This thread is intended solely as a place to discuss analysts' notes on SOCO.
Morning Extrader.
Not to worry. Tried the TMF link - works okay. Very strange.
Thanks for the link. :)
About the Author
Emptyend
736 comments
lightningtiger
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
Fangorn
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.
nigelpm
It's not a helpful comment - that was the closest reported comment I could choose.
Best to ignore people rather than inflame them.
redhill
Surely the appropriate reaction to an unhelpful comment is a red thumb? Reporting as abusive is more than a bit OTT.
nigelpm
It would in most circumstances but not when "18"! other people have given it the thumbs up. Astonishing.
emptyend
It would in most circumstances but not when "18"! other people have given it the thumbs up. Astonishing.
Lets see. The OP popped up in the early hours of the morning, apparently to ramp some unrelated shares and to suggest that directors had awarded themselves a 10% pay rise. Since the accounts from spring show a c.5% rise was awarded, I assumed that he'd simply posted in the wrong place. Certainly there was no value added - which is why I gave a thumbs down.
I was surprised that tournesol bothered to respond, but couldn't disagree with the thought that nothing of value had been provided.
What surprises me even more though is your reaction, nigel. Are you the same chap as I met some years ago in Edinburgh? If you are, it seems you've wandered off into a parallel universe somewhere along the way.
I'm not bothered about people making negative posts if they wish. The only thing that bothers me is that they are considered and factual - and actually add something to the discussion. Just for the record.
nigelpm
Agree with you completely on the value point. In fact I noted this myself recently. What I dislike is the way posters responded. Just let it be. Isaac soon went away when people ignored him. Interacting with these posters makes it a lot worse and wastes more time
emptyend
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...
emptyend
...continuing.....
Citi sector note 10th Jan:
....we now see insufficient
upside to our new price target of 437p/share (increased from 398p/share) to
maintain our Buy-rating and downgrade to Neutral. We look for greater clarity on the
ultimate production capacity of the TGT FPSO in 1H14, which could drive higher
production than our base case estimates, and make us more positive on the stock.
My observation on that note is it completely lacks any original thought - and is as dull as the Numis note is perceptive.
Nomura sector note 13th Jan:
Soco management should be given significant credit for the milestones achieved in
2013: i) production at the TGT field remained robust; ii) drilling success on the H5 fault
block helped to prove-up reserves at TGT; and iii) Soco fulfilled its promise of cash
return. However, this progress is largely priced in given the 34% absolute return for
shareholders in 2013. From here, we see the main issues as: i) ramping-up group
production, which is largely dependent on output at TGT; ii) firming up resource at TGT,
where an update on recovery factors will be key and; iii) rebuilding the exploration
portfolio, with near-term wells in Angola unlikely to move the needle.....The resource assessment by RPS (announced in February 2013) pointed to lower
recovery factors at TGT and introduced a downside scenario. Soco has been
encouraged by the initial results from its reservoir model, which it believes supports a
higher range recovery factors (45-50% vs RPS estimates of 28-35%). From a 2013
forward perspective, we are carrying c290mmboe (gross risked) for TGT (ex H5 for
which we carry 23mmboe, gross risked) in our NAV, which implies an effective recovery
factor of 41%, assuming the RPS mid-case STOIIP of c710mmboe. Therefore, we
believe that the scope for further upside from a movement towards management’s
recovery factors (45-50%) is limited, with potential risks to the downside. We expect
Soco to provide an update on recovery factors in a 1Q update (date TBC).[nb....they seem to have overlooked the prospects for a big STOIIP rise, based on the H5 well and the gas deal]
We estimate free cash flow generation could average cUSD 240m (pre-dividends)
across 2013-15 and a distribution of c50% would represent a c5.5% yield.
Morgan Stanley Sector note 23rd Jan:
Our top picks are Afren and Cairn. We would avoid Enquest and Soco and are tactically bearish on Premier....
2 stocks to avoid: Enquest: 1) Development and
exploitation focused strategy skews risks to downside;
2) High UK North Sea maintenance; and 3) Unattractive
valuation, leaving little room to accommodate
development issues. Soco: 1) Only modest near-term
production and reserves upside at the TGT field in
Vietnam; 2) c5% dividend yield based on a single asset,
which is in-line with the majors; and 3) shortage of
meaningful catalysts to drive the shares up further.
You'll note that their two "avoids" are two of the shares in Numis' top 3 picks :-)
Investment case: Soco management policy is to payout half of
its free cash flow. Following c25% outperformance versus its
peers in 2013 we estimate this now implies a one year forward
dividend yield of c5%. This is amongst the highest dividends
paid by EU E&Ps under our coverage, and we see little upside
from here. This compares to the Integrateds average dividend
yield, which is c5%, too. Soco has no gearing, but the dividend
is based upon a single asset called TGT in Vietnam. We think
reliance on this single asset puts the dividend at a greater risk
than those of the Integrateds, and so Soco should command a
higher yield or lower share price.
In addition to the high single asset risk, we also see limited
upside to our one and two year forward production estimates,
limiting Soco’s ability to organically increase its payout. Finally,
Soco has the least upside to our Base NAV, or put another
way, the market is already ascribing upside to the proven and
probable reserves. While this is possible, it assumes near
perfect execution of the appraisal program. We think the
upshot of all these factors is a negative risk-reward skew.Risks: Risks to our investment view relate to the accelerated
increase in the TGT oil field production plateau and/or
reserves. With a light capex program, Soco's dividend policy
provides the company with a large amount of comfort and
flexibility to provide three years of ~$100m of payouts............we find that even making more optimistic, albeit
credible, assumptions, SOCO’s share price implies little
upside. On our estimates, we believe that you need to assume
all of the following to more or less achieve the current share
price:1. More oil in TGT: c850mbo in-place resource versus our
estimate of c750mbo, plus attributing value to the recent
50-150mbo of additional in-place resource discovered with
the TGT-10X well.
2. Higher recovery factor: A 50% recovery factor, which is
at the higher end of management guidance of 45 - 50%. It
compares to our estimate of c40% and the Competent
Persons Report of 28-35%, albeit this was based upon
limited available data.
3. Higher oil price plus lower discount rate: $100/bbl
long-term Brent oil price at an 8% discount rate versus our
estimate of $90/bbl at 10%.
4. Higher payout ratio: 95% payout ratio versus the current
guidance of 50% of FCF.
:-)
......We'll see Jamie, lad ;-)
rhomboid1
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
emptyend
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......
emptyend
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.
rhomboid1
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
emptyend
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 bypartner 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.
That, of course, isn't quite accurate - in that they have already spudded the first TGT development well from the H1 platform some 6 weeks ago now.
The key issue in the near-term remains the capacity solution chosen for producing H5 (and the concomitant impacts on prodtcion capacity overall) - but nobody seems to be yet looking forward far enough for that (a mere two months or so, I think). It will be interesting to see if the IMS gives any pointers.
emptyend
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.
kenobi
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
