This thread is intended solely as a place to discuss analysts' notes on SOCO.
In reply to emptyend (post #14)
Sticking with sector perform due to lack of newsflow after Marine XI (which they are negative on because....err.....everyone else has been rubbish at drilling in the shallow waters off Africa).
Presumably they're concerned about the sub-salt nature* of this play - or were they not more specific?
SW10
*Although it's not yer actual drilling that's a problem, more the seismickery stuff.
In reply to SW10Chap (post #15)
Hi SW10,
Presumably they're concerned about the sub-salt nature* of this play - or were they not more specific?
No they aren't.
Firstly the two imminent wells are NOT sub-salt. Though the rationale for getting into the block (and indeed the whole West African strip) was the sub-salt plays (due to the improvements with modern seismic) the S1 prospect is above the salt - as is clear from the interims:
The Liyeke well is targeting a Sendji prospect above the salt layer.
Secondly, they are perplexingly generic in their downbeat comments on the prospects in Marine XI, saying:
We are upbeat on the onshore exploration drilling
campaign in the DRC; it offers a classic combination of risk and reward – wildcat
wells targeting large structures. However, our support for SOCO's offshore
drilling campaign in the Congo is less fulsome. Historically our universe of
midcap oils has enjoyed limited success in the shallow waters of West Africa.
The province is mature and the acreage has been worked hard by previous
owners. As a new entrant, we believe SOCO needs to either 1) get off to a good
start – its well on the, ~100mmbbl, S1 prospect should spud imminently or 2)
find a new approach - management's decision to re-drill the Viodo discovery well
and recalibrate its seismic is a sensible approach to de-risking the structure and
analogous prospects. Premier's ongoing Frida exploration well to the southwest
could impact investor sentiment
....so I'd say my earlier summary ("everyone else has been rubbish at drilling in the shallow waters off Africa") was a pretty fair summary of their "rationale" ;-)
cheers
ee
In reply to emptyend (post #16)
Firstly the two imminent wells are NOT sub-salt... the S1 prospect is above the salt
Ah.I'm clearly not paying enough attention :-/
I see your point about the comments themselves and I think you've been polite in calling them perplexingly generic. I love the recommendation that they need to "get off to a good start." Bet management never considered that. Failing that of course, they should "find a new approach..." i guess this means they should take a different approach from previous cmpanies who have drilled in the area without success, though one does wonder why the two should be mutually exclusive... finding a new approach and getting off to a good start might be a good recipe!
What qualifications and experience are needed to craft these notes?
SW10
What qualifications and experience are needed to craft these notes?
I believe the only requirement is an employment contract with a house of some repute.....
....though if some of them carry on writing the sort of complete tosh* they've come out with this week then their house's "repute" will become iller quite quickly! ;-/
*RBC being far from the worst, AFAICS
Put another way, SW10, I'm completely certain that you and I could do a better job - at least in respect of companies with an exploration bias, such as SOCO.
cheers
ee
It seems to me that the shortcomings of analysts and their published research are of great benefit to private investors.
I have the impression that for the past 10 years I've been able to run ahead of the analyst consensus on the O&G sector in general and on a number of individual companies in particular - regarding both the long term trend and a number of specific event driven short term opportunities.
As a result I am much better off.
The last thing I want is for analysts to publish research and recommendations which enable large institutional investors to price E&P's correctly. I want lots of pricing errors so I can take advantage of them.
In reply to tournesol (post #19)
The last thing I want is for analysts to publish research and recommendations which enable large institutional investors to price E&P's correctly. I want lots of pricing errors so I can take advantage of them.
Though I know where you are coming from on that, if they are making (as they increasingly seem to be) systematic errors in failing to recognise the value of all the companies in your preferred sector, then you can only derive benefit from those errors once - which is when you first buy in. IMO these errors are also skewed within the sector - being smaller when valuing companies that have limited growth potential and larger when valuing companies which are active explorers. The consequence of that is that investors in such companies either have to wait for such errors to reduce (as wll happen as companies complete their exploration drilling programmes) or they have to resign themselves to either long periods of undervaluation or, alternatively, hope that the company's profile has a strategic fit with a potential bidder (who will look at ALL their assets on their merits, rather than arbitrarily ignoring those that require an investment timeline of more than 6 months).
Personally I am content to wait - but my MAJOR fear is that the companies I'm invested in will get taken out on the cheap by bidders who are looking at the timelines appropriate to the assets themselves, rather than the self-imposed timelines adopted by analysts (and the institutions)which treat events beyond the next 6-12 months as if they were never going to happen at all!
This is now a much bigger problem, IMO, than it was in 2006/7 because lower asset prices are prompting bidders into action - including unwelcome hostile bids. It is worse in companies where management share stakes are relatively small in relation to their compensation packages, because they are less likely to fight hard to maximise shareholder value in a bid scenario.
ee
In reply to tournesol (post #19) and emptyend (post #20)
It seems to me that the shortcomings of analysts and their published research are of great benefit to private investors. [tournesolf]
I certainly see the attraction of analysts being behind the curve so that we can buy-in atattractive prices.
you can only derive benefit from those errors once - which is when you first buy in. [ee]
I think this is the point - if you're watching a conjurer who you feel fairly certain is capable of producing five rabbits from a hat whilst the rest of the audience around you have read reviews saying he can only produce three, their opinions will remain lower than yours. It's only when rabbit number four is produced that their estimation will go up.
The question here is whether SIA will be bought out before the market believes that a fourth - and even fifth - rabbit can be produced. If so, the rating applied to our conjurer may be that he is capable of producing three rabbits, and maybe a string of silk hankies as possible upside. That would be a pretty disappointing outcome and so it's important that the analysts do, at some stage fairly soon, realize that the possibility of a 5-bunnier exists!
SW5+5
In reply to SW10Chap (post #21)
Nicely put.... :-)
Thats really why it is more of an annoyance for me than it was in, say, 2000-2005 when the analysts were also persistently behind the curve. The risk of M&A "on the cheap" is vastly bigger this time round.....as is being seen right across the sector!
ee
UBS have a sector note out today, which argues that the sector as a whole is "trading in line" with their oil price view.
It goes on to say that :
Our top sector picks are Tullow (M&A and exploration play), Dana (value and
exploration play), and SOCO (value and M&A play).
....and then they point out that SOCO's unrisked upside potential through to the end of 2010 is + 120%....much larger than Dana (75%) and the others in their universe (TLW,PMO, CNE, JKX). This is the first note I've seen that actually considers the relative upside through to 2010 and includes all SOCO's prospects (even if, IMO, it doesn't give full weight to the potential of the HPHT area, or even the fan).
The headline conclusion they have on SOCO is
Transformational potential for free
.....which says it all really....though the detailed comment is:
the key well to watch is the appraisal of the “E” prospect in 2Q 2010 which
could potentially be testing 1bnboe of upside. If successful, this well could
add c50% on the current share price and this transformational opportunity is
being offered essentially for free currently, in our view.
Oddly, they include only 650mn boe of this potential in their NAV (hence my comment above).
So.....UBS reckon that "SOCO is one of the best value opportunities in the sector" (based on discount to NAV) - AND they see the biggest upside in the sector. Whats not to like? ;-)
Nice to see analysts starting to wise up to the big picture situation, even if one may still argue with their NAV estimates.
ee
New note from MOST today following a meeting with management (Roger).
I suppose ee will be along soon with a summary. ;-)
In reply to djpreston (post #24)
I suppose ee will be along soon with a summary. ;-)
Might be longer than usual - some of us have work to do! ;-)
I'll just pick out a couple of bits:
Preliminary results from the reprocessing of seismic on Block 16-1 (Vietnam) by CGG Veritas may indicate that the TGT structure extends further east than previously estimated. Results have also gone through quality control and independent analysis by Netherland, Sewell & Associates......
.....the IMS by the end of the month.......management intends to host its first investor roadshow in the US in early December.
Actually it is a very brief note following their meeting, making no mention at all of (for example) the current interpretation of TGD. Perhaps the meeting took place in a lift? ;-)
ee
Citi have published a new note today with a sell rec on SIA. The gist of why they suggest this is that they don't expect much news over the next 6 months and they argue that SIA has "outperformed" in the last few months.....and so is vulnerable to profit-taking as year-end approaches.
Downgrade to Sell — Soco has outperformed the sector by c5% since the start of 2H09; in the absence of material newsflow, we argue Soco has been one of the main beneficiaries of sector-wide M&A speculation and the robust crude environment. Given an increasing top-down bias for the more defensive Integrated Oils over a fairly valued E&P sector, we believe Soco is one of the most vulnerable stocks under coverage to profit taking.
I could go into long and boring detail about the points I disagree with, but I'm not going to bother [and I suspect that the company have also wasted enough time today fielding questions over the inconsistencies]. I'll just settle for pointing out that they include only 68p per share for the UNRISKED value of TGD and remind people that Citi's services as corporate broker were dispensed with earlier this year......
They do, however, suggest that plans to farm down Nganzi are in the offing - but I am told that no firm decision has been taken on a farm-out and that it is far from certain unless some very high expectations re terms are met. It must make sense to test the market though, and see if there are any interesting deals available.
ee
I'd add that they risk the 12 month forward Explo/App campaign's CoS at an average 8.7%. That's ludicrous!!
No coincidence, of course, that the "research" should be published today. What better opportunity to push the price down when the market will be loaded with stops in relation to the Viodo well result ....and when it is the last day of the month and follows so soon after IG's reported (via Alphaville) margin changes that have affected margin requirements for mid-caps (especially big positions that are deeply in profit, apparently)?
The cynic in me thinks that someone somewhere will be backing up the truck to take advantage......
ee
well I just bought some more 10 minutes go....
...but nothing to do with the bigger picture you are alluding to..
;-)
Aparently today - Reiteration of Soco International by Citigroup to "sell".
Citigroup have given Soco International a recommendation of "sell", with a price target of 1260.
In reply to RedTedsRoadshow (post #30)
Hardly likely that they would reiterate something that they only said on Friday. What I am more interested in is when they will retract their error-strewn advice........ I'd guess they ought to do so after the IMS (as this should make plain that their timing expectations are completely wrong) but I would be unsurprised if they merely "go quiet" for a while! ;-)
ee
UBS has a pan-European sector piece out today, which has SOCO as one of its key buys for 2010.
They put the NAV at 1737p and say:
Wells to watch: “E prospect” 2010:
SOCO plans to drill the first appraisal well on TGD (E prospect) in Vietnam in Q1/Q2 10. The well should take c45 days to drill. The TGD drilling is the most important exploration drilling for SOCO next year as it is looking to prove 100mb (gross) of resource potential and also test down-dip potential, which could be very material (one billion mboe).
....so at least the penny is finally (very belatedly) dropping in some quarters!
In addition, they list the wells being drilled in 2010 and say that any one of the two Nganzi wells or the TGD well could add 30-35% to their NAV estimate (£6-7 per share each).
Of course we already knew that.....and we also know that, if anything, their estimate of the upside on TGD remains on the conservative side (since they don't include the full amount of the "down-dip potential" referred to in the text)
ee
In reply to emptyend (post #32)
their estimate of the upside on TGD remains on the conservative side (since they don't include the full amount of the "down-dip potential" referred to in the text)
Do they include anything for the "down-dip potential"? Or is it just a risked value for the first well?
Chris
In reply to antisana (post #33)
Do they include anything for the "down-dip potential"? Or is it just a risked value for the first well?
They include 72mmboe risked at 70% for the well itself, and 650mn risked at 30% for the upside element of derisking the fan......for a total of 263p per share risked or 773p unrisked.
If, of course, you take the 1bn figure from the text instead of the 650mn, then obviously you get rather bigger figures. And if you remember what Ed Story said in response to my question at the last AGM, you might be tempted to think that even the 1bn figure in the text isn't the whole story (.....see the detailed consideration of the potential value elements in the header of this thread: http://www.stockopedia.com/forum/view/29425/hpht-appraisal-area )
....worth pondering about - especially if one might be tempted into selling due to boredom and the apparent "greener grass" factor!! ;-)
ee
