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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

peterg

15th May '14

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 ?

This is something that's puzzling me. It is quite possible there are regulatory/insurance issues. However, a second set of tests, up to 70k were planned a year ago. One reason for the delay I was given, some months ago, was that Talisman were unable to produce their 15k at the time, and that it was needed to provide the 70k needed for the test. Since it now appears they are producing their 15k - on the assumption that is why TGT is only producing 40k - reasons for not doing further testing seem obscure.

It's quite possible, of course, that the required permissions from insurers or FPSO owners are holding things up, and also that - as your post implies - the FPSO is becoming a side show as plans for H5 development progress - and so any plans for progressing the testing are on hold.

Peter

emptyend

15th May '14

Re kebobi's comment:

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 think you are spot on with the first para. One thing I'm sure of is that the hurdles needed for capex are set higher than economic rationality would suggest. As a result (I strongly suspect!) SOCO International (LON:SIA) ended up with an under-sized FPSO relative to what they expected to need (but couldn't prove, at that juncture!). And furthermore they were prevailed upon (via a capital contribution from Talisman, I believe, which the partners were keen to accept) to lease out some of that spare capacity.

However, the FPSO is available for 7 years from first start-up and can be extended annually for a further 8 years beyond that -so it is certainly on contract and available until 2018. And the additional commitment terms are modest in length.

IMO the correct thing to do would be to size the pipeline connection for what is required long-term (maybe 50-60-70k bopd?) to produce over Bach Ho from 2015 and to drill up the field asap, retaining the FPSO for as long as it is economic to do so and giving near-term production capacity of 110-130k (which will be enough to produce a fully drilled-up TGT incl H5 and to see Talisman over the "bump"). Of course the detail will depend on the field modelling etc - but something along those lines is what I'd hope to see, so that production can be maximised over the next 5/6/7 years.

Re the FPSO testing issues, I'd suspect that some combination of Talisman, the insurers and Asian foot-dragging may well have led the company to try to push for an alternative production route across Bach Ho (exit stage right crying "sod it, we're off then!"). Obviously if that can be agreed on reasonable terms then the need to push the FPSO may well fall away (or at least they may have slightly different objectives for the test than they would have had prior to the H5 test?).

It'll be interesting to discover the answers to these points in the coming months.

MadDutch

16th May '14

Dow Jones Newswires reported today that Soco has $270 million in cash.

Is it possible to calculate the 2014 dividend?

MD

emptyend

16th May '14

No.

If you mean the 2013 dividend, then that has already been announced as approximately $100mn - which will translate to around 18p per share depending on the precise timing etc.

MadDutch

16th May '14

Thank you.

Yes, it may be the 2013 dividend but it is payable in 2014.

TheMarinersWife

16th May '14

It's not just a news report the $270 million figure was in the IMS

Net cash and liquid investments as at 14 May 2014 were approximately $270 million

MadDutch

16th May '14

Thanks. It looks like Soco can afford a lot more than 18p.

extrader

16th May '14

Hi MadDutch

It looks like Soco can afford a lot more than 18p.

Not if they stick to the '50% of availabler FCF' apparently.

See advfn for some angel-counting on a pin-head as to what 'FCF' means.......;-<

ATB

TheMarinersWife

16th May '14

How many shares are you basing your calculations on?

MadDutch

16th May '14

I'm not. Half of $270 million is 35% more than $100 million.

MD

peterg

17th May '14

It's 50% of Free Cash Flow, not of Cash.

(Whatever definition of that you may choose to use)

MadDutch

17th May '14

Thanks Peter, I thought they are the same thing. Please educate me!

Mike

extrader

17th May '14

Hi MadDutch,

There's a long thread on advfn with ee and others for your delectation/edification.......

ATB

redhill

17th May '14

There's a long thread on advfn with ee and others for your delectation/edification.......

Unless the SOCO management define what they mean by free cash flow all other guesses are irrelevant.

MadDutch

18th May '14

Thanks guys for the help, and especially you, Redhill, for making me laugh on this beautiful English Sunday morning.

redhill

18th May '14

Mike, I expect it's even more beautiful in Paziols. (oops, ot)

kenobi

19th May '14

I don't know how much of the cash pile is currently earmarked for capex, but there is of course the possibility that the bach ho tie in will need to be funded. I don't imagine the partners are going to be interested in paying for it other than in net backs against future additional production, so I would guess in the short term that will come out of the soco cash pile. There were suggestions recently that soco might be looking at raising a bond, we know that they are a conservative organisation and are likely to err on the side of caution and raise money rather than risk runnng out of funding and have to come to the market later at a potentially more difficult time. Personally I would prefer to forgo the divi for a couple of years than see them raise 2-300 Million $ in a bond, which in order to keep the cost down would no doubt entail an option to swop for shares at a later date.

Of course we've all got the option to look at it, and sell shares to buy bonds if it suits our situation. There's usually a 100k entry level into bonds of this kind, no doubt priced in $.

I suspect that the above is because they are considering potential costs of exploring and developing the recently farmed in acarage in africa, one of the congo's. Currently still awaiting administrative go aheads (I think), but I guess there's the chance that might need substantial funds. Having made the commitment to pay divi's I guess it would be very hard to go back on it after one year.

cheers K

emptyend

19th May '14

Personally I would prefer to forgo the divi for a couple of years than see them raise 2-300 Million $ in a bond, which in order to keep the cost down would no doubt entail an option to swop for shares at a later date.

No no - you are completely wrong on that. Several other FTSE350 oil companies have issued straight bonds in recent times (ie NOT convertible into equity) - and I have no doubt at all that SOCO could do likewise. Also corporate bond rates have come down in recent years, so I would expect them to be paying a similar rate on a straight bond as they paid on the convertible in 2006.

I would expect any issue to be in the order of $400mn, 5 yrs at 5% - and be very firmly targeted at institutions (minimum size trade of $0.5mn)

ExTownie

19th May '14

ee - can I ask why you would expect an issue to be IRO $400m? If there is a tie-in to Bach Ho, I understood that this was expected to cost $60-100m, although that figure was pre-H5 discovery.

Thanks

ET

emptyend

19th May '14

Only one reason - which is that $400mn is pretty much the market minimum size for a bond (see other recent issues).

I had the same understanding as you re the Bach Ho cost (though I'm not sure that is a gross number and it certainly isn't current - eg it won't have included the cost of the H5 platform.)

Of course there is no necessity to do a bond as opposed to other things (which could be done in smaller size) - but what they do will, IMO, depend entirely on their perceived opportunity set and the capex costs thereof (eg would they need the firepower to co-develop a find at Lichendijili in order to negotiate from a position of strength?)

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Emptyend

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