Incidental stuff

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21st May '09 by emptyend

1294 comments 413271 reads

NO TA ON THIS THREAD PLEASE - (edit) and no pointless speculations either!

I've created this thread just to park stuff in that is only tangentially-related to SOCO's interests and doesn't relate to any of the specific assets.

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About the Author

Emptyend

Premium Member

1294 comments

emptyend

7th Jan '12

I think that is a bit harsh.Their comment seems fair as far as it goes - but doesn't mention M&A potential, reserves upgrades and other attractions. Then, of course, there is in fact the development of TGT - which I would say may offer an appraisal catalyst or so....

Neither does it consider the attractions of Asian reserves when there is trouble brewing in The Gulf.

As I've indicated previously - it only takes a few hours to get a deal done in principle.

MadDutch

7th Jan '12

Any analyst who does not know about the points you make and we know, ee, is not worth the fee he / she is paid.

Frankly, Morgan Stanley should send the overpaid idiot to this discussion forum to justify his / her report, and study the discusion before renewing the contract of employment.

Please tell them I said so.

MD

nigelpm

8th Jan '12

That's seriously harsh and unfair Mad.

ee has analysed Soco to death and only cares about a few stocks and has vast knowledge and understanding of capital markets etc etc...

Most analysts will be looking at many different stocks.

emptyend

9th Jan '12

ee has analysed Soco to death and only cares about a few stocks .....
Most analysts will be looking at many different stocks.

True. However, I don't pretend otherwise either.

Too many analysts claim to follow too many companies - with the outcome that they don't do a decent job of following any of them. I wouldn't put MS in that category though.

What I would say is that often with SOCO it has only been possible to analyse things correctly if one has a very long memory and a willingness to look beyond what has actually been announced in RNSs and try to make a reasonable estimate of what happens next. The present situation is very definitely in that bracket - and if one (wrongly!) took the view that "TGT performance is disappointing" then one may well reach different conclusions about reserves, M&A and price..... and then there is the (much more understandable) assumption that TGD is worthless, but which in my opinion is also probably wrong.

What is vastly more difficult to estimate is when the full position on 16-1 will become clear. And, in that respect, I am playing a guessing game every much as anyone else (May is my current guess).

Back to waiting.....

MadDutch

9th Jan '12

I do not agree with you, PM.
Analysts have to power to knock millions of pounds from a share price, and rightly so if their reports are well researched and factually correct.
But this analyst’s work is neither, and your saying “Most analysts will be looking at many different stocks.“ is not an excuse coming from the author, and even less so coming from you unless you know the individual and know the reasons for the erroneous report. Do you?
Do you really think the author is unable to do a good job due to overwork?
Has it occurred to you that this could be market manipulation for shorting purposes? If you were selling, you would have just cause for complaint.
If you still disagree with me, invite Morgan Stanley to send the analyst here to justify the defective analysis.
MadDutch.

kenobi

9th Jan '12

Well we're there then 1% ish of the shares bought back

http://www.investegate.co.uk/article.aspx?id=201201091738472531V&fe=1

another 85k today,

to be clear there's no significance to the 1% I just remember before xmas someone saying if they keep this up soon they'll have bought back 1% of shares, when you see it like this it really is insignificant, I guess its only 10 million quids worth of shares, still there is a maximum amount they're allowed to buy, unless the share price moves up I assume they'll be asking for permission to buy up more shares at the next agm,

unless something else comes up to spend the money on !

K

fuiseog

9th Jan '12

I feel very happy with this buy-back.

With the shares currently priced at what we are hoping is about half their ultimate value, spending £10m. will bring in 100% profit. Adding £10m. to the bottom line for no risk is significant IMHO.

I don't know what managements objective and strategy for the buy-back is, but I'm happy that they are buying in volumes that have minimal influence on the SP. They're getting a bargain, and so are we.

fuiseog

kenobi

9th Jan '12

yes it's fine, but lets do the maths, if the company is worth 6 pounds and they buy back at 3 pounds,
having bought back 1% of the company at 3 pounds, all else being equal, the company should now be worth

6.03p,

now that extra 3p per share might make a difference to some with huge holdings, I'm not going to loose any sleep about it one way or the other,

I'm just trying to ilustrate that although it's a good deal, after many weeks of buy backs it's not making a big difference,

K

PS unless my calcs/assumptions are wrong ???

Shuko

11th Jan '12

Hi Kenobi,

I agree with your maths. But if they continue to the point of buying back 10% I make it that each share becomes worth £6.3333...

In other words an extra 11% on the value. Not to be sneezed at. So I certainly think this is something worth doing.

Regards

Shuko

mangotree

12th Jan '12

To date I think they have paid £5,249,672 to acquire 1,797,852 shares over 24 days.
An average price of about 292p per share.

1,797,852 shares is approx. 0.53% of the shares in issue before the buybacks began.
At this rate to buy back 10% of the company will cost about £100m.

I can’t help feeling that this money might be better employed in exploration, which if only moderately successful would surely add more value to the company than simply reducing the number of shares in issue by 10%.

MT

djpreston

12th Jan '12

MY,

Undoubtedly, expo would add more value (if successful) but this is the lowest risk way pod adding definite value. As our old friend Isaac liked top say, we've lost a lot of money drillingdry holes.....

D

PS, where us Isaac? I'm almost missing him.

kenobi

12th Jan '12

>>Undoubtedly, expo would add more value (if successful) but this is the lowest risk way pod adding definite value.

Yes, of course, this does presuppose that they can find opportunities at the right price, which is by no means certain from the way they were talking at the agm. Since then we've heard that they are looking at entering 7 regions or countries which sounds promising, but that is where we have to trust the management's judgement.

Re the buy back, I'm not against it, my point is that it's a low risk use of capital at a time when the company is cashflow rich. My biggest worries re soco are getting tgt 1 upto the levels expected (55-60 k pd), then bringing tgt 2 on line and getting that up and running, upgrading the reserves in line with production data, tgd,
then any other expo is a bonus at this point, for which the market won't assign any significant value.

The only reason I can see for the current share price is that there are questions about tgt, and if it will produce, as expected. (that and a string of failures in africa, but I'd argue thats small fry by comparison).

Anyway, if tgd did come off and suddenly we were talking about a 10 valuation instead of a 6 pound valuation, then a 10% share buyback does start to look exciting, they would need to speed up purchases though !

It does make sense to buy back what you can below £3, I'm not sure you could buy back 10% below this price unless the markets tank due to the euro or something else

Cheers K

emptyend

12th Jan '12

my point is that it's a low risk use of capital at a time when the company is cashflow rich.

Yes - precisely

My biggest worries re soco are getting tgt 1 upto the levels expected (55-60 k pd), then bringing tgt 2 on line and getting that up and running, upgrading the reserves in line with production data

I'm not at all worried about that. Not the slightest iota. TGT1 is clearly capable of c 55k bopd

, tgd, then any other expo is a bonus at this point, for which the market won't assign any significant value.

I'd agree that the market won't assign much value to "other explo". But when it comes to TGD (which every single one of the analysts wrote down to zero after TGD-2X, entirely understandably), it will be very interesting to see what the market makes of it. Don't expect any change on that front until decisions are taken in April - but I think it will be difficult to ignore the updated interpretation, in view of the potential size of the fan.

The only reason I can see for the current share price is that there are questions about tgt, and if it will produce, as expected. (that and a string of failures in africa, but I'd argue thats small fry by comparison).

Yes I'd say that is the market's concern - though quite unjustified (as demonstrated by slide 9). However, I'd say that an even bigger factor is that the market believes that nothing much of interest will happen until Q3 (when explo drilling restarts) - and on that I think the market is completely, utterly and hopelessly wrong!

kenobi

12th Jan '12

>>I'm not at all worried about that. Not the slightest iota. TGT1 is clearly capable of c 55k bopd

well ee, I'm very pleased to hear that, I must say I don't really understand the delay in getting the production up,

from my understanding the first zones were not producing as expected, so they wanted production data on that before opening up the other zones ?

but the response we''ve had from soco is not that we'll open up the other zones in Jan, when enough data is collected, if I recall the wording its that a plan to increase production will be put together in Q1. Now I hope they are just being cautious, and they have pencilled in dates to open up the zones in the next month or so, so they can get production up earlier. But isn't it something to do with the Vietnamese partners that don't want to open the other zones yet ? What if there is some issue that we're not aware of yet ?or a fear of some issue ?

re TGD, I've lost count of the number of agm's I've been to where tgd or deep E or whatever has been the great hope, so while I'm pleased there is still an option on it, and I agree with you, it would be good to get two pokes at it, I don't suggest anyone gets carried away with this until we have a positive result !

I don't have a crystal ball so I don't know if much will happen before Q3, not sure when tgt is due to come on stream I guess that's q3, and tgt will probably be around then (at least a result), so they might be right, theres always the chance of something happening, particularly a long awaited reserves upgrade, though not opening up the remaining zones might push this back too ?

hope you're well ee, look forward to seeing you at the next agm,

K

emptyend

12th Jan '12

well ee, I'm very pleased to hear that, I must say I don't really understand the delay in getting the production up

It is very straightforward: Other partners preferred to get more data before opening up the Miocene in some of the wells. There will be a plan discussed shortly (Q1 sometime) to bring production up to what the reservoirs are capable of, but the partners will need to agree it. You will have noted that PV managed to exceed their production targets last year without opening up the Miocene - that won't be the case going forward. The ONLY factor that has held things back for this length of time is PV management gaming their remuneration targets (IMO) - there is nothing technical, given that they now have enough data to decide how to manage each reservoir section and each well.

Re the AGM, I would certainly hope to be there this time, having been twarted on the last two occasions by circumstances!

kenobi

12th Jan '12

>> The ONLY factor that has held things back for this length of time is PV management gaming their remuneration targets (IMO) - there is nothing technical, given that they now have enough data to decide how to manage each reservoir section and each well.

Well I'm relieved to hear that, I feel that an annoucement that production has reached 55k will put significant upward pressure on the share price, I hope they buy back as many shares as possible before this happens to maximise the benefit of the buy back.

K

TomKe

12th Jan '12

The company buying shares back IMHO stopped the share price testing its recent (3 year lows) at £2.50 ish. If you hope to sell a company for £9.00 it helps if its share price is not £2.50.

There appears to be no appetite for the shares in the general market and a complete disconnect between our shared view of the prospects and likely income stream and the view of the market.

I am not sure that hitting planned production rates of 55k bopd or accumulating the cash in the Balance Sheet will cause the market to change its view. The market may be taking the view that all the cash will be wasted on failed exploration. If they started paying a dividend then you hope that would at least force the market to value the income stream but an expro company paying a dividend would be a little unusual.

As another poster observed buying an undervalued expro company which is short of cash would probably be a better use of the cash.

It has been a long journey with SIA and I have now reached the point where I want the journey to end. We end up in a series of ‘groundhog years’ where each year when we enter it we expect that the value will out.

It’s a bit like ‘Pinky and the Brain’, the cartoon characters who ever day wake up and say “today is the day we conquer the world”, but they never quite manage it.
http://en.wikipedia.org/wiki/Pinky_and_the_Brain

TomKe

emptyend

12th Jan '12

The market may be taking the view that all the cash will be wasted on failed exploration.

That might be the case, though I think it is simply that the market believes there to be a dearth of short-term catalysts. If the company was spending $100mn in the next 6 months on explo wells with some huge upside potential, I think it would get much more attention! I also think that wouldn't be the smartest move at this point....

If they started paying a dividend then you hope that would at least force the market to value the income stream but an expro company paying a dividend would be a little unusual.
As another poster observed buying an undervalued expro company which is short of cash would probably be a better use of the cash.

Dividends and M&A aren't mutually-exclusive matters. IMO the latter will be firmly on the agenda when they have a deal to realise value in VN - because then the issue will become (as with Cairn) how much should be returned to shareholders and how much should be reinvested.

It has been a long journey with SIA and I have now reached the point where I want the journey to end. We end up in a series of ‘groundhog years’ where each year when we enter it we expect that the value will out.

I'd agree with that. Though the expectations about when the journey will end haven't been made any easier by circumstances in the global markets etc. It seems to me now to be completely self-evident that VN is within a few months of meeting the company's trigger for disposals, even if that might have been debatable hitherto:

Realising Value. By locking in returns, regardless of the phase of the project life cycle, once the Company's capability to add value begins to diminish.

Spurticus

12th Jan '12

It seems to me now to be completely self-evident that VN is within a few months of meeting the company's trigger for disposals, even if that might have been debatable hitherto

I hope we are close, but it's still all about TGD really, isn't it?

It remains a pretty big unknown, with value to Soco anywhere from $0 ----> $bn (potentially even more than TGT?)

So are we not still in the position that its hard for a buyer to put a realistic valuation on VN? And, yes, they could have some kind of back-in deal for TGD, but easier to wait until 2013? (Unless a deal might involve 'major' expertise being brought to bear on the Q3 drilling?)

I want to be wrong, obviously..

emptyend

12th Jan '12

And, yes, they could have some kind of back-in deal for TGD, but easier to wait until 2013? (Unless a deal might involve 'major' expertise being brought to bear on the Q3 drilling?)

I'd think the last point is highly likely - which is one reason why I think the "sale and farm-in" route is probable.

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Incidental stuff

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Emptyend

1294 comments

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