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.

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Emptyend

Premium Member

736 comments

nigelpm

14th Mar '12

FWIW my own guesses for 2011 numbers are:

Revenue $314mn, EPS: 41 cents

This compares with the current 2011 analyst estimates from Ft.com:

Revenue: Consensus: $213.33, range $133-$308.87

EPS: Consensus 26.19 cents, range 12-61 cents

But of much greater interest will be what the analysts (and the market) make of 2012 and going forward.....so I'll be interested to see what their 2012 estimates are adjusted to after the results, especially in relation to NAV, bearing in mind JPM's comments reported in my previous post. Because, when all is said and done, it is the NAV which is important....along with what the industry's own estimates of that NAV might be.

By my calcs:

earnings : $88,593

Weighted shares in issue : 337,420

i.e. 26.2 cents

Consensus and market absolutely spot on!!

emptyend

14th Mar '12

Yes - I am in the middle of making that observation in a new thread on the results...which will take a while to post. As I said in the bit you quote above, it is more important what the market makes of the position going forward. More later.

loglorry

14th Mar '12

Will be interesting to read your thoughts ee. From my quick scan your predictions look to have been charactetistically overly optimistic. Looking forwards looks like more waiting and tgd unlikely.

nigelpm

14th Mar '12

The tax charge looks interesting to say the least.

I think that's partly where the likes of RBC have got it badly wrong.

emptyend

14th Mar '12

Results thread here. Lets keep this one for what "proper" analysts have to say.

[Good point re the tax rate Nigel. That is part of the story - but my own guesses were more down to an over-estimation of the entitlements % in comparison to the WI percentage. I was expecting cost recovery to be much faster than the 40% uplift to WI that has been reported....and indeed the company had indicated 50%+ as recently as January]

emptyend

14th Mar '12

These are Al Stanton's comments - and he also 'fesses up in line 1:

A material contribution from a new oilfield under new PSC terms tends to play havoc with analysts’ earnings forecasts, and SOCO’s first year of production from the important TGT field in Vietnam is no exception – 2011 earnings fell short of our forecast, but cash flow was in line. The pace of growth in production from the TGT field remains constrained by politics and the participants’ 55,000b/d production target has slipped into early H2/12. The field has produced 30,400b/d ytd.

Earnings: As expected SOCO reported a substantial y-o-y increase in production and earnings. At 40% the company's allocation of entitlement production from the TGT field was in line with expectations but the revenues of $234m beat our forecast materially. The associated cost of sales brought the subsequent numbers back into line with our expectations - operating profit of $157m and profit before tax of $158m. However, the company's tax charge of $70m exceeded our forecast, and EPS of $0.26 fell short of our estimate.

Cashflow: Some finessing is required to more accurately model the interaction of the fiscal terms on earnings; but post-tax cash flow of $130m was in line with our $139m forecast. Cash in hand at the end of the year of $160m fell below our $200m forecast due to a material build in receivables.

Production guidance: We expect management's 11am presentation to focus on the continued growth in production from the TGT field. The reservoir architecture is complex, but SOCO says the wells are performing in line with pre-drill expectations. The company today, however, flagged that there remain "alignment issues" with Petrovietnam over the rapidity of raising production levels. The field’s slower than anticipated build up in production appears to be political rather than geological. Management's objective is to achieve a field production rate of at least 55,000b/d by Q3/12, somewhat later than expected.

...though I see he claims to have expected the 40% uplift to entitlements.

You're right re the tax impact, Nigel....though the question is why.

Look out for the results presentation on the website later.

emptyend

14th Mar '12

Extracts from other notes:

JPM - Price target 420p:

management are reassured from well production data to
date that the upper end of the 300-500 mmboe (gross) range remains
valid. We adjust our core NAV down only 2% from 351p to 343p on
the back of a slightly lower cash balance. Although there is not much
in the way of exploration catalysts for 2012 (the programme still needs
to be defined), we believe SOCO’s valuation remains compelling and
hence reiterate our OW recommendation...

management remains prudent and would
consider giving cash back to shareholders rather in the event there are no
sensible other uses for the cash. We should get greater clarity around
SOCO’s 2012 exploration campaign and strategy in the coming months.
We continue to believe that once Phase II is commissioned, and the
reserves are further derisked, that TGT becomes an attractive asset for
companies looking to grow production and reserves at a compelling
valuation......

the aquifer support is stronger than expected meaning that full development of the
reserves may be cheaper as SOCO may need to drill fewer water injection wells than
initially planned, although full development of the field and surrounding undrilled
compartments is likely to carry through to 2016 given the complexity of the geology.

No change to reserves: Although we believe the market would have liked some
more colour on TGT reserves, given that only 7 out of 55 producing intervals have
been perforated it is still too early to commission a new reserves review. Thus,
guidance is remaining unchanged at 300-500 mmboe for the field but management
remain comfortable that the higher end is still attainable.

Difficult to argue the reserves point, given the 7/55...which is a new stat from today.

JPM's 2012 forecasts are now: Revenue $519mn, EPS 66 cents (rising to 78 cents in 2013)

Citi - price target 399p (base case NAV 444p):

Soco delivered FY11 net income of US$88.6m, 37% ahead of Citi expectations of US$64.8m.....

While we see fewer catalysts than at peers, we see Soco’s current valuation as attractive, trading at a 10% discount to our core NAV of 367p/share. We think delivery of the TGT development over the next 12 months could lead to a firmer valuation for the field and possible divestment of Soco’s Vietnam assets. If a sale is not forthcoming, we expect management to consider a distribution to shareholders from 2H12......

We believe it is unlikely that Soco drills a well on TGD, unless a farm-out is achieved.

No forecasts for 2012 yet from Citi, other than $300-350mn of operating cashflow.

BoAML - price target 498p (NAV 498p):

welcome clarity on the production outlook for the company. Production at the TGT field in Vietnam has reached 40kboe/d, demonstrating the deliverability of the reservoir. This should help to allay market concerns. [not sure whats new there, Ed] .......Management now aims to reach plateau production of 55kboe/d under
Phase 2 this Summer. Whilst this is lower than the productive capacity of the
facilities (c.90kboe/d), the fact that the TGT plateau could be sustained for longer
than we had anticipated means it has a neutral NPV impact.

The ongoing production ramp-up that is set to triple over the next 2 years renders
Soco hugely cash generative with operational cash flow in FY2011A of c.US$90m
set to triple by 2013E. As a result, management is contemplating the best use of
those proceeds. Given expected capex for FY2012E of c.US$175m, including a
likely c.US$25m on new ventures, it seems increasingly likely that, in the absence
of a potential sale of the company or the assets, a special cash dividend to
shareholders may be a likely scenario in 2H12.

Overlooked standout investment opportunity for 2012
Soco represents a standout investment opportunity in the E&P space, trading at a
highly unusual c.13% discount to its Core NAV of c.377p. Undoubtedly, historical
exploration disappointments at TGD (Vietnam) and offshore Congo (Brazzaville),
as well as premature anticipation of potential asset or company sale previously,
has adversely impacted share price performance. However, with management
delivering on the long-awaited production and cash flow growth story, we believe
Soco is a standout investment opportunity for 2012 and that the wide valuation
gap, trading at a c.35% discount to total NAV, should close in the coming months.

ML's forecasts for 2012: Revenue $535mn, EPS 57 cents

My summary:

It is interesting to see ML and Citi in agreement over cash return to shareholders starting in H2 2012 in the event there is no sale. This is also in line with my own expectations - and seems to me to confirm a preference for a clean disposal before that point!!

kenobi

14th Mar '12

It is interesting to see ML and Citi in agreement over cash return to shareholders starting in H2 2012 in the event there is no sale.

>> yes makes you wonder if they've come to this conclusion independently, or if they have been given a steer by the company,

swanvesta

14th Mar '12

It's hinted at in the presentation slide 45, the words "return to shareholders"?

MadDutch

14th Mar '12

Well, I jolly well hope it is a dividend which I can spend, and not a share buyback which I cannot!

MD

kenobi

14th Mar '12

I also wonder if some of this is for PV consumption,

we're planning to pay divi's in 2012H2, if we cannot sell at a price we're happy with,

we might not drill TGD if we don't think the returns are there, perhaps we won't be able to agree production levels there either ?

Hum, I hope the issues are resolved asap, but it's been running on for months now so little hope of that I would guess. Sometimes these things are fixed by people being promoted or moved out of the way,

we'll see,

K

MadDutch

14th Mar '12

Paying dividends does make a stronger hand in a negotiation for the sale of a business.

When the buyer tries to haggle a lower price, say "if you don't want our oil at our price, others do and our shareholders are very happy to get the money that would otherwise be yours"

Another reason why I hope they get on with the payments.

MD
Negotiating business deals for over 50 years.

kenobi

14th Mar '12

yes absolutely, if they can say well our shareholders will be happy to take divi's until we get an appropriate offer, that has to help.

K

emptyend

14th Mar '12

Paying dividends does make a stronger hand in a negotiation for the sale of a business.

Well you'll have noted that both you and I think they should be contemplating dividends from H2 - and, more importantly, Citi and ML say that this is exactly what they are intending to do.

So lets see what response that produces.

nigelpm

14th Mar '12

You're right re the tax impact, Nigel....though the question is why.

Glad those three years doing accountancy training actually paid off!

;-)

What was interesting was how I was compelled straight to the bottom line number and found it odd how wild RBC's EPS estimate was against their revenue estimate i.e. tax was the reconciling item!

kenobi

15th Mar '12

Well thats alright then, IC have chipped in, not a sell anymore,

the oil explorer, may make $200m selling its interest in a big find in Vietnam

http://www.investorschronicle.co.uk/2012/03/15/tips-and-ideas/share-tips/tips-from-the-press/press-tips-yule-catto-greggs-soco-international-SqlhFQsnb8D2uMFtkQNqYO/article.html

It worries me when they're not suggesting a sell, $200M where did they get that from ??

rhomboid1

15th Mar '12

Hi Kenobi
The IC appear to have missed a zero out..

emptyend

15th Mar '12

In fact the IC got the $200mn by not being able to read Tempus's column in plain English. What was actually said was:

The oil explorer started production last year at its most significant asset, the Te Giac Trang (TGT) field off Vietnam. Past form suggests that once this reaches an optimum, Soco's 30.5 per cent interest will be sold to a larger oil company to develop the field.

But such is the interest in explorers with proven assets that the company could attract a full takeover. If the interest in the field is sold the proceeds, and possibly some of the $200 million (£128 million) in the bank, can be returned to shareholders — Soco doesn't pay dividends.

Obviously the bit I've highlighted was considered to be irrelevant by the junior sub-editor's coffee gopher when he mis-summarised Tempus..... ;-)

MadDutch

15th Mar '12

This is not a fire sale!

If the TGT cash cow is worth only $200 million; then we had better forget selling, and enjoy the cash instead.

The problem is, we have told the world that we want to sell; and that puts us in a weak negotiating position.

Added later; Frankly, it is best to play "hard to get." If our partners think they can get our assets on the cheap, they will change their tactics when they see it is not working. MD

kenobi

15th Mar '12

To be fair MD,

Phillips Conoco announced they wanted to sell their share of the block next door, and although it took some months from memory, they seemed to have got a decent price. Tough balance on the one hand we have people saying they should publicly announce that the asset is for sale, on the other hand, you might get a better offer if you're not seen as too keen. The best thing that can happen is getting multiple parties interested and bidding up the price.

What worries me is that petro vietnam having expressed interest in the phillips conoco assets
http://online.wsj.com/article/SB10001424052702303812104576437633289287482.html
and not bought them, perhaps because price ? might now be manipulating the situation here to ensure they are able to afford these assets.

K

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Emptyend

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