Analysts reports

-->

6th Aug '09 by emptyend

736 comments 241847 reads

This thread is intended solely as a place to discuss analysts' notes on SOCO.

Unlock with Email

Unlock with Google

Already have an account?
Login here

About the Author

Emptyend

Premium Member

736 comments

Isaac

13th Feb '12

......in the case of SOCO International (LON:SIA) I'm not expecting there to be the same sort of pre-deal rumours in the market beforehand - hence staying long and merely waiting.

Well I don't agree with Soco's approach. Soco could release a trading statement indicating the avg production for Q4 & indicate if there is likely to be a reserves upgrade. The City can then use this updated info in their models & assess whether & how much value there is likely to be in Soco.

The institutions can then shift their focus on buying Soco shares, the general markets are going up because the big boys are buying. So the time to release any good news is NOW IMO. Soco can hardly get a bid on it's share price. The people in the City are'nt all thick, they just need the information to be spelt out...

It is much easier for an acquiror to convince their own shareholders to pay a 50% premium on a Soco share price of £4 rather then a 100% premium on a Soco share price at £3.

I remain to be convinced management understand how markets work.

emptyend

13th Feb '12

I am certain that management understand how markets work very much better than certain individuals here.

They also understand that the present market price is completely irrelevant to the price that would be obtained for control of the assets, because they have effective control of their share register.

That said, I firmly expect the results in four weeks time to go into very considerable detail on TGT production and reserves and, quite possibly, into the plans for TGD. It is clear that many of the City "analysts" are substantially in error with their forecasts (evidenced by the wide range) and there will be no excuse at all for that after the results presentation (not that there is any excuse now, IMO!)

The people in the City are'nt all thick

....mmmm....... I've worked there. I'm not sure you are right, especially on the equity side ;-)

What the City undoubtedly is is short-term and focused on the next quarter. And it is also over-reliant on analysts. It isn't the job of the company to help City idiots make money.

emptyend

13th Feb '12

Just on the Barcap note, I have now had a quick look. It is actually part of a sector piece.

Re SOCO International (LON:SIA) they have more than halved their 2011 EPS ...down to 16 cents per share....and have also cut their 2012 estimate to 60 cents per share. You can see from post 448 where this puts them in the range of forecasts.

They also say:

We also re-maintain our 3-UW rating on Soco, given the lack of exploration newsflow in 2012 and uncertainties on the production ramp-up of its key asset in Vietnam, the TGT field.....

Following more conservative assumptions on the TGT field due to the recent delays, we reduce our Price Target to 355p from 420p, and with and exploration portfolio lagging behind its peers in 2012, we reiterate our 3-UW rating.

Their 420p NAV estimate, incidentally, includes nothing for any of the assets other than CNV and TGT, partly because they removed the entire African upside from their NAV estimate (cutting it by 15p). "More conservative" views on TGT upside account for the other 42p reduction.

Remember that 16 cents per share EPS estimate for 2011....because in a few weeks time we'll have the opportunity to see just how accurate Barcap's understanding of the assets (production, reserves, taxation and cost recovery) actually is! I wouldn't be surprised if the EPS outcome was double their estimate.

Isaac

13th Feb '12

I am certain that management understand how markets work very much better than certain individuals here.

It is not easy for me to come to such a conclusion because..

a)It did'nt make any logical sense for the share division a year or so back

b)their reluctance to buy back shares at current prices

c)their reluctance to release a trading statement in the current markets

They also understand that the present market price is completely irrelevant to the price that would be obtained for control of the assets, because they have effective control of their share register.

Again, I reiterate..It is hard to share this view when the management seem shy about buying back shares at the current price.

If your generating $2m+ daily then why is it difficult to buy back shares using ay 10-20% minimum of that cashflow? There is hardly a lack of cash so it is hard to share the view that :They also understand that the present market price is completely irrelevant to the price that would be obtained for control of the assets.

Maybe the management think the company is worth say £3.50? Who knows. Their actions certainly does'nt make one think otherwise.

That said, I firmly expect the results in four weeks time to go into very considerable detail on TGT production and reserves and, quite possibly, into the plans for TGD. It is clear that many of the City "analysts" are substantially in error with their forecasts (evidenced by the wide range) and there will be no excuse at all for that after the results presentation (not that there is any excuse now, IMO!)

I am not convinced the City will pay much attention to the results as next month there is hardly a lack of results publshed to the Investment community. They will have plenty to look at. Soco probably won't even be on their radar.

So whilst the analysts are 'less busy' I think there is a strong case to release a trading statement asap in the current bouyant markets & focus a few minds to pay attention when the results are published.

Also by releasing a trading statement I think Soco will get a re-rating. The Analysts can pencil in their diary the Soco results date and plan well ahead to attend to results presentation.

I just get the feeling the management have 'given up' on the City analysts. I think that is the wrong attitude as whether we like it or not we need the big boys to buy our shares, it is the City that will move the price....atleast until an acquiror comes along.

It isn't the job of the company to help City idiots make money.

It is the Job of the directors to ensure the share price is inline with fundamentals as well as Operational responsibilities etc.

I think it is disappointing, the lack of progress in the share price in recent weeks and management should look to address it IMO.

emptyend

14th Feb '12

Companies sometimes issue pre-close statements but they never issue trading statements within two months of publishing their results.

a)It did'nt make any logical sense for the share division a year or so back

The share split made sense. If they had subsequently been successful at TGD, the old shares could have been over £40. Granted that, ex-post, there seems to have been no particular reason for it....but we don't know all the facts - and it doesn't do any harm (witness the repeated splits over many decades from many of the FTSE100 constituents).

It isn't the job of the company to help City idiots make money.

It is the Job of the directors to ensure the share price is inline with fundamentals as well as Operational responsibilities etc.

....err....no it isn't! It is the job of management to increase shareholder value. That is NOT the same thing as increasing (pumping?) the share price. It is a fact that management influence over their share price is very much weaker than those who aren't involved in running companies imagine it is. Usually this means that the shares trade at a discount to what management think they are worth - but sometimes it works the other way (such as Gulf Keystone Petroleum (LON:GKP) at present, perhaps, or Rockhopper Exploration (LON:RKH) in the recent past?)

I am not convinced the City will pay much attention to the results as next month there is hardly a lack of results publshed to the Investment community. They will have plenty to look at. Soco probably won't even be on their radar.

I REALLY don't care whether they do or not. The only people who matter are those sat in majors/NOCs with a pile of cash. Even if the City ignore the results presentation, I can guarantee that interested parties in the industry will be taking careful note.

I repeat: it isn't the job of the company to help City idiots make money.

ps.....just for reference on these things, at the last public Dana AGM I had an interesting chat with Tom Cross about their languishing share price (c 1150p). Three days later, KNOC made their first approach and a deal was eventually done at £18. Remember also that SOCO are in a vastly stronger position to defend and achieve a full price.

kenobi

14th Feb '12

Personally I think management priorities should be focused on delivering the 55k barrels per day from tgt 1 and delivering tgt 2 asap, secondary deciding on a TGD strategy, and what next in africa.
It would be nice if the share price were higher, but my honest opinion is that the biggest issue is delivering the 55k in the first instance, as soon as they do this, brokers will revise up their forcasts and hence targets. I know some people think this is a formality, but it was a target for end of 2011, now we have a target to come up with a plan to do it 3 months later. this has to be delivered. Lets not worry about briefing the market as to why it hasn't been delivered, just deliver it and let the numbers speak for themselves. As long as they don't, there will be the risk that there is a hidden issue and that they can't.

Cheers K

emptyend

14th Feb '12

As long as they don't, there will be the risk that there is a hidden issue and that they can't.

*as per all the test results

Of course there is a small residual risk that production won't settle out at 55k. It might be 54k or 57k. But that isn't material in the context of a further 40k bopd coming on later in the year.

As you say, let the numbers speak for themselves.

kenobi

14th Feb '12

Small correction re that comment. As long as they don't, the market will certainly fret. However, there is no real risk that they cannot deliver it - it is simply a matter of perfing the most productive*

Yes sure, you are probably right, I'm looking at it from the point of view of the analysts, who deal in facts and numbers. If the flow rates are lower, the production and eps is lower. So yes, great that we could produce more, but really 3 months to agree a plan to perforate the other sections ? Its no wonder if some people are questioning why it's taking so long. how much production data do we need from the open zones ? I hope we'll hear something soon. It was an outstanding job to get TGT production starting within days of target, we were told they'd be taking it slowly and building up to 55k and beyond, in a we may well over deliver on this target. Unfortunately they have failed to hit these "easy" targets, and given no real explanation as to why it's taking so long, if it's just a question of opening new zones then why can't we agree when it will be done, rather than set aside 3 months to come up with a plan ? I am not surprised that the market reaction has not been good.
I find it astonishing that we're debating whether they should issue statements about production, NO they should not they should hit the targets they've set, and if that means negotiating it with PV and getting it done, then fine. I'm in no hurry for them to do a deal, but once we get up to full flow, then we'll be looking for 6 months production data on the new zones, so lets get this in the can, and the oil flowing at full speed so we can tweak flows at the higher levels.

cheers k

PS sorry if I sound grumpy, but this sorting out the flow rates, whether it be a technical or political issue is the number one thing they could do to out value in my opinion. It sounds so simple, but frustratingly seems to be taking so long!

K

peterg

14th Feb '12

Hi K,

PS sorry if I sound grumpy, but this sorting out the flow rates, whether it be a technical or political issue is the number one thing they could do to out value in my opinion. It sounds so simple, but frustratingly seems to be taking so long!

I don't think there's much doubt that management also feel frustrated over the flow rate issue, or that it is one of their main areas of attention, if not the main one, at present. The prelims presentation should clarify a lot of this. The time that I will start to feel frustrated (or perhaps in truth more frustrated) and altogether less happy is if the prelims fail to clarify things re the flow rates. However, I don't expect to hear anything substantive before them, and I'm as happy as I ever am sitting on my hands till then.

Unlike our CEO in waiting, I can really see little point in getting worked up about it at this stage, or expecting significant news on the issue in the next month.

kenobi

14th Feb '12

The time that I will start to feel frustrated (or perhaps in truth more frustrated) and altogether less happy is if the prelims fail to clarify things re the flow rates

Yes perfectly reasonable, it's about a months time, I think you mentioned, and by then we'll be 2.5 months into the 3 months they promised us a plan by, so it would be good to have a solid plan with dates by then. I agree that this issue must be causing the management all sorts of hassle. I know someone (you?) mentioned it could be to do with PV management "gaming" their production targets, but as far as the wider market is concerned this is an unknown, a risk. Obviously SOCO cannot publically announce that PV are holding up production to get better bonuses next year, that might damage the working relationship. But that leaves us in the situation of not having a clear reason. Hopefully as you say, we'll get something definitive by the prelims , which will perhaps put these issues to bed. The ideal would be to have production up by then, I dare not dream that this will be the case !

emptyend

14th Feb '12

we were told they'd be taking it slowly and building up to 55k and beyond, in a we may well over deliver on this target. Unfortunately they have failed to hit these "easy" targets, and given no real explanation as to why it's taking so long

I have huge sympathy with management on this one. They know perfectly well that the reservoir can deliver 55k bopd - and they seem to have made the not unreasonable assumption that all the partners would be equally keen to profit-maximise after production start-up. That seems not to have been a sound assumption!

I see plenty of examples of investors blaming management for things that are really not within their control - and I see plenty of examples where partner (or contractor) decisions screw things up for the companies concerned. Look no further than the plastic created by the decisions of the mud engineer at TGD-1X, or the BP debacle in the Gulf, where partner refusals to pay cash calls led to BP having to liquidate more assets than were theoretically necessary. In SOCO's case, if a major partner in the JOC changes their mind and doesn't want to proceed at the same pace as they originally agreed to, then that puts the company in a serious PR bind. They know perfectly well it isn't their fault - but the market remains unsure (or, even worse, convinced that the perceived problem is 100% down to the company!).

Never rush to judge a management just because they are a party to joint decisions with which they may not have agreed. Its like being in a coalition government - you can't get everything you want or even everything that you might reasonably expect.....but, unlike the example in politics, there is unlikely to be any upside in highlighting the party responsible for the actual problem.

ExTownie

14th Feb '12

Whether the production delay is down to some property of the reservoir or a difficult partner, it doesn't seem that unreasonable of the market to treat these as similar problems since both of them could limit production for years to come as far as we know. If this is some game that PV are playing, do we know when it is no longer in their interest to continue with it?

Thanks

ET

jseth123

14th Feb '12

"both of them could limit production for years to come as far as we know"

Indeed, surely an uncooperative/uncompromising partner lowers the appeal of the assets to a buyer. Bringing the more productive zones on stream ASAP really is the kicker IMO, whether that's Soco's decision or the JOC's...

emptyend

14th Feb '12

Whether the production delay is down to some property of the reservoir or a difficult partner, it doesn't seem that unreasonable of the market to treat these as similar problems

Just to be clear, I don't have a problem with the market waiting to see what happens. At the end of the day, production isn't as high as expected - and that feeds through to earnings etc.

However, it is completely wrong to regard them as "similar" problems. In the case of problems with reservoir, the chance are heavily skewed towards that having a long-term impact - and it is probable that the situatuion cannot be completely resolved. In the case of the present hold-up, though, there is no reason at all to think it is anything other than a short-term delay....and one that will completely disappear when the zones are perfed. The only impact will be that the start of plateau production levels will be delayed by a few months - and the end of plateau production levels will be delayed by a similar amount. Net effect? A few years delay in receiving a chunk of cash. Far from the end of the world, especially if oil prices continue rising.....

and re

surely an uncooperative/uncompromising partner lowers the appeal of the assets to a buyer.

...there is no such thing as a perfect partner. Partners that are too small may have problems funding cash calls (and so may defer work) and partners that are too large may not find the project attractive enough to prioritise at the same speed as one might wish. In the case of TGT, SOCO is partnered with two of the larger regional NOCs....which is probably as good as it is going to get for partnership arrangements in that region! Good partnerships usually involve a bit of give and take, even if that might be painful for short periods.

swiper

16th Feb '12

Apologies if I have fallen asleep at the back of the class (I think it was during the "Should the Soco management resign from the Board?" thread) but what is the basis for believing the production delay is down to PV, and that there are no other issues?

TIA

emptyend

16th Feb '12

Management confirmation about reservoir capability.

See the slide 10 in the recent MacQuarie presentation, showing the phased perfing plan, which makes plain that there is substantial unperfed capacity.

flyinghorse

16th Feb '12

I could be wrong but one possibility is that the delay in comingling the 2 zones is for confirming reserves volumes in each separate system. However there is no statement saying this is what they are doing.
Could a potential buyer have requested this information,or it may be reserves auditors working on bookings?
Reserves booking these days under PRMS are certainly very strict when stating a 90% liklihood of being produced(P90) so getting data is no bad thing(as long as its supportive!)

Once production is comingled this will be difficult to achieve with compelling certainty.

At the moment the volumetric's are based on geology (AREA/Thickness/Porosity etc) and limited DST,and longer term production & pressure connected volumetric calculations will (hopefully ) corroberate or improve on the earlier volumetric work.

Single zone production will allow material balance (Production vs pressure drop) to quantify the tank size,compartments and lead to reserves bookings.

emptyend

16th Feb '12

I could be wrong but one possibility is that the delay in comingling the 2 zones is for confirming reserves volumes in each separate system. However there is no statement saying this is what they are doing.
Could a potential buyer have requested this information,or it may be reserevs auditors working on bookings?
Reserves booking these days under PRMS are certainly very strict when stating a 90% liklihood of being produced(P90) so getting data is no bad thing(as long as its supportive!)

Once production is comingled this will be difficult to achieve with compelling certainty.

Yes - that is certainly a possibility. As you say, getting the data is no bad thing - though on balance I'd rather have had earlier production. I expect there to be a lot of detail on the data in the upcoming results.

I suspect that once the PV target was clearly met for last year, there was always a risk that they wouldn't bust a gut to add - but, as you say, better data on each productive horizon may not only lead to better production planning for the future but it might also lead to greater confidence in reserves estimates....which is obviously "quite important" in the context of a disposal.

swiper

16th Feb '12

That would tie in with Ed Story's "information gain" comment back in November

"We can get to 55,000 bopd. It's a very simple process but it really is a factor of the information gain," Chief Executive Ed Story said in an interview with Reuters on Tuesday

djpreston

17th Feb '12

Two new analyst notes out this morning from Cit and Boa ML

BoA ML rate as BUY with 498p objective.

Citi rate as BUY with 377p target

Both focus on the Perenco deal to buy Conoco Philips' VN business yesterday and the read through for SIA's VN assets.

Unlock the metrics for all these stocks and more...

Take a free trial

Facebook Twitter Youtube Instagram RSS

This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.

Unlock the metrics for all these stocks and more...

Take a free trial

Analysts reports

Unlock the rest of this article with a 14 day trial

About the Author

Emptyend

736 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...