This thread is intended solely as a place to discuss analysts' notes on SOCO.
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I see Citi have changed their rec and target for Soco today.
Now a Hold (from Sell)
Price Target 1635p from 1260p.
Bout time too.
In reply to djpreston (post #35)
Maybe they've read UBS's pre-Christmas note I mentioned in post 32 ;-)
Here's some commentary on Citi's note, from the newswires:
Citigroup upgrades Afren (AFR.LN) to buy from hold, and raises its target price to 120p from 103p. Says "future value creation is premised on reserve additions at Ebok-Okwok, exploration drilling outside of Nigeria and entry into new assets." Also upgrades Cairn Energy (CNE.LN) to buy from hold, and raises its target price to 420p from 274p. Says fast-tracking the multi-well exploration drilling program in Greenland makes Cairn its preferred play on frontier exploration in '10. And finally upgrades Soco International (SIA.LN) to hold from sell, and lifts its target price to 1635p from 1260p. Says "acknowledging material exploration potential in '10, the ongoing financing risk surrounding its convertible bond and an uncompelling valuation prevents a more active rating."
Perhaps trying not to look too silly. ;0)
In reply to marben100 (post #37)
Perhaps trying not to look too silly. ;0)
....not trying very hard though!!!
They have an unrisked explo upside figure of £23.72 (plus core etc etc.....ie this is just the upside figure!).....but they have only included 192p of this in their risked valuation - which implies an average risking of a mere 8%!!
In contrast their risking of Dana's explo upside is 17%, Cairn's is 25%, Afren's is 28% and Tullow's is as high as 42%!
And that isn't all - because their unrisked upside figure of 2372p seems to include only 86p unrisked for TGD [the difference being explained by the fact that they have 630p unrisked in for each of three Nganzi prospects].
I'd be completely certain that this isn't the way the company sees things - and it isn't the way I see them either! That said, though, Nganzi continues to sound very good indeed! ;-)
ee
Morgan Stanley takes a more positive view today:
Morgan Stanley upgrades Soco International (SIA.LN) to overweight from equalweight and adds the name to its preferred list. Increases price target to 1800p from 1575p. The bank cites several factors including the fact that the company is one of the names most leveraged to drilling activity this year and funding concerns appear overdone. Morgan Stanley also thinks the valuation is undemanding. Morgan Stanley says in '10 Soco will either be successful with its ten-well exploration and appraisal campaign or management will sell its core assets in Vietnam. Either outcome should create shareholder value. Shares closed Monday at 1395p.
Not sure why the suggested outcomes are alternatives. ;0)
Cheers,
Mark
In reply to marben100 (post #39)
This Morgan Stanley note is considerably better than their alarmingly superficial efforts in the autumn, especially in regard to the areas I specifically criticised at the time eg http://www.stockopedia.com/comment/view/33063/re-interim-management-statement ....though they still misrefer to the well at E/TGD as an HPHT well [ it isn't, though it is somewhat more highly pressured than "normal" - HPHT starts at 10,000 whateverthepressuremeasureis units ;-)]
Adding SOCO to preferred list:
Four reasons underlie our upgrade to OW: 1) It is one of the most leveraged
names to drilling activity this year – a 10-well campaign
could more than double the share price; 2) Funding
concerns overdone – c.$300m of liquidity leaves it well
placed to meet a potential put on its convertible, and
capital raising constraints for E&Ps have eased in recent
months; 3) crystallisation of value through a sale of
Vietnam and/or Congo towards the end of 2010 and into
2011 now looks more likely; and, 4) undemanding
valuation – it is the only name in our coverage universe
trading below core NAV at the forward curve.
None of that should have come as news to anyone who was paying attention after the interims, other than the point about it being a bit easier for E&Ps to raise money.
They also say re TGD:
....this 100mb prospect is material in its own right but
also has the potential to de-risk a much larger fan channel
structure on the block. The upside from this channel is c.1
billion barrels of recoverable reserves in the upper reservoir
alone and is currently not included in our base case NAV. In
the Democratic Republic of Congo, the three-well Nganzi
exploration campaign is due to kick-off in Q3, albeit this could
be accelerated into Q2 and could potentially add c.50% of the
current share price unrisked whilst the four-well Te Giac Trang
appraisal program (Vietnam) in Q3 and Q4 could add another
c.40% of the current share price unrisked. We have previously
highlighted that reprocessing of seismic on Block 16-1 and
interpretation of the data indicates that the crests of the TGT
fault blocks are further east than originally expected
There's a nice graphic on the bigger TGT area, by the way. But the important point to note from the above is that they have FINALLY grasped the significance of the TGD fan channel* -even if they have yet to include it in their base case NAV!
*See here for my comprehensive explanation of the fan channel and other prospects below - from as long ago as last June!!!! ........ http://www.stockopedia.com/forum/view/29425/hpht-appraisal-area
ee
In reply to emptyend (post #40)
HPHT starts at 10,000 whateverthepressuremeasureis units ;-)
I thinlk what you're trying to say is; based on the definition of HPHT that arose from the Cullen report, yer well wants a BOP rated to 10,000 psi. and then we'll call it HPHT :-)
they have FINALLY grasped the significance of the TGD fan channel*
Hum. Do you think the JPMorgan note is an 'intermediate,' thus allowing themselves to move gracefully on track with another in a few weeks time..?
*See here for my comprehensive explanation of the fan channel and other prospects below - from as long ago as last June!!!! ........ http://www.stockopedia.com/forum/view/29425/hpht-appraisal-area
A thread well-worth a brief review, IMV
SW10
In reply to SW10Chap (post #41)
Hi SW10,
at you're trying to say is....yer well wants a BOP rated to 10,000 psi. and then we'll call it HPHT
Yup - thats it. AIUI this well is more likely to be around 6-8,000 psi and therefore below the HPHT threshold.
Do you think the JPMorgan note is an 'intermediate,' thus allowing themselves to move gracefully on track with another in a few weeks time..?
Yesterday's note was from Morgan Stanley, but I'd say that I don't think that saying "the investment case has been largely neglected and the shares offer one of the best risk-reward profiles in the group – SOCO is the only name trading below our core valuation. With financing concerns overdone, in our opinion, we advise building positions now" and moving to overweight the stock, making it a "top pick" in a sector they rate as "attractive", is any sort of holding position.
As you implicitly note when you say :
........ http://www.stockopedia.com/forum/view/29425/hpht-appraisal-area
A thread well-worth a brief review, IMV
...there is plenty more potential upside that MS have yet to take into account in the HPHT appraisal area, but I'm not expecting that to start appearing in analyst valuations until after a successful well on TGD.......though, when/if it does, there's a good chance that it'll knock peoples' socks off, for reasons that should be amply clear from that thread header!
ee
On alphaville today: http://ftalphaville.ft.com/blog/2010/01/19/129311/the-worlds-top-280-energy-projects/
The world’s top 280 energy projects
Posted by Izabella Kaminska on Jan 19 14:10.Here’s an exhaustive view of the energy projects that are likely to change the world according to Goldman Sachs...
...Now, it’s worth noting that Goldman thinks smaller companies invested in these assets could be prime acquisition targets in the future.
And, having screened the companies according to size, viability, materiality and growth, it identifies the following possible targets:
On this basis, Tullow, Soco, Cairn India, OPTI (not covered), Hess, Heritage, Nexen and St Mary Land & Exploration (not covered) screen attractively...
My only gripe is that the term "energy projects" seems restricted to hydrocarbons... ;0)
Cheers,
Mark
Here's a summary of the latest from CS, from the newswires:
Credit Suisse raises Soco International (SIA.LN) target price to 1237p from 1208p. This comes after the company placed 7.23 million new shares with investors at 1410p to fund its '10 financial commitments. The brokerage says the shares were placed at a premium to its previous NAV, and this warrants the target price increase. "Short term, there is appetite for exploration but long term, we remain underperform...we think there is lack of diversity in the exploration portfolio."
"lack of diversity"? What planet are these guys on? :0)
Cheers,
Mark
I think they are on Planet Tullow!
Obviously, relative to BP, Shell, BG and Tullow there is a lack of diversity. OTOH you can't have big positions in strategic projects at the same time as diversity - not if you are outside the FTSE100 anyway!
Of course it wasn't, in fact, Tullow's diversity that got them where they are today - it was having some big positions in a couple of promising areas like Ghana and Uganda. But these days I think that the bearish analysts will frankly write any old rubbish to justify their calls. CS only took their stance back in August, on the view that two-thirds of the potential 12 month upside was in the appraisal of E.......
....which is pretty ironic considering the sort of numbers that other analysts are now flagging for Nganzi (even with a farmdown assumed).
cheers
ee
The brokerage says the shares were placed at a premium to its previous NAV, and this warrants the target price increase.
So they're increasing their target price because someone else thinks it is worth buying the shares at more than their NAV???
Not exactly a ringing endorsement of their ability to understand the company...
Buffy
Interesting to see that Blackrock appear to have taken about 1 million more shares in the placing:
http://www.investegate.co.uk/Article.aspx?id=201001220700149565F
....and now have over 12%....12.63% if you lob in their convertible and CFD positions.
You'll recall some on ADVFN suggesting that the Barclays/Blackrock deal might have led to a reduction - but instead we have an increase.
ee
BOA ML note out today. Good title - "Ready to Crystalise value - Buy"
Interesting subtitles:
Ready to kick off active drilling campagin - TGD risk reduced.
TGD referred to as key and vital to declare commerciality of the field...."its success would start derisking the c1bn bbl upside that TGD offers.
M&A to follow?
Clearly 2010 is a make or break year for Soco and we now see all the ingredients in place to take the company to the next level. We believe that once the uncertainties around the TGD field start disappearing, Soco coudl again become one of the most serious M&A candidates in our coverage.
Raising NAV by 103p
Assumes a better chance of success in TGD (=189p) offset by placing dilution (-65p) NAV to 1850p.
In reply to djpreston (post #48)
Bit of a shame that the note doesn't break out their risk assessment of TGD that prompted them to say
Raising NAV by 103p
Assumes a better chance of success in TGD (=189p)
...in contrast they DO note their Nganzi valuation (as 30p risked, 305p unrisked.......which is clearly assuming a big but unquantified farm-down.)
ee
In reply to emptyend (post #49)
...in contrast they DO note their Nganzi valuation (as 30p risked, 305p unrisked.......which is clearly assuming a big but unquantified farm-down.)
It's probably a bit facile, but if the 1:10 risking is based on the company's own 20% per well risking (implying roughly a 50% CoS in one or more of the 3 wells) then the remaining 'drop' could reflect a 50% farmout + a lot to spare. If they were using a 10% CoS per well then the figure implies almost exactly a 50% farm out. As I say, a bit facile!
AA
In reply to AbAngus (post #50)
Hi AA,
It's probably a bit facile, but if the 1:10 risking is based on the company's own 20% per well risking (implying roughly a 50% CoS in one or more of the 3 wells).....If they were using a 10% CoS per well then the figure implies almost exactly a 50% farm out. As I say, a bit facile!
Its anyone's guess, really. However, if I was doing the analysis, I would be starting from an assumption that one might discount any company's CoS a bit.....so if they say ...as they do....20% (which, in fact, I believe to be a fairly conservative number based on what has been said to me about how positive the technical team are about Nganzi....and therefore probably includes a discount already to reflect the fact that the basin is undrilled), I'd probably use something like 15% CoS.....
....and then there is the question of how much they will retain? .......It is completely clear from the conference call that they will be retaining operatorship and a MINIMUM of 40%. It would be my guess they'd aim to retain 50% (versus 85% now - so farming down about 35%) and give themselves the option of a further farmdown later on better terms.
And then the question is: how much might it be worth per barrel, when one takes account of the fact that it requires a "mere" 100km of pipe to the coast, all within one country? I'd think $5 per bbl is perfectly reasonable for now.......
......so......$5x600mn = $3bn........and 50% of that would be $1.5bn unrisked or $225mn risked at 15%
Shares out now total 82,623,820 (after the placing but net of Treasury shares)......so that would be 272 cents per share risked....or, say, 169p at $1.61=£1. Using the same exchange rate would give 1128p per share unrisked.
In practice, of course, it is perhaps unlikely that three geologically distinct plays would all come off and we would see a 1128p per share outcome. OTOH, there are other prospects to be derisked.
In sum, it doesn't seem unreasonable to me to think of a risked (aka mean expected) value of about 169p per share......though of course the outcome could be anything between zero (less than zero, given that the wells will cost around $30mn net to SIA with 50% retained) and £10+ per share
For comparison:
Merrill go for 30p risked, 305p unrisked (today's note)
JPMorgan go for 111p risked, 810p unrisked (today's note - assuming a farmdown to 42.5%)
MStan go for 89p risked, 717p unrisked (prior to last week's events)
Citi go for 57p risked, 1890p unrisked (ditto)
UBS go for 124p risked, 1242p unrisked (ditto - but note this also assumed only two wells of 150mn, whereas we now know the campaign should be targetting twice as much!)
....and, based on the above (since my unrisked numbers are pretty well in the middle of the pack but my risked numbers are at the high end), it seems to me that there is some significant scope for SOCO to surprise on the upside with Nganzi, since I think the street as a whole is risking the prospects there too conservatively!! I imagine that they'll get a better grip on it as drilling approaches and the identity of any farminee is revealed - and I'd expect them to start raising their risked valuations.
ee
In reply to emptyend (post #51)
In practice, of course, it is perhaps unlikely that three geologically distinct plays would all come off and we would see a 1128p per share outcome. OTOH, there are other prospects to be derisked.
...
That raises an interesting statistical point. If each well has a 15% CoS and they are statistically independent (as stated in the conf. call), that means that the chance of at least one well succeeding is ~40%.
In reply to marben100 (post #52)
Sadly, that's not the case Marben. Otherwise 10 wells with a 10% COS would guarantee success!
Buffy
In reply to thebuffoon (post #53)
Buffy, you obviously didn't study probability theory at school! 10 wells with a 10% COS would give "only" a 65% chance of at least one well succeeding.
Regards
Impvesta