I know I’ve made the odd comment about $15 and $20 a barrel on the TGD thread for SOCO International (LON:SIA) but that was largely from the gut without too much thought, hence a bit more application now… Firstly, AFAIA, nobody has ever put a figure on how much the Lizeroux 20% minority interest should be discounted for their carried interest. This is obviously important since Soco include Lizeroux’s entitlements in their booked reserves. Personally, I think Soco should be estimating what these amount to in the Annual Report notes.
It’s impossible to be accurate but I’ll suggest Lizeroux’s holding should be reduced to around 12.5% going forward to first production at TGT. In round figures, I’m thinking 20% of say $500m invested over 10 years, the bulk in more recent times, charged at 9% interest is likely to run up a bill currently of say $150m…bearing in mind of course that a certain amount of carried interest bills will have already been paid back from CNV production. Unless anyone else believes these figures are shaky, I think 12.5% forms a pretty solid basis. So, SV’s booked reserves need discounting by 12.5%. We also need to account for gas reserves being worth less than oil. As at 31 Dec 2009 booked Vietnam reserves were 124mmboe. My split on that is CNV 24 oil + 8 gas, plus TGT 92 oil. Total 116mmbls + 8mmboe
For the year end December 2010 booked reserves, I’d estimate an added 10 mmbbls for TGT making a total 126mmbbls + 8mmboe. Ok, that might look conservative but I’ve seen it all before where people get too excited on upgrades that don‘t materialise. One also has to bear in mind that potential downgrades on CNV (quite possible - even likely given production rates to date vs. production licence period) won’t be apparent in the overall Vietnam reserves declaration. So, knocking off the 12.5% Lizeroux component we get y/end 2010 110mmbbls + 7mmboe. At $15/bbl and $5/boe, 358m shares out fully diluted(incl conv) equates to 295p/sh.
This exercise is meant to seek a rock solid core valuation when contemplating a sale of Vietnam assets in the market without any consideration for TGD or additional reserves which may or may not result from TGT production history in future. Apart from the…
I wouldn't regard the peak as being 100,000 bopd. You'll be aware that rather higher figures have been tossed around from time to time and it is my impression that the initial (long-term) sizing of production capacity is going to somewhat cap early production rates (so the underlying plateau level may well be c150,000 bopd, with 18-20 wells).
Slide 6 from the AGM carries the footnote:
Note: H3/H4-WHP to Bach Ho is ca. 10-15 Km
IMO this is flagging the potential for reorganising/expanding production capacity once phase 2 is brought onstream and they can see with some certainty what the actual production capacity will be for the field as a whole.
Re:
I can't imagine any buyer paying much if anything upfront for barrels produced that far off because a) they'd have to be massively discounted b) there'd be no guarantee they'd actually get the extension and c) if they did get the extension, they might face stiffer fiscal terms to secure it.
...of course it is true that "distant barrels" will be heavily discounted. But it isn't impossible that an extension might be "part of the deal" - and one should also remember the very important point that early-stage production is likely to be selling for c $120 pb (decent premium to Brent)......so giving c.$100pb (pre-tax) positive cashflow. The next 5-10 years will therefore dominate the valuation.
ee
