Analysts reports

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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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About the Author

Emptyend

Premium Member

736 comments

loglorry

14th May '10

ee - I'll just keep missing the point - you just keep pointing it out. Problem with that line of argument is the rest of the market needs to see it the way you do for prices to rise rather than fall back (a bit) as they have done today. Bottom line is that if all the CB is put back to the company, and the issue no longer existed, then the only route for institions into the stock is via the common which has to be good for common stock holders. With the CB in issue this provides a "safe" way into the upside of the stock with a very well protected downside.

Why would any institutional investor "look at it now as a pure fixed income deal paying 4.5% to maturity.....and that isn't great, relative to other fixed income investments for similar credits." ? I'm pretty sure the pople buying these are not that naive and have enough skills on hand to be able to price the embedded call they get with the CB to be able to value it properly. Obviously if they are pricing the option at zero then a 4.5% YTM is lousy in this market. More likely the option value isn't sufficient to compensate for the spread between other corp bonds with similar credit ratings. Corp bond spreads have widended so much since the issue. This is probably the real reason it is trading at/near par and why quite a bit of it will be put back to the company.

emptyend

14th May '10

Why would any institutional investor "look at it now as a pure fixed income deal paying 4.5% to maturity.....and that isn't great, relative to other fixed income investments for similar credits." ? I'm pretty sure the pople buying these are not that naive and have enough skills on hand to be able to price the embedded call they get with the CB to be able to value it properly. Obviously if they are pricing the option at zero then a 4.5% YTM is lousy in this market.

I've run out of patience in answering questions today, so I'll leave that for perhaps Darron to answer. You don't seem to set much store by my answers anyway. It isn't a quesion of "naivety"! The answer is structural.

djpreston

15th May '10

so I'll leave that for perhaps Darron to answer.

Out of Office Reply. I'm on holiday till the 1st.....

Play nice boys

;-)))

emptyend

18th Jun '10

Press comment here re Nomura's latest note:

Nomura thinks valuations in the sector remain attractive, with “the sector drilling for prospects that could be worth up to 100% of market valuations over the next six to nine months.” Cairn, in Greenland, and Tullow, in west Africa, remain the most active, Nomura notes, though Soco is also preparing for some drilling in the third quarter.

"Some drilling"?????

Ohhh......the little bit of drilling that might lead to 600mn bbls or more of additional net reserves, compared to 140mn currently??

Clearly their assessment of the relative potential impact of CNE, TLW and SIA drilling activity is very substantially different to mine!!

Isaac

18th Jun '10

How comes these research notes are written by people who don't seem to have much interest in their jobs and thus come across as ignorant and their comments are embarrasing for them when read by an audience.

We are talking about individuals who are paid huge sums of money working in the City.

There are clearly dead beats working in the city that are seriously overpaid.

I also think the firms that publish these notes should take more responsibility in what they publish, the standard is pretty poor and can cost their clients a lot of money!

emptyend

18th Jun '10

I've rec'd those comments Isaac. Not only are they close to the mark - but it is a relief to see you attacking some more deserving targets for a change! ;-)

Set against the task of managing oil companies, it seems to me that writing equity research is a piece of cake..... and one can surely fairly say that the end product is completely visible (whereas very many important company activities and efforts take place behind closed doors!)

kirkie001

19th Jun '10

Off-topic - but I'd echo those thoughts. I've no idea how it could be enforced, but it strikes me that equity research should be a regulated activity - with the ability of uninformed or downright incorrect research pieces to move market prices and therefore affect the wealth of parties, then surely the activities which lead to those research pieces being published should be regulated.

Of course, there's all the arguments about "it's for institutional / clients only" or "you can't prove a direct link to the price movements", or "the company puts out news releases on all matters that are price sensitive", but plainly misleading equity research - saying that a company is targetting 'xxx' barrels of discovery, for example, when a company has said that it is targetting 'yyy' should be subject to some kind of sanction.

It might have got Tony Alves out of the industry, for example - the only thing that his so-called "research notes" were good for was hamster-bedding!

ignatius

21st Jun '10

It's downright unprofessional. There ought to be some kind of peer review, either internally or externally. Are these research pieces covered by the ISO 9001 quality standard? Surely they should be.

repobear

21st Jun '10

So....validate the TGD interpretation and sole-risk Nganzi with 100% success, and we could be looking at a company with about 1bn bbls of NET reserves! ;-)

I don't think that most analysts have paid any serious attention to that possibility at all!

Plus $350m in cash from PTTEP or

1.3bn bbls of NET reserves, though the chances of that are considerably less than England winning the 2010 World Cup as evidenced by this joke on TMF

The England team visited an oprhanage today in Soweto. "It's good to put a smile on the faces of people with no hope", said Mbutto aged 6.”

and

http://bettingzone.oddschecker.com/football/internationals/world-cup/win-market

In conclusion there is a fair bit to play fo nonetheless;-)

repobear

unwise2

23rd Jun '10

This might seem like a silly question but may I ask how you all are obtaining analyst reports on Soco, I have spoken to their PR and they dont want to send copies of them out.

Regards

unwise2

24th Jun '10

Having been out of Soco for the past year I have spent the last two days catching up with events, my primary concern has been possible downside. I thought I would share my thoughts.

Soco already have 124m 2P in Vietnam which they value at $20 each (I guess this is what they think they could acheive in a sale.) which is about $2.5 Billion.

Thailand is probably going to be sold anywhere between $100-200 million, I'm going to use $100 million as a guide.

No idea what the 9m barrels 2P are worth in Congo so I am going to ignore them for now.

So Vietnam plus Thailand are potentially worth $2.6 billion ignoring all upside to TGD & TGT. I spoke to Soco this morning to double check shares in issue, about 337 million, I think fully dilluted is approx 343 million. I make that about $7.6 per share or about £5 per share ignoring cash, the 2P in Congo and all upside in Vietnam and Africa.

I realise that there are risks in the oil price and if TGD is a duster and development drilling on TGT doesn't go as planned (no increase in booked 2P) then it could take a while for Soco to finally sell Vietnam to realise circa $20 per barrel.

Based on the above I have bought back in today circa £4.15.

I won't discuss potential upside as this has already been discussed at length. If there are any errors in the above comments are welcome.

Unwise

emptyend

24th Jun '10

Minor point but I think that Thailand will sell for close to $200mn - per my post here

On these numbers of course the risk/reward relationship is compelling, given that all the upside is in for free.

djpreston

24th Jun '10

I wonder if we will now see more news emerging re SIA's Cnogo assets and perhaps revision to analyst valuations?

emptyend

22nd Jul '10

New presentation from the recent analyst trip to West Africa. Nothing market-moving but some interesting background info. Key points:

PSA terms and work programmes for all blocks
Nganzi on trend with oil source/kitchen for both M'Boundi and Cabinda North
Nganzi wells named as NGA-1 (mid-August TD...where else have we heard that today??), KNY-1, YZI-1 and optionally NSI-1
Quite a few slides on logistics and HSE - and a couple on a growing list of local social projects

In sum it looks a presentation designed to show that SOCO is serious about being a good corporate citizen in DRC and Congo....and has been planning carefully the logistics of the current campaign.

....lets all hope it proves to be well worth the effort!

RedTedsRoadshow

23rd Jul '10

...apparently today...

Credit Suisse nudges up Soco International (SIA.LN) target to 419p from 417p. Says the company is entering the most significant period in its recent history, as Soco undertakes its largest exploration program, in terms of potential resource. Maintains underperform rating, based on uncertainty surrounding the first two wells in Vietnam and the Democratic Republic of Congo.

...2p upgrade - wow - methinks much larger upgrade coming soon...

djpreston

2nd Aug '10

At last, a decent note out

Unsurprisingly it comes from Al Stanton at RBC. Outperform with 575p target and nav.

Argues that if all three drc wells fail (Cos 10%-20%) then NAV would fall to 500p. Estimates a DRC discovery is worth $11/bbl.

In a rush.

D

shanklin100

2nd Aug '10

Reportedly lots of fun elsewhere in DRC...

http://www.ft.com/cms/s/0/2f04e730-9d86-11df-a37c-00144feab49a.html

Cheers, Martin

doverbeach

2nd Aug '10

from AS's note:

Under the radar: While the market focused on the extension of Uganda's Lake
Albert oil play into eastern DRC, a number of oil companies, including SOCO,
pushed ahead with exploration campaigns in the Coastal Basin, western DRC,
that are targeting a southerly extension of the M'Boundi oil play.
Scale: SOCO (65%) is targeting three large, 200mmbbl, prospects that could add
525p/share, or 90%, to our NAV.
Valuable barrels: The fiscal terms in the DRC are more attractive than those in
neighbouring Congo Brazzaville and Uganda. We estimate that a discovery on
SOCO's Nganzi block could be worth ~$11/bbl, on a working interest basis.
Downside: Although we would rank SOCO's exploration drilling campaign as
high-risk – the probabilities of success range from 10-20%, we believe there is
limited downside risk in the stock at 426p. In the event that the three-well
campaign is unsuccessful we would cut our NAV by 81p/share, or 12%, to
~500p/share.
Do not forget Vietnam: Finally, we would note that SOCO's 2010 appraisal
campaigns in Vietnam also expose shareholders to material upside. Totally
unrisked we estimate this year's campaigns – which include the ongoing
high-impact TGD-2 well – could add ~90p/share to our NAV. An unsuccessful
well on TGD would cut 41p/share from our NAV.

Nganga (Prospect B) NGA-1 25%
Well drilling ahead, expected to conclude in mid to late August. Total depth (TD) 2,350m.
Kinganga Nyanya (Prospect D) KNY-1 18%
Potentially charged from separate kitchen located to the north. Uncertainty about closure to the north – no
seismic in Cabinda. TD 1,800m.
Yenzi (Prospect A) YNI-1 200 15%
NGA-1 result will have an impact on PoS. Shallow structure with additional seal risk. TD 1,400m.

NIce to see at least one of the analysts is paying attention :)

emptyend

2nd Aug '10

NIce to see at least one of the analysts is paying attention :)

Yes indeed - but nothing in his note or valuation re the potential of the fan in Vietnam, though.....which I would argue could be at least as important as the DRC programme, albeit that it would be extremely heavily risked at this point, pending the results from TGD-2X.

Just on a back of the envelope, if the fan is potentially worth 400mn bbls net to SIA at $12 per boe, then on a risked basis a move from 4% risking to 25% risking would be worth around $1bn in terms of risked valuation.......

davjo

2nd Aug '10

nothing in his note or valuation re the potential of the fan in Vietnam, though.....which I would argue could be at least as important as the DRC programme, albeit that it would be extremely heavily risked at this point, pending the results from TGD-2X.

Since it is quite possible that the risking on the fan, post TGD-2X, might move from say 4% today (20% of the 20% on TGD-2X) to, say, 25% in the event that TGD-2X comes in near the top end of expectations, one would have thought it might rate a mention?

Looks like he covers TGD under "Block 16-1 exploration" at 70p/sh. Put together with 81p/sh for Nganzi campaign, this implies that this year's combined explo drilling (excluding appraisal) is in for free at today's sp.

Unsuprisingly, nothing in for DRC Block 5 but interesting to note harsher PSC terms than Nganzi, inferring an "R Factor" clause i.e. diminishing profit oil take over time. What with remote location and security issues, this suggests rather higher prospectivity!

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Emptyend

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