Annual Results for 2011

Wednesday, Mar 14 2012 by
22

I'll just start by saying that I was over-optimistic for the 2011 financials, with the out-turn numbers coming within the range of analysts' estimates at:
Revenue $234.2mn, EPS 26.2 cents - with entitlements production currently at 17,300 bopd. Production and revenue were lower than I'd hoped but were above consensus, whereas EPS was pretty well on consensus.

Moving through the results announcement:


Phase II development drilling on TGT got underway from the H4 platform in the third quarter of last year.  It continues on track with a further five development wells due on production during the third quarter of 2012..........

The Group saw 2011 out with net entitlement volumes of approximately 14,700 barrels of oil equivalent per day (BOEPD) compared with approximately 2,600 BOEPD at the end of 2010. [nb doesn't agree with figure in headline].........

Company was able to benefit from the record high average oil price during 2011 realising nearly $113 per barrel of oil sold compared with approximately $84 per barrel in 2010......

Due to the following factors: the early stages of production from TGT Phase I, continuing work on the Phase II development and another extensive exploitation cycle, extensive pre-drill expenditures associated with continued exploration activities along with the expectation of adding several new ventures during the year, the Board of Directors are not recommending the payment of a dividend.....

The field has now demonstrated performance in excess of 40,000 barrels of oil per day (BOPD) with no significant impact on the main reservoir performance parameters. Although there remain alignment issues with Petrovietnam over the rapidity of raising production levels, the evidence from the field is compelling in support of that agreed by all partners in the Government approved Field Development Plan. Accordingly, we are confident that full Partner concurrence of a field production rate of at least 55,000 BOPD will be achieved by Q3 2012......Production from the H4 platform is projected to commence in July or August of 2012.

As suggested previously, they need PV to pull their fingers out. The above statement is less positive than I would have hoped to see.

 


TGT is a highly complex field with three main reservoir horizons-the upper and lower Miocene 5.2 and the Oligocene "C"-with approximately 55 individual producing intervals. Well performance to-date has demonstrated the ability of all wells to produce oil at high rates with minimal drawdown…

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SOCO International plc (SOCO) is a united Kingdom-based oil and gas exploration and production company. Its segments include South East Asia and Africa. It has field development, production and exploration interests in Vietnam, and exploration and appraisal interests in the Republic of Congo and Angola. In Vietnam, It’s Block 16-1 and Block 9-2 include the Te Giac Trang and Ca Ngu Vang Fields, which are located in shallow water in the Cuu Long Basin, near the Bach Ho Field. It holds working interest in Block 16-1 and Block 9-2 through its subsidiaries, SOCO Vietnam Ltd and OPECO Vietnam Limited. SOCO holds its interests in the Marine XI Block, located offshore Congo (Brazzaville) in the shallow water Lower Congo Basin, through its subsidiary, SOCO EPC. It holds working interest in the Mer Profonde Sud Block, offshore Congo (Brazzaville) through its subsidiary, SOCO Congo BEX Limited. SOCO's subsidiary, SOCO Cabinda Limited, holds participation interests in the Cabinda North Block. more »

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129 Posts on this Thread show/hide all

REO100 13th Apr '12 110 of 129
4

In reply to post #65309

1) Annual Report - out by the close of business on Friday 13th April (website) - (my bold)

Reo

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MadDutch 13th Apr '12 111 of 129
1

In reply to post #65311

Thanks REO, I should have noticed that!

ee can now accuse me of being asleep at the back of the class! :-)

MD

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emptyend 13th Apr '12 112 of 129

In reply to post #65241

Annual Report and Accounts

Presentationally they look quite a significant departure from the previous years, especially in terms of the presentation of strategy and DRC issues.

No change to reserves (as flagged)....yet. Will have a proper look in due course.

ee

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Isaac 13th Apr '12 114 of 129
3

Muhahahahahahahaha!!

Soco Execs are awarded 100% bonuses......

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emptyend 13th Apr '12 115 of 129
4

In reply to post #65331

Presumably they took note of your recent assertions that TGD didn't really matter and everything was about TGT? ;-)

Re TGD they say:

Although the drilling did not result in a commercial discovery, the Committee
considered this to be far outweighed by the significance of achieving first oil at TGT, which the Committee considers the most significant event in the history of the Company.

I'd take issue with the term "far outweighed" though there is little doubt that TGT ticked most of the boxes.

From where I sit I'd say that failing to get TGT production to plateau (albeit not their fault, AFAIAA) and the mismanagement of expectations over TGD-2X (the consequences of which were still being felt in 2011) would be good reasons to trim back the bonuses to c.80% - because the 100% stretch target wasn't fully justified IMO....so at first sight I'd agree with Isaac that it is an underwhelming piece of analysis by the RemCom. I'll look into it in more detail in due course.

ee

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MadDutch 13th Apr '12 116 of 129
5

The Results explain the reason for the lower than expected production;
(Especially for Kenobi, ;-) , with whom I have discussed a conspiracy theory (not sure if it answers that!)

The TGT field is a complex, stacked sand reservoir system that is vertically extensive with up to 55 reservoir subzones, each requiring individual reservoir management to ensure that recovery from the field is optimised. Prior to the start of production, reservoir management plans were agreed involving a sequence, over two to three years, of selected perforation programmes of specific limited subzones within each well. To date, only the initial programme has been undertaken. Baseline reservoir management information continues to be gathered from these limited reservoir intervals. Technical meetings, held at the end of October with the Block 16-1 partners, resulted in the decision to update and modify the initial reservoir management plan following the review of the well results and the initial performance of the wells. Initial production from wells with perforated Miocene sands was as expected, as was production from two of the three wells with perforations in the Oligocene reservoir. However, to evaluate the reservoir sweep within the Oligocene reservoir more thoroughly, additional perforations within the shallow, more productive Miocene reservoir were not added immediately, which was a deviation from the original agreed plan. A revised reservoir management plan, including reviewing amendments to the current 2012 development drilling programme, which includes four wells from the H1 wellhead platform, and individual well management plans to achieve plateau production of 55,000 BOPD is under review. Well performance to date in the H1 fault block area has demonstrated the ability of all wells to produce oil at high rates with minimal drawdown and, with the exception of wells perforated at or close to the oil water contracts, without significant water production. It has confirmed the presence of a local, strong aquifer that provides support to the main Miocene ILBH5.2 reservoir and the secondary objective of the Oligocene “C”. Well flowing pressures are very stable, indicating the strong level of pressure support and the high degree of connectivity within the main producing reservoirs.

MD.

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Isaac 13th Apr '12 117 of 129
3

Isaac

I am looking forward to the AR - It will give me opportunity to check management remuneration. We can discuss whether further action is required at the AGM and perhaps get ShareSoc involved.

ee,

In reply to Isaac, post #97

Sigh.

It will be very dull and will tell you nothing new.

If only that was true.......100% bonus :-(

From where I sit I'd say that failing to get TGT production to plateau (albeit not their fault, AFAIAA) and the mismanagement of expectations over TGD-2X (the consequences of which were still being felt in 2011) would be good reasons to trim back the bonuses to c.80% - because the 100% stretch target wasn't fully justified IMO....

Not sure how you derive your 80% figure from expecting nothing 'new' a few days ago. I would add to the list the failure of the following wells in 2011 :

Bayingu-1 ("BYU-1") in the Nganzi Block

Mindou Marine 1

Makouala Marine 1

And to add to this they have spent a significant sum of money on resources looking for new opportunities which to date they don't appear have anything.

In 2007 when the share price doubled on the back of TGT exploration success the Soco management were awarded a 50% bonus, yet in a year where they brought on what they describe as the "most significant event in the history of the Company" the share price has gone from £4 to £2.90

The management may think the Market is stupid but Mr Market is certainly not stupid enough to fall the nonsense above, clearly.

I have spoken to my broker today and I intend to vote against the remuneration packages.

The most significant event in any exploration company (yes an exploration company as De Sousa quite keenly states We will continue to be an exploration led company.) is to find Oil & lots of it, Bringing on fields and adding value through other means are bonuses, the real value is added by finding Oil and you know it Mr 40 years in the Oil industry.

I also don't think a dividend will be forthcoming, why should it? When the execs pay themselves huge remuneration packages they probably no longer need the dividends.

They must love how it all works, they get paid even when the share price does'nt perform.

Well you have an opportunity to show them this is not acceptable by phoning your broker and voting against the remuneration package which may make the Rem committee think again next year.

I personally think the Rem committee are friends of the directors, so it kinda sucks in my view how in the corporate world they write off each other's pay check. 

I honeslty find it staggering that there is'nt a significant shareholder that is not directly involved with the company who can influence remuneration.......This may be the Norm....but I don't think it is fair in anyway and it really should change..........You wanna help me influence a different outcome? Speak to your broker and use your shareholder votes several weeks before the AGM.....

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kenobi 13th Apr '12 118 of 129
1

I'm confused about TGT production, I'm sure people will think it's me, but I wish we could get it spelt out for us thickies at the back who are just interested in the progress, not piecing together some hypothesis from the results,

they say ...
The field has now
demonstrated performance in excess of 40,000
barrels of oil per day (BOPD) with no significant
impact on the main reservoir performance
parameters

ok, so I read this to mean,  that for some periods 40k per day has been produced,  should we read this as it's now plateaued at this level or this is current level ?   I wish they had said so,  or said the current value is  xxx per day.   or even we can't really give an estimate at the mo because we're experimenting and it's up and down like a tarts nickers.   

soon afterwards they say .....

 

, the evidence from the field is compelling in support of that agreed by all partners in the Government approved Field Development Plan. Accordingly, we are confident that full Partner concurrence of a field production rate of at least 55,000 BOPD will be achieved by Q3 2012.

 

but even a nitwit at the back like me can see that this is after the start of phase 2,  so they're commiting to 55k by september,  is this phase 1 production + whatever phase 2 produces ?   As MD mentioned here a few days ago at the last AGM,  we were quoted 95k by august ?   If we are only going to get 55k by then that's significantly less.    

If we're saying look it will have taken over a year to get tgt 1 up to producing 55k  but we've got pv on board and thats the plan,  then that's different,  perhaps we might get 95 k  by next september,  though if PV are as cautious with phase 2 ramp up as they have been with phase one then I wouldn't think that likely. 

I would be interested in hearing peoples thoughts on this, 

Have a good week end everyone, 

 

K

 

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Isaac 13th Apr '12 119 of 129
1

Michael Johns is the Chairman of Soco's remuneration committee, but he only holds 10,000 shares - I hold significatly more then him, yet he has a significant influence on the remuneration paid to the execs.

How in anyway does this make any logical sense or is in anyway fair?

Ashurst offices is where Soco AGM's used to take place, how can this individual not be friends or be linked with the directors in anyway? Where is the Independance when deciding the remuneration?

Ashurst office is here :
http://www.ashurst.com/office.aspx?id_Content=20

Olivier Barbaroux who is also on the remuneration committee is also the Chief
Executive Officer of the oil and gas production and exploration company Coparex International, so does that not make it more likely that he would want Soco management to have a higher remuneration package which in turn will increase the average package of the industry higher which in turn makes it easier for him to justify a higher salary for himself?

Ditto Robert Cathary who is also on Soco's Rem comittee :

Robert is also currently a non-executive director of Vostok Energy Limited, Salamander Energy PLC and
Central Asia Metals Limited.

I think the LSE should impose rules which force companies to have an individual on the Rem comittee from

a) A Significant shareholder not directly linked to the board/company
b) A non-exec director from a completely different industry, e.g. someone from the haulage industry who dislikes high petrol prices so is more lilely to argue against excessive pay & therefore encourages further thinking and perhaps agreement somewhere in the 'middle'.

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kenobi 13th Apr '12 120 of 129

In 2007 when the share price doubled on the back of TGT exploration success the Soco management were awarded a 50% bonus, yet in a year where they brought on what they describe as the "most significant event in the history of the Company" the share price has gone from £4 to £2.90

Isaac, you are just going to have to accept that these guys own a huge percentage of the company, and they're going to pay themselves handsome bonuses. I think it's a bit much to be honest, especially considering that if you put tgt to one side, sucess has been pretty limited. They earn big salaries, the own lots of the company, the game has changed, the company is relatively cash rich, perhaps smaller bonuses and a divi would be more appropriate going forward ?? 

In defence of the soco management,  it was no small feat to get tgt online on time.   I appreciate they aren't responsible for the plateau production issue,  or the failure in Africa although in that case it was their plan to explore there.   But in part bonuses should be about the company is doing well so we award you extra money.   I  don't even know if 100% means 100% of their possible bonus or 100% of their salary as a bonus,  but it does make you wonder what they would have been "worth" if  TGD2 had worked out, and the african explo had been sucessful. 

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kenobi 13th Apr '12 121 of 129

Sorry for the screwed up format but on p29  at the top it shows ...

Financial Key Performance Indicators

(Continuing and Discontinued Operations)
2011 2010 2009
Realised oil price per barrel ($) 112.94 75.66 55.70
Operating cost per barrel ($) 9.42 12.41 9.82
DD&A per barrel ($) 7.86 6.68 5.44
Basic earnings per share (cents) 26.4 30.9 17.3
Diluted earnings per share (cents) 26.3 28.4 15.4

I thought is that right ? basic and diluted eps is lower this year than last year ? 

then later it says ...

As a result of the above factors the Group’s profit 
after tax in 2011 was $88.6 million, up from $12.3 
million from continuing operations in 2010. Basic 
and diluted earnings per share on continuing 
operations increased from 3.8 cents in 2010 to 
26.4 cents in 2011 and from 3.5 cents in 2010 to 
26.3 cents in 2011, respectively.

As a result of the above factors the Group’s profit after tax in 2011 was $88.6 million, up from $12.3 

million from continuing operations in 2010. Basic and diluted earnings per share on continuing 

operations increased from 3.8 cents in 2010 to 26.4 cents in 2011 and from 3.5 cents in 2010 to 

26.3 cents in 2011, respectively.

well that sounds a bit more like it,  am I missing something or are these two things contradictory and one is wrong ?

K

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peterg 13th Apr '12 122 of 129
4

In reply to post #65335

My reading is that production has exceeded 40K bopd, not that it is necessarily currently doing so. They've shown that at least that much can be produced. Since they are apparently still looking at optimum production production profiles it is possible that production hasn't stayed over 40k.

Regarding the 55k later this year, all the discussion of that is quite clearly in under the heading of phase 1, so I would assume that is what it refers to.

However, remember the FPSO has a maximum headline capacity of 55k bopd, unless and until they convert some of the water handling capacity, so it may prove to be the case that total phase 1 + 2 production does not exceed 55kl, at least initially. That will depend on how quickly they can get agreement to convert, and how quickly it can be done.

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peterg 13th Apr '12 123 of 129
3

In reply to post #65339

Sadly I can't read all of your post as the text is scrunched up! However, the difference I think is between eps and eps on continuing ops. In 2010 there was a considerable cash inflow from the sale of Thailand, so of total eps only a minority was from ongoing production - which is not the case for 2011

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kenobi 14th Apr '12 124 of 129

In reply to post #65341

>>>However, the difference I think is between eps and eps on continuing ops

Yes Peter that makes sense, curious how close the figures are, so having tgt online for part of the year, yielded similar earning to selling thailand !

K

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kenobi 14th Apr '12 125 of 129

In reply to post #65340

Regarding the 55k later this year, all the discussion of that is quite clearly in under the heading of phase 1, so I would assume that is what it refers to.

yes I would hope so, but I would prefer these things, which are pretty important, to be clear. Have we got a plan to increase tgt 1 capacity to 55k per day by september agreed with PV or not ? or is this just a hope ?

However, remember the FPSO has a maximum headline capacity of 55k bopd, unless and until they convert some of the water handling capacity, so it may prove to be the case that total phase 1 + 2 production does not exceed 55kl, at least initially. That will depend on how quickly they can get agreement to convert, and how quickly it can be done.

Yes, they did discuss this at the agm, the "boiler plate" spec is for 55k, but even at the agm they were discussing that they'd be able to tweak things and perhaps get it's capacity to 60k, or beyond. and there is the water handling option too. However, I thought the original plan for phase 2 was to link it in to some existing infrastructure ?

cheers K

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peterg 14th Apr '12 126 of 129
4

In reply to post #65346

Have we got a plan to increase tgt 1 capacity to 55k per day by september agreed with PV or not ? or is this just a hope ?

I've no idea, but I think we can be quite sure that Soco are working on producing exactly that. PV may be being cautious and wanting to maximise data gathering and maximisation of future production, but I'd be surprised if they haven't moved on from the inital phase by Sept.

However, I thought the original plan for phase 2 was to link it in to some existing infrastructure ?

I can't remember the original plan, and I deleted a whole load of old presentations recently, so I can only go back to May 2009 (on the website). I think there was at one time talk of a possible 2nd FPSO, or even a tie back to Bach Ho. That was at a stage when there appeared to be a possibility of significant flows from TGD. The actual plan, in terms of what's actually got to the implementation stage has always been what's happening now - phase 2 will be tied back to phase 1. However, should there be a significant TGT upgrade, for example fault block 5 proves to be big, or TGD finally comes in then the possiblity of serious upgrades must exist. I'd imagine that could be either a 2nd FPSO or possibly a tie back to Bach Ho, which is increasingly underutilised. Whatever of those takes place, if either, I'd think it very unlikely that Soco will be involved in the implementation!

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extrader 14th Apr '12 127 of 129
1

Hi peterg,

I'd think it very unlikely that Soco will be involved in the implementation!

Let's hope not....don't know about you but I invested (starting about 9 years ago) for the E, not for the P...

ATB

 

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peterg 14th Apr '12 128 of 129
2

In reply to post #65348

Let's hope not....don't know about you but I invested (starting about 9 years ago) for the E, not for the P...


Well, I started investing about 11 years ago, at a time when the forward PE was about 2! My interest was, and is in capital growth. It's true that most of that growth has in fact come from the E not the P in the years in between, but should it appear that they can achieve better growth from here by producing rather than moving on I won't have any complaint - even though I don't expect that to be the case.

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emptyend 15th Apr '12 129 of 129
9

In reply to post #65336

Note that both Barbaroux and Cathery stepped down from the Remcom in December and Mike Watts was appointed. So the Remcom now consists of Johns, Monteiro and Watts....and it is explained that:

The current composition of the Committee was
determined following a review in December 2011 of
each of the Company’s committees, which is more
fully described in the Corporate Governance Report
on pages 51 to 58 and was intended to ensure
optimum utilisation of competencies on the Board
while maintaining a balance between the benefits of
refreshment and continuity......

The Board is keenly aware of its duty to ensure, on
behalf of shareholders, that the Committee is wholly
independent. All members and advisors are
independent of management and free from any
conflicts of interest arising from cross-directorships
or day-to-day involvement in running the Company’s
business. No member has any personal financial
interest, other than as a shareholder, in the matters
delegated to the Committee. No Director plays a role
in deciding his own remuneration.
The Committee is responsible for determining and
agreeing with the full Board a Company-wide
remuneration policy that is aligned with the
Company’s business strategy and ultimately the
creation of shareholder value. Within the context of
that policy, the Committee is responsible for setting
the total remuneration packages of the Executive
Directors and the Company Secretary. The
Committee also monitors the remuneration practices
and trends throughout the Group’s internationally
based workforce, including senior staff who
contribute most significantly to achieving the
Company’s strategic aims. Additionally, the
Committee is responsible for setting the
remuneration of the Non-Executive Chairman. The
Committee’s recommendations and decisions are
developed in full consideration of the Code,
institutional guidelines and evolving market practice,

...which seems to me to be a well-considered approach that I have no problem with. 

My modest dissatisfaction with the 100% bonus arises from the failure to reach TGT plateau - which should have been something which management should have seen as a possibility and should have guided accordingly.  100% achievement of a stretch target is something that cannot have been improved upon - and I don't think that can be said of SOCO in 2011....though I do think that that the operational achievements merit a strong bonus.....hence my 80% opinion.

Isaac is completely wrong to blame management for drilling wells that have turned out to be non-commercial, especially when they have mitigated the financial risks via the Nganzi farmout. Non-commercial wells go with the territory of E&P - and if one isn't prepared to tolerate them then one shouldn't invest. The non-commercial wells will hit management and shareholders in their wallets anyway, via share price performance (and lack of LTIP vesting) - but the annual bonus component of remuneration is intended to recognise the achievement of specific controllable targets in the running of the business...and it is NOT intended to reward success or otherwise with the drillbit.

ee

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