can't agree on a charging structure for operating above 55k,  that's what I meant to write,  my mistake.

re monkey,  I must apologise if you thought I was refering to you,  no not at all,  in no way at all,  I didn't mean that  at all and I'm grateful for the enquiry you made.   I was referring to SOCO,  and the organ grinder is PV.

yes you did invite us to enquire futher,  I didn't because I assumed what we were told at the AGM was the whole story.  It seems it's not.  Again,  I'm not critising you for anything,  I apologise if you though I was. 

I had no reason to follow up because I'd been told one thing pretty clearly at the agm,  as I seem to find increasingly with soco over the last few years,   it's not always the whole story. 

Re all rest of your post,   I completely agree,   and that's why I'm being a little skeptical about the things we're being told in full knowledge that they're telling us one thing,  and often in the past and sometimes in the future it hasn't / won't happen,  perhaps for reasons that your suggesting in your last paragraph.  

And yet you seem to not be considering those things and thinking that I'm taking a negative few.   I'm not,  I'm taking a realistic view taking into account some of the things you yourself mention.  If you wish to base your investment decision on the blue sky projections straight from the agm,  then fine,   I'm trying to look at what they're stating as objectives,  and consider the issues and what they are likely to achieve. 

I don't see why in answer to Peters question we couldn't hear that there was an agreement needed between the joc and the fpso owners.   I certainly don't understand why it wasn't mentioned in more detailed discussions afterwards.   

I agree that soco are better than most companies,  but you can't believe everything you hear,   you need to take your own view,  I'm less positive than you it seems,   I'm probably more positive than many others !

This non agreement on tarrifs for production above 55k,  does impact on the whole tie in debate, in ways I've already suggested above,  probably making it more likely,  which is another consideration.

K

Could be I'm just not understanding, or could be I am,

The facts are these as I understand them,

1) production is at 40k for our bit,
2) we don't know what talisman production is, but it's quiet possible it's below 15k, as they weren't producing that when we wanted to test.
3) Peter asked, why aren't you producing 45 k on the fpso ? - we were told they didn't have capacity due to lack of drilling, because of h5, so not enough capacity.
4) after the agm, speaking to ES, I specifically asked him if there were any other issues with the fpso, insurance, fpso owner consent etc. I was assured, and I'm sure that there were others there, that no there were no issues the fpso people were completely on side, as high production meant higher fees for them.

5) now we hear the fpso owners and joc are unable to agree terms on operating above 55k.

so
regardless of whether 3 is true, (and goodness knows you've questioned it in posts here since the agm), 5, the no deal with fpso owners, is pretty much in contradiction with 4, that the fpso owners are completely onside, yes in everything except agreeing a deal with the joc.

Now last agm we were told of extending capacity to 60 then 70, and I think even the agm before that there was talk of it. So I'm sorry if I'm missing the point, but I've become very nervous about the things we are promised that soco cannot control. I think PV have control of the situation, and we are left as minor partners, going along and trying to convince them to do what we would like. The fact that after all these years we're still not getting paid for the liquids in the cnv gas, shows that PV aren't particularly interested in soco or in treating them fairly. So I'm happy to hear your positive views of how capacity will be increased at the fpso and then they'll build a pipe line, I, and mr market will believe it when they rns it. Because while it's entirely possible that you're right, it's by no means a certainty, and we're hearing it from the monkey not the organ grinder.

I don't mean to be negative, I left the agm thinking that an increase to 60k was in the bag by the next agm, possibly to 70k even, I don't think that now. As for the no brainer of the pipeline, we'll see if PV think its a no brainer. Ironically the fpso empasse could well be due to the owners wanting an extension to the lease as a condition of increasing capacity, and the joc wanting to do something else. The worst case scenario would of course be to not increase fpso capacity and not get agreement on pipeline/ bach ho .

I would be nice to conclude that they'll do a deal on fpso at 60k, spend money upgrading and then move to 70k. I've heard this story before though, so I'm going to need a bit of convincing.

K

Does put a question mark over what we were told at the agm, and highlights that if they can't agree to run it at 60k, not much point spending effort and money upgrading it to 70k, unless a deal can be done in advance.

You seem determined to take a negative view. I don't see why you think there is a question mark over what was said at the AGM - you seem to have got 90%+ of the full picture, but perhaps not understood how it fitted together.

As for the other bit, you will find that simple maths tells you that 70k gives 3x the incremental production that 60k does and that, ceteris paribus, increased costs/tariffs would have a lower per barrel impact.

Not for the first time, your conclusions seem not to follow from the facts.

Thanks EE,
Does put a question mark over what we were told at the agm, and highlights that if they can't agree to run it at 60k, not much point spending effort and money upgrading it to 70k, unless a deal can be done in advance.

I wonder if the sudden change over the last 12 months, putting bach ho tie in back on the agenda is down to the terms being demanded by the fpso owners ? Does indeed sound like a counter productive stance. Perhaps they should be compromising by paying them the a similiar tarrif but relaxing the uptime requirements at least for an initial period while any issues were teased out.

It's a shame we didn't get this reply to Peter's question at the AGM,

K

Thanks EE , very informative, the slightly "dog in a manger attitude" implied by the above is all the more odd as they only have 5 FPSO's ;

http://www.bumiarmada.com/102_119_117/Web/WebPage/List-of-FPSO/List-of-FPSOs.html

You'd have thought trying to deter any BH tie back plan would be high up on their priorities as it is one of only three double hull vessels they own.

Alternatively they've seen day rates for similar vessels rise markedly since they signed up with the JOC and they might be more than happy to redeploy?

I can confirm this, he went on to say that the owners of the fpso were happy with higher production as they get paid higher fees.....what can the reason for not producing 60k be ? Perhaps it just is that we need more wells, like Ed told us. If they have a production plan, which they are following to maximise recovery rates (agreed by all the partners), it may well be the case that this requires opening up zones in some sequence.

OK - I've now made my own enquiries on this point. The above is broadly correct, save that one point is omitted (highlighted below). The situation is this:

1. As Ed said in his presentation, the drilling and extended testing of TGT-10X on H5 meant a consequential deferment of a number of planned development wells into 2014. Production from existing wells/horizons has declined as expected, but the wells expected to replace those declines are now later than expected - and are being drilled now. No new wells have been drilled for 18 months as a result of drilling TGT-10X and being unable to source additional rigs last year (a situation remedied this year by having up to three rigs working). I do NOT infer from this that they would be unable to produce more than 40k bopd if required (though of course it isn't clear precisely what the productive capacity from existing wells currently is). But, importantly, there are other production-constraining factors too:
2. Production is sold 3-4 months ahead of actually being produced, so "fiddling around" with production levels to fill relatively short-term opportunities might mean they were forced into either panic sales of an "excess" or might have to curtail production anyway if the FPSO filled up some time before the contracted off-take time. It is therefore operationally easier to keep production steady and to hit a known and pre-determined off-take schedule.
3. The FPSO has a rated capacity of 55k bopd, based on which the FPSO owner has committed contractually to operating safely with over 98% up-time. The owner sees this contractual obligation as potentially being prejudiced by a higher production rate and so wants to raise the charges if more is actually produced. There have been various discussions on this matter, but the conclusion has been that the partners cannot reach agreement on such additional payments, presumably because the commercial terms would signficantly raise the cost of producing the marginal increment over 55k bopd....eg perhaps the owner is seeking an increased tariff on all of the 60k production in compensation for taking the additional 5k and accepting the additional risk to his up-time obligations (the exact commercial terms aren't disclosed to me, for obvious reasons). Accordingly, it has been agreed that the partners will seek to reach agreement on the payments issue when the FPSO capacity issue has finally been resolved by further testing.

The contractual/commercial/partnership issues described in the last point above are the missing link in Kenobi's puzzle. My personal opinion is that the FPSO owner is shooting himself in the foot in looking for higher fees, because that will simply make it more likely that all production will get switched to Bach Ho. 

That had been my assumption, but ES appeared to say this wasn't an issue,

I can confirm this, he went on to say that the owners of the fpso were happy with higher production as they get paid higher fees.  He seemed pretty clear to me that this wasn't the issue.     I think if the issue issue was insurance or owner permissions, (as has been reported on boards in the past) he would have said when asked,  rather than saying we don't have production to bring on line  ( within the limitations of production plans / what we can agree with the joc ). If we accept that it is not to do with insurance/ ownership/ boiler plate numbers, what can the reason for not producing 60k be ? Perhaps it just is that we need more wells, like Ed told us. If they have a production plan, which they are following to maximise recovery rates (agreed by all the partners), it may well be the case that this requires opening up zones in some sequence. Whether the limitation is geological or political or even the insurance etc reasons that ES denied doesn't matter too much in the short term. What matters is what can be done to remedy the situation. Remember this is the JOC that was producing tgt 1 at about 25k, before tgt 2 came on line. We always assume soco are right and PV are wrong, perhaps the more conservative approach to production rates is the right one (at least to maximise recovery rates ?)

k

I don't understand your point.
We are producing 40k, lets assume talisman are producing 15k, the fpso could handle 60k,
so there is 5k extra capacity, minium, regardless of what talisman do now or in the future.
We are not producing this. Why not ? because we don't have the capacity to. Capacity can be raised, ok, well lets see it, if it was just a case of perfing some more areas why isn't it being done ? It can only be because they don't want to for whatever reason, basement management etc.

My point was really that we've got work to do to get capacity up, and as a minium I would like to see the company producing 45k asap, moving up to 55k, after the fpso upgrade, and ideally with a bit of extra capacity in hand to fill in whenever Talisman cannot produce their full 15k. It doesn't seem that odd to me to have capacity available to fill in at such times, and even to be rotaing production between different basements to optimise production, but for test purposes to bring it all on line at once to test the fpso.

But anyway lets leave that, Its of limited interest why it hasn't happened. There seems to be something stopping production going up to 45k. Hopefully when the new wells come on stream we will be able to produce well over the fpso capacity. Its clear we can't now, we can hypothesise about "potential capacity".

re the numis note, thats all well and fine, I still recall the slide soco showed the year that tgt 1 started production, they showed production for tgt2 at 90k(a figure higher than numis are suggesting even with h5 in the mix). When production of tgt 1 started and only ran at 20-25k, I was worried that there wasn't enough capacity, and that we wouldn't reach sustained 55k production until phase 2 came on line, a view that some poo pooed, but in actual fact we didn't start producing at 55k for extended periods until phase 2 came on line. This suggests that either soco were over optimistic or PV over conservative. The figures that matter are the oil coming out of the pipes.

I look forward to progress with increased production, and hope that by the next agm they are able to report production at 55k + ( depending on talisman output, with a total of 70k) . But we do have a history of issues with PV and production levels, it's not easy to judge if PV are too conservative or SOCO too optimistic. I'm trying to assess what is likely to happen, given that a team can only travel at the speed of the slowest member.

I don't know the detailed economics of the fpso, or the deal that could be done to tie into bach ho, so it's hard to judge if indeed it is the no brainer we are being told. And it needs to be a no brainer to PV, not just to soco.


Cheers K

You are missing my point on this. If there is capacity behind the pipe then by definition it hasn't been perf'd and put into production. You simply wouldn't perf more wells and put them into production for the sake of a week or two's flow test, especially if you probably then have to shut down again and could also compromise the complex reservoir management. Why not ask as directly as you like, rather than speculating?

Not wanting to be augmentative,  but this doesn't really make sense to me.  We are not even producing the 45k that we could produce so if we had capacity un perfed which we could persuade the partners to bring on stream,  why wouldn't we ?   The answer Ed gave Peter is we haven't drilled wells for 12 months,  so we don't have capacity to produce above 40k.   I'm not sure what you're suggesting I ask,  it seems to me there isn't much current potential to increase production or we would.   I was under the impression that the resevoir management was to do with producing some here,  and resting it, some elsewhere etc,  so it wouldn't suggest that by definition any extra capacity requires perforating.  It would be nice to believe that we have the capacity to ramp up to 80 or 90k,   but I don't buy it,  I don't know if the limitations are geographical or partner based (ie pv don't want to open up areas faster),  it makes little difference to the amount of oil coming out of the pipe. 

I really have no confidence in asking the details of this kind of issue,   what should we ask ?   the question I want the answer to is can't you open up a few more zones to get production up to 45k ?    I think we know that the answer is no.  Whether that's due to partner caution,  or geology,  or whatever.  This all leads on to whether we'll be able to persuade the partners to tie in,  because even after H5,  and the other development wells what level will they be willing to produce at ?  and how much more than the 55k+ any unused talisman capacity might that be ?   Seems to me that come the time the partners might be more likely to go for the option of the processing platform and a larger fso (as opposed to fpso),  But without understanding the costs I can't say this with a great conviction.   

cheers K

Aha, thanks that's why I couldn't find it. I think the point I'm making is that I'm disappointed that they don't feel able to say, like in the interview the figure we would be planning towards is now 1.3BN. It suggests to me that yes H5 was much better than expected but perhaps others haven't performed so well so we have an overall estimate of 1BN still.

One of the many things I have learned in recent years is that if you RNS something you are not 100% certain you can prove if asked, then you are offering up a hostage to fortune. That applies particularly to figures and timescales. If I were them I'd be sticking to an "about 1bn" figure too - after all, we do want some form of upside "surprise" in the event of any positive news!!

The 40% number is considered an average for the field, as Ed said

I understood that the estimates in last years report were supposed to be some kind of average ? not sure they would be of any use otherwise ? Management were definitely suggesting 50% recovery last year, looks to me like they've moderated to a 40% recovery factor this year.

Not quite. They were suggesting up to 50%; personally I'd translated that as an average of 40-45%, so you are right that this represents a minor moderation. It is quite likely that if you include more reservoirs (current and future) then the average recovery will be less than some of the earlier ones. I regard the ERC Equipoise work as quite important in this regard, as the reservoir modelling seems considerably more detailed than was available 15 months ago.

Well, I'm surprised, I had been under the impression that we had plenty of capacity behind the pipes and there was a real fpso constraint. 

You are missing my point on this. If there is capacity behind the pipe then by definition it hasn't been perf'd and put into production. You simply wouldn't perf more wells and put them into production for the sake of a week or two's flow test, especially if you probably then have to shut down again and could also compromise the complex reservoir management. Why not ask as directly as you like, rather than speculating?

You are still probably right that it might be better to have it all combined in some way. Not sure some of the same logic I was using still applies though. Do you have any insight into the reserves at this talisman field ? we keep hearing it won't last long etc etc, would be interesting to understand more. I wonder if they are indeed producing 15k even now ? 

Combining operations would mean that an unfilled 15k of contractual capacity can be used more efficiently. I think it has underperformed even SOCO's expectations, but there is probably a price at which one or more of the HLJOC partners would buy them out (PV probably have pre-emption rights, I guess).

There were some interesting responses to questions about reserves and OOIP. Ed gave the impression that OOIP numbers weren't really very relevant at this point. I note that some have interpreted this negatively - but I'm unsure that this is correct. I think the point is that it is all about recovery rates at this juncture .

well obviously the figures all investor/buyers are interested in are how much oil is recoverable, you can keep the oil that can't be got out of the ground. To this end, recovery factors and oil in place are important since these are the two things that tell you how much you can get out.

The attitude at the AGM, echoed the type of feed back I got some months back speaking to soco about these figures and whether the oip figure inclued h5 or not. At the time I got mocked on Motley fool with people suggesting I had spoken to the Janitor ! or that I should go and lie down, I was telling it as I'd heard it, this confirmed this to me.

I know you (ee) produced an rns suggesting that the reserves figure should be 1.2 bn or 1.3bn, including H5, though I can't find that now. Interesting that neither the the company itself isn't quoting this previously rns'ed figure now in answer to how much oil is there. Also I recall last years numbers, where from memory, the engineers had suggested a recovery factor between 25 and 34%, soco were claiming a 32 to 50% recovery, and suggesting it would be 50 %. They may still think that but they seem to have settled on 40% for this years AGM, and prefer to not say for the other figure.

I have sympathy with the management, they have always said that they thought tgt was a 1bn barrel oil field, and their have been good results and bad results. So when we get a good result the temptation is to want to push this figure up, no one is so keen to push it down when there's a bad result ! So perhaps it was over optimistic to push up to 1.2/3Bn on the h5 result, I don't know.

All of this leaves us in limbo, (still), where we've been for years, certainly since we were promised the reserves report in the fall of 2012 or was it 2011 ?

There are promising things in there that's for sure, tgt might be a great asset to produce from but it's not a great asset to sell. Something else missing from calculations re it's value, is that large amount of capex/ work required to achieve these high recovery rates or keep the field producing. 10 wells per year for the next couple of years (I think ee said 4 years from his notes?) obviously this makes the field worth less than a simple field that will just produce 360M barrells over the next 15 years needing only a couple of water injectors added toward the end.

I don't know how much they can get production up with this drilling campaign, and how much of a bottle neck the fpso will be. I recall people posting that they had been told tests on the fpso couldn't happen because talisman couldn't produce the 15k per day, it seems now more accurate to say, the partners together couldn't produce the 70k per day as it seems we're not in a position to produce more oil either.

Given all the uncertainties, the market seems to have got it about right for the time being. Of course if you're holding in a year or so's time, and they announce that H4s has a lot of oil, and that they'll tie in to bach ho and expect to produce 90k per day, then obviously the price will jump. However given how conservative the partners are on these things, that's by no means a certainty. that a tie in to bach ho can be agreed.
The cnv gas issue shows us how PV are more interested in their own interests than those of the JOC.
It might be that the price we will have to pay for an agreement to tie in to bach ho and raising production will be a high tarrif for the use of Bach Ho infrastructure. How this might compare to the fpso costs we'll have to see. It seems so far off ( drilling H2 2015, and only agreeing additional capacity when that's done), that its not surprising the market is telling Roger that they don't have exciting news flow (his reply of course, no, but we do have exciting cash flow !)

really sorry this is a bit rambling I've been dragged off a couple of times to do some other things so if I've wondered off from my original points I apologise.

I was disappointed by the agm, I saw little to give me confidence that they thought a sale of vietnam was likely, but you never know. There are a few bits going on, and who knows perhaps tgt will gradually grow, tgt4s and tgt5s failure to give a "current figure including what we know of h5 was disappointing, and goes somewhat against the view that we're gradually proving the resource up. No mention of connectivity again this year so I think we can forget the idea that some resevoirs are much bigger than we thought because they span bigger distances that we thought.

Still I prefer the management being honest, it's not a plumbing job, there's work to be done here but while everything is always for sale at the right price there's nothing to suggest that anyone is likely to match the managements valuation any time soon. (though this does suggest perhaps soco buying talismans bit of tgt),
H5 will take some time, as will a pipeline, if that can be agreed, it won't be for another year. In the meantime the fpso can do 60k, perhaps 70 after it's next shut down period (later this year or next). We don't know when the talisman production will drop off, which again makes capacity planning difficult,
I'll be holding for the decent yield, the bits of potential, and the possibility that at some point the rest of the company will be sold off at a premium to the current price.


cheers K

Thanks Martin.

I'd also suggest people re-read my preceding post in this thread concerning Numis research. Taken together, the direction of travel becomes very clear, IMO!

2. Ed noted the news on the morning of the AGM that Talisman were intending to sell their assets in VN (and elsewhere. This was an aside - but I expect to hear more about that.

>> yes given that soco can't seem to get any offers that match their valuation of tgt due to them believing it's worth more than purchasers, you do wonder if the talisman bit might be worth more to soco than to anyone else ? especially since they might improve recovery rates there by dropping production and increasing on the rest of tgt. I don't know who the talisman partners are and if that might cause some political complications.

The comments re water cut and fpso might also suggest this is worth very little,  though potentially still more to soco than to others without the direct link to tgt?  doesn't do as a potential buyer to appear too keen thought, 

K

There is no real point in starting a thread just to post my comments on a pretty uneventful AGM, so I'm commenting here.

First, comments on the presentation:

1. Note the big increase planned on VN capex - $155mn in 2014, up from $99mn in 2013 (p4). The main reason for that is the plan to drill 8-10 wells on TGT for the next 3-4 years (if I correctly noted those numbers). Remember that there is very quick cost recovery on development capex.

2. Ed noted the news on the morning of the AGM that Talisman were intending to sell their assets in VN (and elsewhere. This was an aside - but I expect to hear more about that.

3. The H5 jacket will be set in September and they will then drill 5 wells before installing the topsides in the middle of 2015. They will then put those 5 wells on production and home in rapidly on a single preferred production option for TGT as a whole. Currently they have 10-15 production scenarios they are evaluating, including a) expanding FPSO capacity (they expect it to do 70,000 bopd) b) adding another FPSO c) Hooking up just H5 to Bach Ho, at a capex of $75mn and d) hooking up the entire field production to go across Bach Ho, at a capex of ballpark $300mn. The multiple scenarios result from combinations of these elements, coupled with differing production scenarios (see slide 11) - production capability is the product of the capex spent on well drilling together with a pure JOC management decision on the optimal way to produce from the reservoir. I have the impression that there is a wide range of production plateau levels that might be chosen. It is clear to me that Bach Ho has moved a long way up the possible range of production possibilities - though ultimately the choice will come down to project economics (ie it is still possible for the operators of Bach Ho to be so greedy in their tariff expectations that the JOC picks another route to evacuate TGT - but other things being equal one or other Bach Ho solution seems highly likely to me).

4. Another aside - Talisman are experiencing much higher watercuts than on TGT (which impacts the FPSO water handling)

5. Once the H5 topsides are set, they then expect to drill fault blocks H4S and H5S (see map on p10 for all drilling locations). I also noted that one of the wells in the plan was intended by the JOC as a water injector but was also thought to have potential as a producer.

6. I particularly noted from both the presentation comments and subsequent discussions, that they are getting to have a very high level of confidence in the ERC Equipoise analytical approach. Their dynamic model has been extensively backtested successfully and is now being used with a geological model overlay in order to provide a predictive tool to indicate the most productive locations for drilling development wells. Ed was very excited to be visiting ERC Equipoise head office shortly, in a part of South London that he has never visited......though, since I am extremely familiar with that part of South London and was born less than two miles from their office, I had to bite my tongue and resist pointing out to Ed that it is in fact a bit of a hell-hole - a point that was reinforced by the weekend news of an illegal rave in an office block over the road ;-)   Hopefully his excitement was more geological...... ;-)

7. Litchendijili rig should be signed up this week and the intention is to unitise the expected oil leg to that field (clearly shown on p14). As others have said, there was comment about this becoming the cornerstone of an "African business". Nanga IIA is also "becoming pretty interesting".

8. Distribution details will be announced with the interims. Minimum $100mn. Theoretically that would be c 18p per share buy (depending on FX rates!!) they might stretch a bit, IMO.

9 Block V seismic now complete. Whilst the oil window is thought to be on the DRC side of the lake, it depends critically on the oil migration pathways (note that wells on the Ugandan side showed the oil had migrated elsewhere). IMO....whether anything gets done on Block V depends entirely on the DRC Gov't and UNESCO - but it completely clear (IMO) that anything that is done would be done in a tightly-defined area very close to the lake (and would not have a material impact on wildlife). I'd expect most of the block to be relinquished (especially if the WWF keep trying to ponce off the company with their PR - in which case I'd expect the assets to end up with someone far less interested in operating ethics and far less susceptible to NGO pressure! - and I have made that point in person very forcefully to both Anthony Field and David Nussbaum)

Questions:

a) There were some interesting responses to questions about reserves and OOIP. Ed gave the impression that OOIP numbers weren't really very relevant at this point. I note that some have interpreted this negatively - but I'm unsure that this is correct. I think the point is that it is all about recovery rates at this juncture - and the net recovery rates (backed by the ERC Equipoise modelling) are going to be very much more important than theoretical gross OOIP. Management thinking is clearly centred on validating their expectations of recovery rates (which, from discussions, I see as the main issue responsible for the valuation gap between SOCO's concept of TGT and the approaches from potential buyers that have been made to date. It is ALL about producing evidence and data which stands up to very close scrutiny by both the JOC partners and by potential buyers!). Note that ERC Equipoise are the only consultants who have actually examined in detail all of the core samples taken.

b) There were a range of questions on Block V, mostly from 20-30 year olds who were very keen to justify their existence by trying to dig up dirt on behalf of clients (there were at least 10 such people, representing "clients" or NGOs). Two of these questions were on specific allegations of intimidation by "agents", both of which are already under investigation by the company (as Global Witness, the main protaganist on that point, clearly knew - despite which they promptly blogged and ignored the categorical repudiation of any such alleged actions by RdS, in which he made it pretty clear that if there was found to be anything in such allegations, the services of the people responsible would be dispensed with pronto). Both MadDutch and myself made it publically crystal clear that we would not be invested in the company if we were in any doubt that the company was doing its level best to operate ethically in all respects [and, if any of these professional lobbyists are reading this, I invite them to compare the effort made by SOCO to address these aspects with the efforts made by peer group FTSE 250 companies - using the relevant annual reports!]. Note that the Aviva rep smugly marked the NGOs' card by saying that they had commissioned an "independent report" that came up with 6 recommendations....which had already clearly been discussed with the company!..... RdS made clear they are happy to engage with any and all NGOs and institutions who wish to discuss such matters. I also pointed out in a preamble to my own question that the overall environment in that part of DRC is such that violence and lawlessness is a daily occurrence - and it therefore would be unsurprising if local "entrepreneurs" tried to take advantage of the oil company presence by seeking to blame it (cf. the shameful lying of claimants against BP in Texas and Louisiana) - rather in the manner that others have also done.....;-/

c) My question was about the analysts' understanding of the business. Roger C was excoriating in his comments. In essence he thinks only two analysts come anywhere close and that the great mass of "analysts" do no useful analysis at all - merely lopping arbitrary percentages off management estimates and/or producing fanciful industry analyses that give too much credit to "moose pasture" wildcats in the NAV estimates and not enough to companies that are actually producing oil and cashflow. Apparently SOCO is generally not considered "exciting enough" - though RC fairly pointed out that most investors who were interested in "drilling excitement" had exited the sector at the time of the financial crisis [a point well borne out by examination of the share prices of dozens of explo-focused companies!].   I infer from some of the discussion that the new CFO, Anya Weaving (who is both smart and delightful (IMO!!) incidentally) will take on more IR responsibilities going forward - starting with interfacing with the analysts.

d) Roger made it clear that indicative offers for TGT had been received in the past, but at a level that made it a no-brainer to dividend out value at a high rate to shareholders instead of accepting a lower offer. That is clearly going to be what they are doing until someone finally gets round to making a sensible offer that can be accepted. It is clear that the ERC Equipoise work (and the ongoing drilling) is key to providing the evidence that would be needed for that - the only question is when (as ever!).

In sum, there wasn't very much new to be learned - as I'd expected. I was greatly encouraged that the ERC Equipoise work seems to be very well-regarded and therefore hopeful that there will be significant value to be added from that source as the process of reserves reviews comes to a conclusion for 2014 at year-end. As ever, it is impossible to predict when a third party might decide to approach SOCO with serious intent. I would think that the present situation in Iraq is a wildcard in that regard.

Numis note from yesterday:

In this note, we take another look at our SOCO investment thesis. We find a
company that offers investors a c.5% yield, a balance sheet that remains net cash,
has growing operational cashflow and material yet low risk upside. Despite having
over 100 UK listed E&P peers, SOCO is unique in this regard.
We disagree with the reasons why analysts have moved to a consensus neutral on
SOCO and believe a valuation premium to the mid-cap E&P peer group is justified.
SOCO currently trades at 0.85x RENAV versus a sector 0.76x. Limited exploration
catalysts may deter investors that prefer the more speculative end of the E&P
spectrum, but we believe management have shown strong capital discipline by only
investing in high IRR developments and positive EMV E&A. Management and board
remain significant shareholders, and remain highly selective when deploying risk
capital.
SOCO remains one of our top E&P picks in 2014......

.....Valuation: We remain of the view that the risk/reward balance of investing in SOCO is
compelling with limited downside from the current share price, with the stock trading
close to our core 2P NAV of 424p/share. Our RENAV stands at 496p/share, 18%
above the current share price. We expect our Core NAV to rise over the next 12m as
the result of FPSO de-bottlenecking, new infrastructure investments, higher TGT
recovery and improved gas prices......

We expect the HLJOC to look at alternative oil evacuation options this year.
Options include:
a) Installation of additional pipe-line infrastructure in order to take multi-phase flow
to the Bach Ho platform for processing. This would be largely an opex solution
with TGT partners installed a new multi-phase line and paying Bach Ho a
processing tariff.

b) Installation of a small CPF with processing infrastructure at TGT and replace
the existing FPSO (contract ends in 2016) with a simple FSO to enable tanker
offloading. This would be a more capex biased development solution given the
additional infrastructure requirements, but will negate the opex related to FPSO
lease.

In our view, de-bottlenecking this year has the potential to offer a short term solution to
production constraints. We potentially could see an increase in total gross oil processing
capacity from 55kbod to c.65kbod with TGT share of production rising by 10kbod or
3kbod net to SOCO. We believe the net NAV impact to be relatively small (c.20p/share),
however, the impact on short-term cashflow and dividend would be far more material. A
3kbod net increase would be a 20% increase in current group production driving a
similar order of magnitude increase in annual cash-flow leading to a higher dividend.
In our view, a step change in production is likely to come from the installation of
additional field infrastructure. The pressure is currently on state-oil company,
PetroVietnam, to boost production. In our view, we could see further significant
investment in TGT as early as 2015 leading to a step up in production in late 2016.

Why the change in TGT development philosopy?
We believe the political nuances associated with the development of TGT are not well
understood, and has led unfair criticism of SOCO. In our view, TGT has been optimally
developed given the constraints imposed by the TGT operator, HLJOC. HLJOC, is
driven by conservative internal estimates of field-wide resource potential (included in a
Reserve Assessment Report or RAR), which in turn has driven a conservative approach
to field development. Nevertheless, RAR recoverable volumes for TGT have risen
significantly since first oil and we believe should now support incremental investment in
the asset base.
We understand that conceptual design work and pre-FEED is already underway on
alternative oil evacuation solutions for TGT and that we could see the HLJOC making a
decision on additional infrastructure investments as early as 2015; this in turn would
drive a step-change in production as early as late 2016. We expect investments in new
pipelines or a CPF to be value enhancing for shareholders (NPV12 positive)
Our base case assumes a gross oil plateau of just below 55kbod but clearly, this could
be substantially higher (eg >80kbod) if additional investment is sanctioned

My bolds. But...just for emphasis.....Numis are looking at the possibility that TGT production could be somewhere over 80k bopd. IMO that could prove conservative, if they can agree a generous capacity solution.

ee - can I ask why you would expect an issue to be IRO $400m? If there is a tie-in to Bach Ho, I understood that this was expected to cost $60-100m, although that figure was pre-H5 discovery.

this does raise the issue why you'd borrow $400M at say 5% when you only need $100M or less,
ok there is other capex but there's also cash in the bank. I wonder if we're just being conservative and considering that we might need $100M's to fund exploration costs on the newly acquired farm in ?

If that's not the case (or some other capex/expo costs on perhaps as yet concluded deal ?) , wouldn't it be much better to get some kind of flexible deal with a bank ? secured on the additional production revenues ?
you would think this would be a pretty safe bet for a bank, therefore relatively cheap ?

will be interesting to hear what is said about this at the agm, I do hope there is not a convertible option to a bond, It might be better to do a share issue, although that would dilute too, at least we would have the option to join in. ( I suppose you could counter dilution by increasing your shareholding anyway which would achieve the same),

K



K

RBC Capital Markets issued a sector note yesterday https://rbcnew.bluematrix.com/docs/pdf/1b7ed148-531e-4351-b36d-bc42e9067e29.pdf? (thanks to ohisay on TMF)

They have a total NAV of 536p (449p + 87p risked explo) with a further E&A activity unrisked upside of 91p.

A quick calc shows them attributing circa $20 per boe for 2P reserves.

Their view of SOCO for 2014 and 2105 is of no change to year end reserves and falling to flat production.

Based on the production estimates this gives a reduction in cash-flow and with the impact of higher capex going forward (2014 especially) a reduction in free cash flow and hence capital distribution.

On provided guidance and figures to date I can’t argue with the production and cash-flow figures but I hope they will get a surprise in year end reserves and production post 2015 in due course, requiring a rework of their model.

kyu66

Thanks ee

Personally I would prefer to forgo the divi for a couple of years than see them raise 2-300 Million $ in a bond, which in order to keep the cost down would no doubt entail an option to swop for shares at a later date.

I don't know how much of the cash pile is currently earmarked for capex, but there is of course the possibility that the bach ho tie in will need to be funded. I don't imagine the partners are going to be interested in paying for it other than in net backs against future additional production, so I would guess in the short term that will come out of the soco cash pile. There were suggestions recently that soco might be looking at raising a bond, we know that they are a conservative organisation and are likely to err on the side of caution and raise money rather than risk runnng out of funding and have to come to the market later at a potentially more difficult time. Personally I would prefer to forgo the divi for a couple of years than see them raise 2-300 Million $ in a bond, which in order to keep the cost down would no doubt entail an option to swop for shares at a later date.

Of course we've all got the option to look at it, and sell shares to buy bonds if it suits our situation. There's usually a 100k entry level into bonds of this kind, no doubt priced in $.

I suspect that the above is because they are considering potential costs of exploring and developing the recently farmed in acarage in africa, one of the congo's. Currently still awaiting administrative go aheads (I think), but I guess there's the chance that might need substantial funds. Having made the commitment to pay divi's I guess it would be very hard to go back on it after one year.

cheers K

Mike, I expect it's even more beautiful in Paziols. (oops, ot)

Thanks guys for the help, and especially you, Redhill, for making me laugh on this beautiful English Sunday morning.

There's a long thread on advfn with ee and others for your delectation/edification.......

Unless the SOCO management define what they mean by free cash flow all other guesses are irrelevant.

Hi MadDutch,

There's a long thread on advfn with ee and others for your delectation/edification.......

ATB

Thanks Peter, I thought they are the same thing. Please educate me!

Mike

I'm not. Half of $270 million is 35% more than $100 million.

MD

Hi MadDutch

It looks like Soco can afford a lot more than 18p.

Not if they stick to the '50% of availabler FCF' apparently.

See advfn for some angel-counting on a pin-head as to what 'FCF' means.......;-<

ATB

Thank you.

Yes, it may be the 2013 dividend but it is payable in 2014.

Dow Jones Newswires reported today that Soco has $270 million in cash.

Is it possible to calculate the 2014 dividend?

MD

Note that 90,000 boepd should be eminently do-able, given the well test results on H5 and the March 2013 FPSO capacity test results .

I would have thought so, since before production start, soco were suggesting that 90k would be possible from tgt phase one and two combined without h5. Production info might no suggest that H5 would be needed to maintain this level of production, I'm not sure.

Re Bach Ho tie in, it's interesting to see what the company says at the agm. It's pretty clear and has been for years that more production is possible, whether the expenditure required is justified has probably been the question in debate between the partners. Perhaps the H5 result, is the thing that tips the balance ?.

If we do spend the 100M odd needed to build a pipeline to bach ho, it would seem odd to keep the fpso as well, assuming that there is a relatively cost free way of not renewing the lease. I would have thought the relative cost of linking phase 1 and 2 to the pipeline from H5 to Bach Ho would be modest compared to the cost of maintaining and operating the fpso.

On the subject of the fpso, whatever has happened to plans to increase it's capacity ? I recall that they ran tests on the fpso at a sustained rate of 60k, and there were plans to get to 70+. Now I know they have been delayed, but why are we not running the fpso at 60k ? is there some non operational reason for this ? for example permission from the owners or insurers of the fpso to go beyond boiler plate spec ?

looking forward to the AGM

K

Looking at the first analyst flash comment I've seen (GMP) on today's IMS, it is clear that analysts are assuming that production remains constrained in perpetuity by FPSO capacity. I find that assumption pretty curious, given that the (lower @10k boped gross) CNV production is already being produced via a link to Bach Ho.

There is little doubt in my mind that using an FPSO with a 55k bopd rating for TGT would not have been SOCO's choice - and the JOC now has to deal with the urgent question of how they can best deal with this capacity constraint.....

Maybe I am reading too much into the presentation that accompanied the prelims, but in connection with the H5-WHP it says on page 12 that this is "Designed for 25,000 BOEPD, various tie-in options being considered, including in field tie-in and/or taking total production to Bach Ho"....my reading of that is that they may end up bypassing the FPSO completely and putting everything ("total") across Bach Ho - not just all of H5 production. But certainly putting the full 25k from H5 across Bach Ho is a strong possibility.

Either way, analysts are not modelling the 25k boepd from H5 as being additional to the 40k net over the FPSO and they are continuing to assume that the FPSO capacity constraint binds.....which means that there is scope for some significant upside surprise on production rates and 2015+ cashflow  if SOCO end up financing a link to Bach Ho for the whole TGT field!

If they were to be able to raise TGT production capacity from 40,000 bopd, to (say) 90,000+ bopd by the end of 2015 then that would also positively impact the reserves and resources assessment ....and the combination of a big RAR raise and a big production increase should materially affect analyst opinion - and the market price of the shares. Note that 90,000 boepd should be eminently do-able, given the well test results on H5 and the March 2013 FPSO capacity test results (before Talisman started producing).

Given that the key decisions in this area are now only a few weeks away (June? - when the ODP approval and RAR sign-off can both be expected), it is pretty surprising that the market seems not to be factoring this possible outcome in - yet.

I'll be interested to see if some of the better analysts (Numis, BOAML) have a closer look.

RBC's monthly puts a NAV of 542p on the company and says:

This month SOCO may announce it has spud the 7P appraisal well on the CNV field (SIA 25%) offshore Vietnam. This well could increase CNV’s gross production by up to 25% and marks the start of SOCO’s 2014 appraisal drilling campaign, which includes nine wells, mainly focused on the TGT field (SIA 30%). We do not anticipate an IMS from the company until mid-May; management is forecasting average net production of 14-15,000boe/d for 2014, flat year-on-year.

 

We have updated our FY13 numbers to reflect the TGT field’s Q1/14 actuals published by

partner PTTEP– the field produced oil at an average rate of 36,826bbl/d and gas at 29MMcfd. Output of 42,000boe/d (12,600boe/d net to SIA)is broadly in line with our expectations, but the mix is slightly more gassy that we anticipated, and this has trimmed 2014 revenues slightly. PTTEP said that the operator is preparing to install platforms thatcould contribute to production in 2015.

Thx EE

That's an eclectic mix of stocks by any measure, I'd prefer to back those stocks who show due regard to shareholder returns , both in terms of ROCE and , selfishly I know, dividends or the equivalent thereof.

Cheers

FWIW, Numis update:

Numis Securities has labelled its top picks in the oil sector in the aftermath of the recent Oil Market Report by the International Energy Agency (IEA).

The broker’s top picks include SOCO International, Genel Energy, Premier Oil, Faroe Petroleum and Borders and Southern.

These are ‘stocks that we expect to continue to perform in a flat oil price environment despite rising costs’, said analysts Sanjeev Bahl and Kathryn Leonard.

Stumbled across this recent research piece on Vietnam's Oil & Gas industry, written by a Vietnamese broker. There are a number of references to the continuing depletion at Bach Ho....and, more specifically, this comment:

Vietnam no longer looks capable of producing 400,000 barrels per day like it could earlier in the century. Meanwhile, the demand for oil and gas increasingly continuously. Vietnam is trying to increase its crude oil production by expanding Exploration & Production (E&P) activities abroad at the same time, the State and PVN will have to open up foreign investors to reaping more of the reward. According to PVN, the country’s oil production will reach 420 thousand barrels per day (kbpd) at its peak in 2014, reflecting a CAGR of 3.7% in 2009 to2014. Domestic production is then estimated to decline dramatically to only 150 kbpd by 2020.

......In other words, there is a big production gap to be filled - 420k falling to 150k in only 6 years, based on current plans - and relatively few fields capable of filling some of that gap!

Watch this space, IMO......

Thx EE

As ever analysts seem to veer off in all directions but the Numis note looks a better way of approaching the task of valuing disparate entities..but I'm biased.

Barring a VN disposal the 2 key points for SIA valuation are connectivity/recovery factors and agreeing a solution to FPSO capacity constraints.

The next 2 months should see how adeptly mgt address the lack of clarity amongst analysts.

I've got my money firmly on mgt delivering big style

A number of analyst sector notes have been published in the weeks before and after Christmas. I post a few extracts below:

First....Numis 6th December:

In our view, for the E&P sector to re-rate, management need to demonstrate: 1) an
ability to generate peer-leading, sustainable returns significantly above cost of capital -
greater clarity of project ROIs and IRRs may help. 2) Strong capital discipline through
investment in only prime prospects. We believe there is potential for boards to impose
capital discipline through capital returns. 3) In our view, management need to be
incentivised by returns made on their investments. Management should be incentivised
to deliver value (ROI, IRR) over volume (production and resource growth). We believe
delivery of LTI and social responsibility targets should be pre-requisite.

Amongst our coverage we like stocks that are well placed to benefit from increased
focus on capital discipline and returns in a flat to declining oil price environment. We
prefer companies that have robust investment selection processes and have show
capital restraint despite the availability of capital. We found that companies with high
management and board ownership are aligned with shareholders and have historically
delivered superior share price perfromance. We believe that stocks EnQuest, SOCO
and Genel fit well with our overall investment thesis. All three companies have shown
an element of capital restraint, despite healthy balance sheets, and returns on historical
investments are being realised through strong cash generation. Excess free-cash
generation makes shareholder returns an option.

EnQuest, SOCO and Genel may not be the cheapest in the sector (0.71, 0.8 and 0.82
times RENAV respectively vs. sector 0.75 times) but importantly, we believe that a
highly selective approach to investment and suitably incentivised board will start to pay
dividends..........

In this note, we look at which E&P remuneration structures have delivered the best
shareholder returns. We conclude that companies with high management ownership
generate the best returns for shareholders. Stocks amongst our coverage with
significant management/board ownership include: SOCO, Genel, IGas, Providence,
Borders and Southern and EnQuest

The Numis note is actually quite a perceptive and interesting comparative piece on the sector. For example, it compares project IRRs for various well-known mid-cap projects - and concludes that the TGT project has an IIR of about 53% - substantially better than every other project (next best was Tullow's Jubilee at 32% with Genel's Tawke close behind). Most projects had IRRs of 15-20%.

In other charts, SOCO International (LON:SIA) also leads in terms of CEO/Board share ownership (34% - next best Genel at 23%), and....interestingly..... in a chart showing 3 year shareholder returns per £1mn of senior management compensation (next best IGas and Providence).

Numis have a buy rec, with a NAV &price target of 490p:

SOCO may not be the most exciting stock in the sector, but successful debottlenecking at TGT could see a step-up in cash generation and dividend payments over the course of the year.

Others follow shortly...

Don't see the point in posting on here when there's such a herd mentality.

Eh how is ""...I would sooner be digging the allotment...."
frankly, the rest of us feel the same - ie we'd rather you were digging your allotment" using abusive language?

I thought the insinuation was eloquently posed. without recourse to the usual vulgarity employed by many these days.

Lightning tiger
"...I would sooner be digging the allotment...."
frankly, the rest of us feel the same - ie we'd rather you were digging your allotment......

This one is not for me

'Bye then.

This one is not for me I would sooner be digging the allotment. Not moving at the moment. I just missed GWP this week +50% or so but still have good momentum with CLIN GBO & TEP. It is about time TEP got to around£14.00 mark. Wondered whether the dip was anything to do with the directors taking huge pay rises around 10%? Cheers from Lightningtiger

Morning Extrader.
Not to worry. Tried the TMF link - works okay. Very strange.

Thanks for the link. :)

Hi fangorn,

Oops ! Passed on in good faith. - honest !

If you go via the source on TMF, do you get the same result ?

ATB

Postscript : I've just checked - and it works from there. How strange !

Access forbidden!

You don't have permission to access the requested object. It is either read-protected or not readable by the server.

If you think this is a server error, please contact the webmaster.

rbcnew.bluematrix.com!!!

Hi all,

Hat-tip to ohisay from another place with this link to an RBC update. It's worth following the link to the expanded commentary

https://rbcnew.bluematrix.com/docs/pdf/a1e8a2ec-18e5-4f1b-8c...

ATB

Well we seem on the way to an upside surprise on H5 but how will next weeks interims compare to analyst expectations?

Anyone got access to a table of current analyst forecasts? I'd like one handy to refer to on the 29th..

Cheers

Do we have a change in company strategy ?
The long established strategy of creating value and monetising projects to enhance shareholder value and fund/expand exploration and development seems somewhat in conflict with the present emphasis on SUSTAINABLE distributions.
Obviously the stance does not inhibit a Vietnam sale in any way but the thinking does not align with the long established policy.
For my money, the present organic growth prospect including a regular dispensation to shareholders is just the biscuit, even if Ed does prefer cash in the pocket to oil in the ground (as I seem to recall).
With this Milchcow lactating at this rate there's cream for the shareholders, butter to lubricate the drillbit, milk left over to sustain the management engine and casein to provide reserves for the unexpected.
Surely this must be the whey ? !!

On the other hand, the sustainability thing could just be a message to the market that this is what will happen unless a better option arises. any thoughts ? Is there a fundamental change in outlook ?

Hi all,

An encouraging IMS.

Any news on monetisation of CNV byproducts ? I thought this was 'close to resolution' a few months ago....

TIA

Re Cabinda, I don't think it should be assumed that it won't happen. There appears to be no reason for a hold-up other than the ability of the purchaser to locate a reportedly well-stuffed wallet.

Made me smile thanks,   I have a buy to let property,  the tenant disappeared off to africa for 2 months and the rent wasn't paid,  the agent said,  oh the only reason the rent hasn't been paid is because there's no money to cover the standing order !  -  well that's all right then !

There must be a question mark over whether the buyer can raise the money now,  given that despite giving a non returnable deposit,  months after the deadline, they still haven't completed.  Does this mean soco is commited to drilling ?   might they think they can get a better deal in the run up to the drill ? or after it if it fails ?  don't know,  maybe they thought they could get the cash and they will at some point,  we'll see,  not a huge deal one way or the other I wouldn't have thought.   Would be amusing if they don't buy it and it turns  out to be a gusher !

K

http://www.dailypolitical.com/finance/stock-market/soco-international-given-outperform-rating-at-rbc-capital-sia.htm

Well RBC still have an out perform, with a target of 4.50, although after this morning's move that's only 10% upside. Still weeks away from drilling H5 now, hopefully that will spur more upward movement !

K

while there isn't anything bad in todays ims, except the sale of cabinda not going through,
I'm a little surprised by how positively the market has taken this rns,
especially as the analysts haven't been especially impressed so far.
(btw, thanks to whoever gave me a negative for posting a link above, sorry I didn't have time to comment,
but I won't bother next time),

K

Is my maths correct?

$328.5 - $215.3 + $47.8 = $161m

$161m net since year end (135 days) implies $435m on a prorated annualised basis - all else being equal

Assume half paid out as dividend

Thus $217m into 331m shares

Gives $0.65/shares

= 42p

http://www.mideasttime.com/soco-internationals-hold-rating-reaffirmed-at-jefferies-group-sia/20504/

shanklin 100

If we can expect a dividend of say 30p per annum for the next 10-15 years, wouldn't we expect the share pirce to rise to about 600p , equating to a dividend yield of 5 % ( comparable to BP, Shell, GSK etc) ? Note this excludes any upside from exploration successes in Vietnam , Congo, Angola .

Thank you ee

10-15 years of 40-50p per annum with plenty of upside potential should protect the downside here.

Martin

RBC comment:

First Impression

Production exceeding expectations: Output in the year to date has averaged 18,540boe/d, on a working interest basis; we are currently forecasting 18,000boe/d in H1/13. We note management reiterated that working interest and entitlement production volumes are the same (as reflected in our NAV and cash flow forecasts); confusion about this calculation drives variations in analysts' numbers.

Cash-rich: Having redeemed the remaining $48m of convertible bonds, SOCO is debt-free with cash equivalent of ~$330m. We were forecasting $340m at the end of H1/13, after adjusting for the delayed ($36m?) Cabinda disposal. Quill Trading Corporation, SOCO's minority partner, was expected to acquire SOCO's 80% interest in SOCO Cabinda; however, it has not yet completed the transaction.

Developments: Following minor modifications to the TGT FPSO separator, production capacity should increase to 60,000b/d. In Q3/13 third party volumes, the Thang Long JOC’s production stream, will be utilised to test the facilities' ultimate capacity. On CNV the operator has received the required approvals for the CNV-7P development well, which could help increase production and shore up 2P reserves estimates.

Drilling: Offshore Vietnam, a rig has been secured to commence a well on the undrilled TGT H5 compartment before the end of June; our SOCO NAV includes upside/risk of +51p/-34p per share for the well. Offshore Congo Brazzaville, the Marine XI partners have agreed to accelerate the drilling of the Lideka Marine East 1 well (SIA 40%, operator); this Q2/13 well will test stacked plays with combined upside/risk of +69p/-10p per share. On the Nganzi Block, 2D reprocessing is ongoing and a decision will be made on potential drilling locations prior to year-end. Onshore Cabinda, preparation has now commenced for the drilling of the 20-6 and 20-7 exploration wells in the Dinge area, and drilling is expected to start mid-2013.

Outlook: Although a planned capital return to shareholders differentiates SOCO from its peers - management says this 'will come to fruition in the second half of this year' and we are forecasting 50 cents/share - exploration and appraisal drilling could also generate some welcome newsflow in the coming months.

June and July will be key months.....

ee

What's the minimum number of years SIA could reasonably be expected to be able to afford to pay 40-50p per share in the absence of some fundamental corporate action such as being bought out?

TIA. Martin

40-50p would be very nice indeed.

IMS out today

Posted here because I'd expect there to be follow-on comment from analysts.

They have generated $161mn of additional cash between year-end and 15th May and say:

a capital return to shareholders is a priority and will come to fruition in the second half of this year. The Directors intention is for this to be a sustainable capital return programme that will distribute excess cash to shareholders on an annual basis.

Given that they appear to be producing "excess cash" at the rate of over $1mn per day, I'd expect analysts to start taking a closer interest in estimating the annual "excess cash". Conveniently for them, $1mn a day translates through to about $1.10 per share per year...........

ps...they will also be spudding two wells in the second half of June (Lideka East and TGT-H5). in fact they will quite possibly be drilling three wells - as the Cabinda sale seems not to be going ahead and there is a two well programme about to start....

pps......I understand that an announcement about the "excess cash" distribution can be expected with (or before) the announcement of the interims - I've pencilled in early August, with payment in early September. Still expecting them to come out at 40-50p per share - though they could plainly afford a bit more unless the summer wells indicate ongoing large development costs.

sorry I hadn't realised it was the same analyst note, been a bit busy today and just caught this, thought it was another one,

K

Soco International Lowered to Neutral at Nomura (SIA)

http://www.mideasttime.com/soco-international-lowered-to-neutral-at-nomura-sia/6280/

Nomura downgraded shares of Soco International (LON: SIA) to a neutral rating in a research note released on Friday morning. They currently have $6.42 (421 GBX) price target on the stock, up from their previous price target of $5.92 (389 GBX).

Another downgrade, they're curious because many of them have raised the share price above the current price, but not much above, so it's understandable that if they see the upside as 4.21 that it's not a big buy at current prices. I'm disappointed that the price has dropped off lately, 20p off on Friday and down yesterday and today too (at the mo),

cheers K

Thanks for the encouraging news, ee; it is good to see your positive attitude to dividends.

An 8% or 10% sustainable yield? That will do nicely!

MD

Another stab at guessing the payout today .... from RBC (3rd in a week) :

Forecasts: We await the production update before revising our 2013 earnings and
cash flow forecasts - currently we assume TGT averages 53,000b/d this year.
Higher output would increase our SOCO NAV and the size of the proposed
payout. Based upon our existing forecast, ~$100/bbl Brent, and some draw down
of the company’s $270m of (current) net cash, we estimate that SOCO could
return $0.50/share to shareholders on a sustainable basis. Today this equates to a
yield of ~8%. Given higher production levels and a firm grip on exploration
spending this figure could be increased, and we understand that management is
targeting a ~10% yield.
Updated numbers: Our new NAV is 546p/share, we continue to take a cautious
view on TGT output (and additional drilling on CNV)

Note that their 50 cents per share and ~8% numbers don't take account of the possibility of a production rise at TGT after FPSO testing.

Another longstanding shareholder asked me yesterday what my bottom line and best guess numbers were for the potential payout and, as things stand, I put a number of 30p per share on the minimum (versus the RBS 50c/33p). I see these as the key unknowns that may lead to a significantly greater payout:

a) will they sell Cabinda? Analysts have plainly been steered towards a two-stage deal being done by the end of March and bringing in around $50mn (versus book value of c $32mn)

b) How will the FPSO tests go? I understand those will start in the next week and gradually be ramped up towards 70k bopd (if possible) during the following days.

The outcomes of both the above should be known in 2-3 weeks

c) Will they finalise the gas sales agreement (including back-payments) before the summer? It looks a little unlikely, but could be material - given that they have been supplying wet gas from CNV since late 2009 and they think that the liquid content could add 500bopd to their net entitlements (should be worth $30-50mn pre-tax if they get a decent deal?).

d) Outcome of the well on H5. In a success case that will substantially raise resources/reserves - and may also open the door wider for greatly enhanced production going forward (say they can produce c. 90k bopd gross from TGT's existing wells, then H5 might tip the balance towards adding capacity across Bach Ho and avoiding the FPSO constraint.

RBC seem to have included $50mn for Cabinda in their thinking already - but the production upside isn't in as yet. If the FPSO can be debottlenecked to produce 70,000 bopd in short order then I think we'll be looking at a minimum of 40p per share.

http://www.stockmarketwire.com/article/4529967/FLASH-JP-Morgan-Cazenove-downgrades-SOCO-International-from-overweight-to-neutral-target-price-cut-from-418p-to-420p.html

the link I have has them reducing it from 418 to 420 !

it's not so much the price target though is it, it's them saying they're moving to neutral on the stock from overweight.

Disappointing, but eh ? I'd rather hear something about the reserves review, which was due, last time I asked, at the end of Jan, which will be today then. It may slip a bit further and be a little while before we hear about it , but hopefully the wheels on something significant are turning quietly in the background, the days tick on, I believe we have H5 pencilled in for drilling in H1 of 2013, so maybe that will be a significant discovery, and then once this is done and they've tried to squeeze as much throughput out of the fpso, well then there's a solution to the production bottleneck. Assuming they don't do a deal for the Vietnamese assets before then, there is the potential upside anyway,

K
PS I would be interested in hearing why they think soco is now neutral and worth .5% less, anyone know ?

JP Morgan Cazenove downgrades a raft of E&P Stocks
SOCO International - reduced to 418p (from 420p), Serica Energy - reduced to 47p (from 50p), Genel Energy – reduced to 940p (from 1,060p) and Afren – reduced to 195p (from 210p)

So they've reduced the target price by less than 0.5% So what!

Their information is worth exactly what you and I paid for it. (£0.00)

They are not running a charity, so can you guess why they would put this info out for free?

http://www.brokerforecasts.com/news/article/articleId/4529745

JP Morgan Cazenove downgrades a raft of E&P Stocks

Is it not just a volume response with almost 700k traded on the day? Apart from 1m+ on 10th that's well above daily averages over the past couple of months?

Tangential but the answer can be that old forecasts are still in the system of data aggregators. An analyst or house can drop coverage but the old estimate doesn't die and goes into the sums.

Asagi

(long SIA)

It might be worth recording the numbers currently available on ft.com for analysts' forecasts:

2012:

Revenue: Consensus $580.43mn (range $321mn- $784mn, 15 analysts)

EPS: Consensus 73.96 cents (range 41 cents to 120 cents, 16 analysts)

2013:

Revenue: Consensus $666.34mn (range $383mn- $970mn, 15 analysts)

EPS: Consensus 82.89 cents (range 46 cents to 140 cents, 16 analysts)

FWIW according to the FT's (partial) records, the H1 2012 numbers beat consensus by around 10-12%.

The analysts' consensus of course is meaningless as it is composed of such wildly varying extremes - evidence of no consensus, in fact.

I'm always amazed at how such estimates (not just for Soco) can vary by such wide margins when all the analysts supposedly have access to the same data - presumably some of the estimates will be considerably out of date, but that alone doesn't explain the varying figures.

It might be worth recording the numbers currently available on ft.com for analysts' forecasts:

2012:

Revenue: Consensus $580.43mn (range $321mn- $784mn, 15 analysts)

EPS:  Consensus 73.96 cents (range 41 cents to 120 cents, 16 analysts)

2013:

Revenue: Consensus $666.34mn (range $383mn- $970mn, 15 analysts)

EPS:  Consensus 82.89 cents (range 46 cents to 140 cents, 16 analysts)

FWIW according to the FT's (partial) records, the H1 2012 numbers beat consensus by around 10-12%.

http://www.dailypolitical.com/finance/stock-market/rbc-capital-raises-soco-international-to-outperform-sia.htm

The firm currently has a $7.24 (450 GBX) price target on the stock.

probably helps to explain why despite much of the market being down soco were up 10p today,

cheers K

Maybe of interest to some ;-)

BP agrees $5.5bn Gulf of Mexico sale - http://www.ft.com/cms/s/0/f8c0a5f8-faec-11e1-b775-00144feabdc0.html#axzz25xXIXAPQ

Peter Hutton of RBC Capital Markets said the price of the BP-Plains deal was “significantly higher” than expected, and maintained “BP’s strong track record on transaction values”. Last month, he had estimated the assets’ value at $2.2bn.

A few thoughts re potential TGT reserves upgrade :-

Yes, there is plenty of geological scope for a bumper upgrade but there is lots of evidence from past performance to suggest that the numbers might turn out to be a lot more conservative than hoped. Take Mongolia, for example, where popular BB opinion was pointing to maybe 200m bbls recoverable. Soco sold on the basis of the final payment due on 29m barrels having been produced. A long time since and still waiting. In Yemen, popular BB opinion was that reserves were understated yet when I contacted KUFPEC, a partner, they confirmed to me that they thought Soco's stated reserves were pretty well in line with theirs.

The thing is, reserve additions tend to move in a conservative fashion, bit by bit. Rarely do you get a massive upgrade from a development in its early stages. With TGT, the connectivity issue, accounting for most of the potential, cannot be confirmed without further drilling in the intermediate blocks between north and south, hopefully next year. Furthermore, drilling H5 is the only means of establishing booked reserves there. That clearly limits the scope of increasing booked reserves via the independent review, albeit there should be something from improved recovery factors etc., but again, more production history is likely to be needed to firm up.

There is also the question of what amount of increased reserves can be booked as a result of the CPR. They surely can't recommend an upgrade without an agreed development plan in place. My feeling is that Soco have initiated the CPR to convince PetroVietnam to engage in an increase in production facilities. Soco's CPR objective is therefore most likely to be to get the plan in place and book additional reserves later as a result.

I think it's important to recognise that TGT from the very start was a 40k bbls/day scheme in PV's eyes and that's the level at which the programme has been engineered...allowing for 15k bopd to be accommodated from HST/HSD next door. Stepping up from that is a very significant commitment in terms of capex and as said above, one assumes Soco's CPR objective is to convince PV to that end. One musn't underestimate PV's political advantage in letting the reserves angle run beyond licence expiry.

At the end of the day, I think Soco's objectives are twofold. Firstly to convince PV on enhanced production facilities and secondly to add value through drilling next year re the connectivity issue and verifying H5 reserves...or otherwise. Hence, it is entirely possible that a third party might pay up in the meantime but I think it's much more likely that they'll stick in there and see how it pans out next year before considering selling out.

Just my opinion. Apologies if any of that is jumbled...hic ;-)

I think this agrees with what others have been saying too (Log for example wasn't talking about a take-out price, as far as I know.)
....mmmm not sure about that!

 

Not that it really matters but I think the price I came to was to take the current 2P reserve number and multiple by $20/bbl (given the premium to Brent that Soco TGT crude sells for and the favourable tax) add in the cash but nothing for Africa and discount by about 30% (can't remember the exact number) to be inline with what the market currently discounts this sector to come to about 400-450p/shr. I can't remember the exact workings though but its pretty speculative anyway.

I think I said (but would need to check) that this is a medium term price target and given that Soco trades well below this I feel comfortable holding as any upside is in for free.

I've also said that obviously if there was a big reserve upgrade or a load of oil found in Africa I'd change my stance. Not sure why I take so much flack on this. For now though all the other things are speculation and they can just as well apply to other E&P stocks out there. For example there is good reason to expect an upgrade on Breagh for Sterling Resources given the extra thickness of the sands found in the recent production wells. I'm not going to price any of that in right now though. 

Obviouslly if one takes a model where reserves at TGT are doubled, the price of oil rises to $200, M&A activity reduces the discount to NPV etc. etc. you get much higher numbers. In sincerly hope that that happens for all those holding Soco stock but I'm certainly not going to invest at todays price just on that hope. Just as I wouldn't have invested based on the hope that they would have drilled TGD again and managed to get sufficient gas drive to make the discovery commercial. 

I think that is all pretty clear really. I expect that most of the analysts out there are also trying to place a value on Soco under similar assumptions. I'm pretty sure there is space here for us all to be roughly correct. What I don't think is fair is to be dumped in the idiot camp, with analysts, for ignoring the ifs/buts/maybes to come up with a conservative valuation still much higher than the current share price. 

Surely what is important here is to come up with a good lower bound or conservative price target and invest on that basis and treat anything positive on top of that as icing on the cake. I've used the same methodology for quite a few investments and it has served me very well. 

Good luck to you all especially ee because if he is right i'll make a lot of money rather than just a little bit. He has good grounds to expect the parameters of his model to come to fruition but none of them are hard facts yet.

Log

so when is the reserve u/g? what else needs doing?

Hi ee,

Al Stanton's lowered his target from 450p to 400p.
You're 'on the record' as currently having a target price of 660p.
Was your own earlier not-for-public-consumption 'internal target' around 710p ie do you broadly agree with his calculations re the effect of revised/reduced cost recovery value ? What explanation , if any, did Soco management offer as to how the cost recovery basis came to be (mis)interpreted by so many ? ATB

http://www.dailypolitical.com/finance/stock-market/soco-international-stock-rating-lowered-by-rbc-capital-sia.htm

Soco International (LON: SIA) was downgraded by investment analysts at RBC Capital to a “sector perform” rating in a note issued to investors on Wednesday. They currently have a $6.35 (400 GBX) target price on the stock.

Disappointing to see this kind of comment from  an analyst,  when the company have clearly indicated there should be a reserves update in the next month or two,  and strange to see the share price fall when the price is at 335 and they have a target price of 400p,  20% higher,  but I guess that's how these things work, 

K

It will be interesting to see what the current stakeholder list is (Last one seen in March 2012) and whether a special one off dividend strategy will keep everyone settled going into a regular dividend program if thats what's proposed.
This may prove a more feasabile route in getting the value out that you want than waiting for a buyer.

On a separate note I learnt years ago that selling things in small pieces rather than one big sale gets you more value.
I once had a classic car that I tried to sell complete for the price I wanted (ie companys valuation of its self).
I could not sell it. I broke it in to pieces and sold them separately and ended up getting more than the price I originally wanted for the complete car. Its a lot more work. I have repeated this several times now with various styles of asset.

FH

I note with interest that JP Morgan have now taken the quiet "walk of shame" and have been disappeared from the company's broker roster over the summer months. These things can happen if you don't pay close enough attention to company newsflow.....

And it is probably helpful to work with only one adviser in SOCO International (LON:SIA) 's circumstances, given that they have effective control over their shareholder register.

So it is worth returning to ML's pre-Olympics note of 3rd July which gave a risked NAV estimate of 499p based on 300mn boe gross core 2P at TGT with 200mn potential gross upside (risked at 30%), with a further 50mn boe potential gross upside at CNV, risked at 25%.

It is my belief that a large slice of upside derisking is now imminent, along the lines I've been indicating in recent months in various posts - and rather greater than that allowed for by Merrill (ie allowing for greater recovery factors, bigger area and OOIP numbers and greater assuredness from the results of development drilling and production....and perhaps a big chunk for the connectivity which [on re-examination...."initial interference tests confirm a high degree of connectivity within the main sands"] appears to have been evident from the data now for around 6 months).....

....I could see as much as a doubling of net 2P reserves in VN (to perhaps as high as 240mn) and an indication that net 3P could be 400-500mn, if the connectivity thesis ...err....holds water.

In that event, I'd suggest (pace Boris Johnson) the Geiger counter of Soco-mania may soon go zoink off the scale.

ee

ee,

Self evidently if $3.04Bn equates to 80% then $760Mn equates to 20%. Numis have divided by 5 to get $610Mn when they should have divided by 4.

Per you second sentence in post 574, I do take the point that these are big enough sums to justify the investment case and I have acted accordingly.

ATB, Martin

http://www.stockmarketwire.com/article/4401294/FLASH-Numis-upgrades-SOCO-International-from-hold-to-add-target-price-344p.html

FLASH: Numis upgrades SOCO International from hold to add, target price 344p

hard to reconcile this price target with a valuation of $3.6BN for TGT,

no doubt an error somewhere,

K

The 20% interest would have been worth about $760m, but we are also buying $155m of debt (to SV), hence the lower figure.

I'm interested to see a couple of actual reports. In particular, Numis...who say:

SOCO announced today that it has entered in to a conditional agreement with
Lizeroux to acquire the 20% minority interest in SOCO Vietnam (currently owns
80%) for a cash consideration of $95m. We had valued SOCO's 80% stake in SOCO
Vietnam at $3.04bn, implying a $610m valuation for a 20% interest. However,
adjusting for SOCO's carry recovery (approx $155m remaining) and the time value
of positive cashflows net to the minority (SOCO was already receiving 100% of near
term TGT/CNV cashflows) we believe that deal is accretive to NAV - combined with
recent buybacks we upgrade our NAV by 22p/share.

.......which is interesting because, as most of you know, my own estimate of value in VN was virtually identical!

After this deal, it now looks to me like the post-deal VN total is worth $3.6bn........and, based on some delayed AGM gossip that I only picked up today, I could see the H4 production results potentially pushing this up to as high as $4.5bn. It is somewhat too early to count the chickens on that - but.......if there should happen to be a bit of production data to back up those thoughts and consenting adult reservoir engineers can agree on the interpretation ......perhaps a deal can be done sooner than some think?

I am also interested to see that the ML piece on the deal headlines it as an "opportunistic acquisition of distressed stake" ......which goes a long way to explaining the things which seem to be confusing some posters elsewhere.

ee

Analyst comments quoted in the Grauniad if you want a chortle  ;-)

While the NPV discount rate is compelling because a NOC can borrow more cheaply (unless they are Greece :-) ) I think it is a mistake to change the discount rate in this way and they argue that stock A is cheaper than stock B on a discounted basis.

Since the industry standard is NPV10 then we should apply this to all stocks before comparing them on a value basis. It makes little sense to make an NPV8 calculation for say Coastal Energy and then use NPV10 for Soco. Since it is comparative value is what matters since a NOC can spend its dollars on a choice of companies to fulfil its future oil requirements it is important to keep a level playing field.

In any case it isn't just NOCs that can borrow money cheaply. Large integrated oil companies like Shell, Total, BP all have access to money markets at very low borrowing costs at the moment.

Log

GS sector note today, upgrading SOCO International (LON:SIA) to a buy.

Interesting to see that they are latching on to one of the valuation aspects I've been battering on about re the M&A theme, commenting on their screen criteria:

Our analysis suggests that large, oily assets are attractive to NOCs that are willing to pay premiums to equity market valuations. Buying companies with significant value in these types of assets therefore offers exposure to an NOC / equity market discount rate arbitrage

....ie......NOCs cost of capital is way below the rate at which equity markets discount future cashflows (a point made many times previously and worth a substantial premium on its own). They have 94p in their 472p price target for:

a valuation of the company with its TGT asset valued at an 8% discount rate to reflect our view of the strategic nature of the asset.

....which still factors nothing in for reserves upgrades, it would appear.

Even though they downgrade their price target to 472p as a result of updated assumptions re the TGT production profile, they say:

we believe the risk/reward on the stock is skewed to the upside with the recent share price weakness providing an attractive entry point. Since our last sector update dated December 6, 2011, Soco has underperformed the E&P sector c.20%, which we believe has in part been driven by the slower than expected ramp-up of the TGT field offshore Vietnam and the company’s low levels of exploration activity confirmed for 2012 versus its peers. Despite this, we believe Soco screens attractively on a core value basis, offering 42% upside. We remain positive on the TGT asset and see no reason why the field cannot ramp up to forecast rates later in 2012 which we believe will have a positive impact on the shares.

For those who like ratios, they have a forecast PER for 2012 of 4.1x (3.1 for 2013) and a FCF yield of over 20% in both years.

ee

ps....reading the details further, it seems that it was Goldman who have hitherto had the 2012 EPS forecast of $1.61 per share (per the FT lists above somewhere). They now go for $1.09, having recognised that 2012 production will be capped by FPSO capacity.

Hi ee
Yes I saw that and I do feel the market has been a little unfair and priced the stock down but that's life really. I don't expect too many people to see through the words in the AR and spot the opportunity. They see words like "complex" and assume the company is making excuses for lack of production ramp up.

I have found that when a company fails to deliver the mustard in terms of promises it has made no end of reasonable, or otherwise, excuses can help the stock price. What will make a difference is an RNS stating increased production or a field upgrade. Until then I'll be buying dips.

Log

The 100% bonus issue is a non-story while directors own so much of the stock. Never nice to see them pat themselves on the back while not actually delivering on targets they set themselves and while the stock price languishes. However the stock price falls will hurt them a lot more than clipping their bonus by 20% as ee suggests.

The market is obviously concerned that there are problems at TGT and to be honest there may well be despite prominent posters here stating all is well. I don't think the market will like it if we are looking at 2-3 years before TGT is up to full steam and to be frank there isn't much else to get that excited about.

Log

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=20020654

Soco International: Nomura cuts target from 400p to 392p, buy rating kept.

no more detail, anyone seen the report ?

cheers K

yes probably right, good to have as an option plan c though, I'm worried that there won't be enough interest to get a good price or that PV are positioning themselves to get SOCOV for a snip, (or maybe just being conservative for their own reasons), and this meaning we can't get the best price for the Vietnamese assets.

I have been giving this production thing some thought, I can understand that PV are concerned about overall recoverable rates, that's all well and good. I could understand if the debate was about whether to produce more quickly from the same zones, but if it's about opening up new zones, (and we only have 7 out of 50+ producing), I cannot understand the argument about not perfing the other zones gradually ? Surely this would in effect be reducing production from the current zones and helping keep pressure higher ? and therefore eventually higher recoverability rates ?

K

Good to see this kind of note from brokers,

Interesting suggestions re the Cairn IPO issue, I wonder where they would float SOCO vietnam, Is vietnam an option ?

Good to see there are other options if a compelling sale price cannot be achieved. A reserves upgrade would make the potential price range narrower, but I know you've speculated this might not happen until a deal is done,

K

I should perhaps mention here that JPMorgan yesterday produced by far the best and most comprehensive note on SOCO International (LON:SIA) that I've ever seen from them. The note runs to 12 pages of discussion about valuation and covers all the various valuation points that I have been banging on about for years.

Amongst other matters it discusses the read-across from Conoco/Perenco and (importantly for the sceptics ;-)) lists 10 potential reasons why the market might ignore the implications. It also discusses the various corporate finance alternatives for unlocking value.

I'm not going to quote extensively from it, as I think the whole note deserves to be read by anyone interested (but I am not in a position to provide copies - so please don't ask). However, here are a few snippets:

Value of Vietnam obscured by reinvestment strategy -
asset restructuring + return of capital potential solutions

We highlight the large mismatch between the implied value of SOCO
(392-679p) using the transaction multiple from the recent ConocoPhillips /
Perenco deal ($20/boe), and the market valuation of SOCO (329p). We
also consider whether a Cairn India style partial IPO of SOCO Vietnam
and a return of capital could rerate the shares. Using a 2012E EV/EBITAX
multiple of 5.9x would imply a core NAV of 547p. We acknowledge that
SOCO suffers from a lack of exploration catalysts in 2012 and TGT
reserves uncertainty; it also faces bureaucratic challenges in Vietnam. We
believe the valuation is attractive and corporate finance solutions exist to
address the discount. Thus we retain our overweight stance.....

....we believe the (Perenco) transaction underscores that
Vietnamese assets can crystallize value far in excess of relatively conservative NAV
estimates which typically drive share prices in the UK E&P sector. Even assuming
the lowest reserve guidance of c250 mmboe, results in a higher implied core NAV
than ours when based upon the $20/bbl transaction multiple (392p). At $20/bbl, the
implied core NAV ranges from 392p to 679p, based on the low and high case reserve
scenarios for TGT of 250-500 mmbo (gross, conservatively not giving any value for
the sales gas which is expected to peak around 30 mmscfd)......

....we believe SOCO's valuation remains compelling
on all metrics - NAV, transaction read through EV/boe metrics and cash flow
multiples.

Either things will play out along the lines that I (and JPM, more recently) have been expecting, or they won't......but we will find out in the next few months IMO.

ee

"Good to see that the Chronic hasn't lost its touch."

I hate to say it but they were actually pretty good on their last call. I suspect they were right for the wrong reasons but they did call the share price much lower then and it did indeed transpire to go lower.

Just saying that's all !

There are 2 positive analyst reports on TMF, price target around £4.

They must be fans of DJ! ;-)