So what’s Soco Vietnam worth excluding TGD?
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 level of reserves, the $/bbl price is obviously key. What will a buyer pay? Clearly, the Viet assets are of strategic importance, so you’d expect a keen price but they’re not so large as to attract over the top bids imo. When RC says (according to Unwise’s post) the NAV of Viet barrels is $20 based on $75 oil, that doesn’t mean a buyer will base his purchase at $75. Indeed, when Soco sold Yemen, the oil price was in the $90s yet the sale was apparently based on $70. It could be that attitudes to future oil prices have changed since then and $75 now might be accepted in M&A circles but we can’t know that until it manifests itself in a transaction. Clearly $20/bbl rather than the $15/bbl example above would yield 395p/sh and higher TGT barrels a good bit more but that’s in the lap of the gods at this point in time!
Make of all that what you will but, if nothing else, it will hopefully be useful to establish Lizeroux’s holding being worth 12.5% after consideration of their carried interest.
Disclosure of Interest: The Author holds shares in SOCO International (LON:SIA).
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181 comments
Hi Guys,
I've been away for a couple of weeks, goodness how things change, the big topic was the US debt deal, I understand some deal was done, but there's still been a collapse in world markets, I looked last week, and soco had held up well, can't say that anymore. Anyway, bought a few more in anticipation that first oil will arrive as projected, interesting to see that they've sold it already, so they must be pretty confident that it'll be on time around now ! (anyway riots in city's, floods in scotland, and talk of a french downgrade, how long have I been gone ?)
looking forward to news on Monday,
K
Yeah yeah - very good fuiseog :-)
The 12th is a Friday (all day) so I'm assuming nothing will be said until the following Monday......
Can't remember my source but I have the 12th in the diary for first oil so please correct me if I'm wrong. Maybe wishful thinking on my part, with the start of grouse shooting providing the opportunity for a double celebration -:)
fuiseog
at last some good news. Are we still expecting an update next week?
thanks
I'm not sure when results are scheduled for (perhaps someone else would like to ask?) but in any case I'd be expecting an RNS shortly after first oil is produced to announce that fact (and perhaps other matters). I've got Monday 15th pencilled in for that....
ee
More detail on those "premiums" is given in this link:
The Premium can be expected to rise once the market can see a proper assay of the crude quality (and future cargoes are derisked, broadening the number of bidders), but it is worth noting that Minas benchmarks at Brent + $4.23, according to the latest spreads stats........... so Brent +$4.30 to Brent + $5.70 ish doesn't seem to be too shabby a start!
I wonder if the analysts will notice......;-)
ee
There is no news just yet of the start of production at TGT - but this news (from last week) is quite interesting:
Given that they have already sold one October cargo, that would perhaps indicate a relatively early ramping-up of production is being planned for October. If they were to sell a total of 3 cargoes in October (say 1.5-1.8mn bbls) then that might imply production of around 50-60,000 bopd.
We'll see.
ee
The first cargo of TGT crude has now been put on the market by Petrovietnam, for delivery in September:
....bids are due by tomorrow, so it will be interesting to see what the opening price for it is! :-)
Note that normally there would be a bit of a discount to the price ultimately achieved, because it may take a bit of time for the market to become familiar with the specification and the refining qualities of the crude.
It will also be interesting to see exactly when that cargo gets delivered and when the second one is offered for.
ee
Crude: Te Giac Trang, White Rhino Loading: Sept. 1-30 Quantity: 300,000 to 700,000 barrels
Crude: Su Tu Den (Vietnam) Loading: Sept. 1-30 Quantity: 200,000 to 600,000 barrels
I’m not sure one can draw any useful comparison but interesting nonetheless to note what Su Tu Den’s output is….according to KNOC :-
http://www.knoc.co.kr/ENG/sub03/sub03_1_1_6.jsp
Su Tu Den field 23 production wells are now producing average 35 thousand barrels per day
Su Tu Den Northeast field was completed in Apr 2010 and this field is producing average 39 thousand barrels per day now.
Also interesting to note KNOC’s block-wide reserves estimate in respect of Conoco’s proposed disposal :-
The recoverable volume of Su Tu Den, Su Tu Vang , Su Tu Trang and Su Tu Nau fields is 643 million barrels and Production will last by 2023
It seems that typical discounts are much bigger than I expected, because the buyers don't know the exact make-up of the crude and haven't assayed it (or had practical experience of using it). However, I'm told that it is likely to settle down by year-end to be around a $5 premium to Brent.
Re dj's point, I'm not sure that one can impute any read-across over volumes. If they produce more then they'll just sell the next cargo sooner
ee
There is a small mention of the TGT cargo in this article in Upstream on a new Vietnam licensing round:
...interesting to see that they have sold TWO cargoes, as well as the premium having been better than expected.
ee
Just on a valuation point, I copy below part of a post I have just made on ADVFN:
I should credit DangerSimpson as the "someone" on TMF and reference his clarifying post
ee.
(ps...small corrections made to the figs first posted, having allowed more correctly for tax)
Thank you, ee.
Maybe it is now becoming clearer why I asked for a dividend or return of capital at the AGM (to some objections, which I politely ignored!). ;-)
Why would any shareholder want to sell a business which is able to generate ONE QUARTER OF ITS MARKET CAPITAL, EVERY YEAR AND IN CASH?
How many other businesses do we know which are capable of such an enormous return, and from only one of its assets?
Soco must be be performing beyond the wildest dreams of its directors when they started 14 years ago.
Perhaps the time has come to revisit the original business plan.
MD
Not really. It is a waste of everyone's time to ask about dividends - but a return of capital upon a VN sale has always been a nailed-on certainty!
Simple. Price.
The market cap may only be $1.9bn now - but I am expecting a sale in VN to generate somewhere over $3-3.5bn. When that happens the market price will be considerably higher.
ee
ee, I sent you a Stockopedia email this evening.
If I recall correctly from the AGM, ES made the point that horizons below TGT had not been drilled. Maybe others better informed about the geology and drilling history could comment?
I suspect that that is a reference to the fact that the deep Oligocene targets that are the subject of the TGD appraisal area are thought to extend northwards and to underlie the shallower TGT. It is certainly true that they haven't been drilled (and are unlikely to be unless they look likely to unlock the TGD fan potential).
>> from my memory, the comments by ES were made in reference to whether perhaps the tgd structure might well extend nothwards, and go beneath TGT,
Regarding the comments re producing the oil in the licence period, SOCO have proved rather good at greasing the wheels, and getting extensions when needed so I would suggest it might be possible to do something about that, by perhaps committing to more investment, or something
cheers K
The drilling order is not yet decided, it seems. Awaiting a meeting in a few weeks time. I'd guess that there may be some sort of comprehensive update possible in August?
ee
Accordingly I am sticking by my expectation that reserves at TGT will be pretty close to 600mn bbls
The drawback to that would be the ability to produce within the licence period, which effectively will be approximately 18 years. That translates as 90,000 bopd average throughout the whole 18 years. That's just not feasible imo. As things stand, the anticipated 100,000 bopd peak will be on a declining path 3 or 4 years out. No doubt they could expand the facilities somewhat but they'd probably need to get up between say 150,000 to 175,000 bopd??!! Yes, the 5 year licence extension period could come into play but 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.
Just saying ;-)
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:
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:
...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
it is my impression that the sizing of production capacity is going to somewhat cap early production rates (so the underlying plateau level may well be c150,000 bopd).
One thing I/we have overlooked..... what are the plans to develop H2 block containing 5X? Can it be drilled from H1 WHP I wonder? Is there a Phase III that we haven't heard about?
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.
Not sure it's actually "flagging the potential" but yes, Bach Ho will certainly have plenty of spare capacity.
The next 5-10 years will therefore dominate the valuation.
True.
Re H2 & 5X I'm not sure what the position is. My guess is that it could form part of Phase 2 - but equally there could be a phase 3.......or simply an eventual tie-back of a couple of wells to H1, to maintain plateau production via the H1-WHT for longer?
Coincidentally I have already enquired today which fault blocks are being targeted by the phase 2 wells, so I'll advise if I get any clarification.
rgds
ee
ps.....don't forget the potential for deeper prospects below TGT. Might give some medium/long-term upside potential as TGT itself comes off plateau?
good post dj - and thought provoking too.
I had a long reply in the works but have contrived to lose it, so I'll be briefer:
a) In 2008 I was told before the 6X and 7X wells were drilled that they were designed to test confidence in whether the management estimates of 500mn were justified or whether the range was more reasonably in the 300mn. If you look up the results of both those wells you will see that they were positive (producing over 22,000 bbls between them) and in both RNSs there was comment about the results having given further confidence re management estimates. Accordingly I conclude that in late 2008 it was still management's belief that the reserves were in the 500mn bbls region. This belief can't have been damaged by the subsequent 2009 PSDM reprocessing and its validation by the recent drilling programme.
b) re CNV I'd be pretty sure you are right with this comment: CNV downgrade potential puts a brake on any TGT upside revision. .....although I would think that in practice all it has done is reduce the upside from CNV re the (as yet unbooked) wet gas component that accounts for around one-third of the volumes at CNV.
c) There is no doubt that CNV has disappointed somewhat (though the jury is out on the remedial efforts). However, there is also no doubt whatsoever in my mind that TGT has continued to meet or exceed expectations....and that TGT is greatly more important in the context of a sale.
Accordingly I am sticking by my expectation that reserves at TGT will be pretty close to 600mn bbls when all is done and dusted (though whether we ever get to see such a figure announced pre-deal I very much doubt indeed......something in the 450-500mn area gross may be possible though?)
ee
...ps...as further corroboration of the point I make above in a), look again at slide 8 from the 2010 interims presentation ....in particular, look at the blocks that were drilled by 6X and 7X !! The 2009 PSDM seismic indicates a very much larger area for 2P reserves on those blocks than the 2006 seismic would have done (and the 2006 seismic and later drilling would have been the basis for all the reserves bookings you quote up to 2008)
If I recall correctly from the AGM, ES made the point that horizons below TGT had not been drilled. Maybe others better informed about the geology and drilling history could comment?
fuiseog
I suspect that that is a reference to the fact that the deep Oligocene targets that are the subject of the TGD appraisal area are thought to extend northwards and to underlie the shallower TGT. It is certainly true that they haven't been drilled (and are unlikely to be unless they look likely to unlock the TGD fan potential).
ee
Vietsovpetro discovers oil near Bach Ho field
http://www.saigon-gpdaily.com.vn/National/2011/7/94083/
Vietsovpetro has found oil in Mioxen layer in the northeastern part of Bach Ho oilfield offshore southern Vietnam, said its Geological Deputy General Director Tran Hoi.
The oil flow of around 4,560 barrels a day was discovered at the depth of 3,377-3,396m in lot 09-1 which is located separatedly from Bach Ho oil field which is under production.
At present, Vietsovpetro is making an assessment for the new oil reserve and an exploitation scheme, he added.
Seems Upstream reckons the discovery is to the NW of Bach Ho
http://www.upstreamonline.com/live/article264297.ece
Whatever, it’s close to TGT. Noting the depths though, it strikes me as Oligocene rather than Miocene, which is interesting in that this horizon accounts for very little TGT reserves, yet was I think the original explo target. Who knows whether this latest discovery means anything at all for Soco but it sure can’t be seen as negative….especially the flow rate. Hopefully, it means Oligocene prospectivety has some upside during drilling and production of TGT ;-)
Note : observations are purely speculative!
Just on the topic of Oligocene and Miocene reserves and distribution, it may be worth just looking back to the September 2007 interims presentation (pages 8&9). These have long been superceded but, at the time, the oligocene potential was firmly thought to be under the H1/H2 fault blocks and in the TGD appraisal area - with not much in the area of TGT-3X or TGT-4X.
And going back further (September 2006 interims) we can see on p7 the claim that TGT has 500mn bbls recoverable, of which 225mn had been booked. And from the same presentation it is clear that this claim was based on only the first three exploration wells on TGT (pre-dating TGT-4X). Page 8 in the same presentation gives an illustration of TGT at the time (which is interesting to compare with more recent illustrations)
And going back still further (December 2005 presentation), TGT was estimated at the time to have mean recoverables of 171mn bbls in the LBH 5.2 Miocene and 193mn bbls in the Oligocene C&D (see pages 14 & 15)....though of course even TGT-2X hadn't been drilled at that time (and it subsequently tested at 3,300bopd in the Oligocene C).
The key slide, though, in all the presentations is slide 8 in the 2010 interims presentation. This shows the distribution of the reserves estimates based on the 2006 time-migrated seismic in comparison to the distribution of the reserves based on the 2009 PSDM seismic. In sum, the 2P reserves area on fault block H1 and H2 is very slightly larger (+5-10%?)....but the 3P reserves area is roughly 50% greater than the 2P area. In the southern blocks, the 2P reserves area using the 2009 PSDM seismic appears to be way more than double the 2P reserves area based on the 2006 seismic....with a further increment of potential from the 3P estimates. (ps.....note that this 2P/3P increase is purely in relation to the area - which means it relates ONLY to OOIP numbers......any increase in the recovery factor from 30-32% up to 50% is a completely separate, and additional, matter!!!!)
Now....bearing in mind that (as noted above) the 500mn bbls figure emerged in September 2006 (and was therefore based on the 2006 seismic)....and the 2010 slide 8 suggests that the aggregate 2P figure for TGT based on 2009 seismic could be perhaps 20-50% bigger in area, there seems to me to be very considerable potential for a big reserves upgrade for TGT at some point.......
....the question, as ever, is exactly when? It is fairly clear that the full reserves potential cannot be properly assessed until the southern fault blocks have been drilled - but then one has to bear in mind that the deal to realise value in Vietnam is going to need to be presented as a win-win deal for both sides......and IMO that means that a deal will be done at a point when SOCO can announce a big reserves upgrade at TGT at the same time as doing a deal that looks extremely good in relation to current analyst estimates (and the current price of the shares), whilst at the same time leaving the buyer to finish off the development drilling for phase 2 and the southern fault blocks - and to be able to claim further reserves upgrades of their own.
All this seems to me to point to a deal being done this year (though, as ever, it is difficult to say exactly when)....and it also points to a big reserves upgrade.
ee
Evening ee. Good thought provoking post :-)
It might also be instructive to look at this from a different angle i.e. booked reserves history, starting in 2005 when VN was first credited with 2Ps (in mmbbls) :-
2005 : 68 [CNV]
2006 : 100 [+TGT-1X-2X-3X-4X-(5X)]
2007 : 100
2008 : 125 [+TGT-(5X)-6X-7X]
So, two major revisions. First thing to note is that the 2006 figure for TGT of 68mm (based on gross 225mm) suggests a 36mm downward revision for CNV to 32mm, which seems about right to me. The 2008 figure reflects gross TGT of 300mm with same again for CNV.
A few points. Despite early analysis that the Oligocene held more exploitable resources than the Miocene, it hasn’t lived up to expectations what with only two meaningful results in the C sequence from the seven explo wells drilled and as good as nothing from the D sequence. It seems to me, judging from the timings of the presentations you quote, that the 500mm recoverable figure may have been put forward before they actually concluded that the Oligocene wasn’t going to perform as they thought, hence the 500mm may have been overstated?
It also occurs that since CNV came on production it hasn’t stabilised at the 20,000 bopd as scheduled, hence there is scope for a further downward revision at some point. That’s not to say it will happen but by the nature of the business and potentially fickle nature of basement, I think this is the main reason why they did not increase reserves at y/e 2010, subsequent to development drilling supporting the upgraded TGT PDSM analysis
From where I’m sitting :-
a) the original 500mm is questionable, effectively an early “throw away number” not since repeated in subsequent presentations.
b) CNV downgrade potential puts a brake on any TGT upside revision.
c) the Oligocene certainly contributes to 2P booked reserves. I don’t know by how much but because it has been such an elusive horizon, the reserves outcome could be up or it could be down. Bit of a toss of the coin result which may not come to light for some time down the road.
d) Yes, the PDSM offers good ‘proven’ OIP upside but essentially imo, the recovery factor at 30% to 55% is by far the biggest mover of reserves addition which can only be resolved by actual production.
My own feeling is that if all goes well over the next 12 months drilling and production, the very best one can hope for is about 150mm to 175mm VN bbls net to Soco, or 130mm to 150mm less the minority interest, which at $17.50 pb equates to 420p to 480p per share or at $20 pb is 480p to 550p per share.
Not forgetting these assumptions could prove horribly wrong, particularly if the recovery factor finishes up on the low side, let alone any other nasty!
Reuters article sourced from Vietnam
FWIW - adds little, save for the cost of the H4 jacket topsides.
ee
Just to keep stuff in one place, I was asked a question on ADVFN re TGT:
And my response was:
...just for the record.
ee
Not sure retirement would force their hands early to be honest. I'm sure they can just take it fairly easy anyway now until tgt is online. It's not like they need a huge payout to go on a massive bender !
Why not just sit back and wait for production to strengthen their hand before they play their final round if cards ?
Other things being equal, one might easily take that view. But one certainly cannot assume that other things ARE equal - and in my opinion there are other reasons that an early deal may be considered - including the fact that it is currently a sellers market for oil assets whilst Mid-East tensions continue to fuel the oil price! Will that still be the case in 6 months time? Possibly - but nobody knows! Will someone on the list of potential buyers decide to bite the bullet and to pay a price today that would match SOCO's aspirations for the post-production value of VN? Again nobody knows....but, as I have recently tired of saying, it only takes ONE buyer. And nobody knows what is going on in the heads of the Koreans, the Japanese, the Chinese, the Indians and the many others who are charged with increasing their national energy security!
ee
good spot, interesting, It would certainly mirror the yemen sale, if they had some production data first.
Certainly Ed at the AGM after the yemen sale, said to me , and once we had production data, the buyer is more willing to accept estimates of recoverable oil. However, the big difference this time, is that they'd like to retire this time we think, so where as before it didn't make much difference if yemen was sold 6 months earlier or later, now it makes a big difference to the management,
so maybe, or maybe not is my view, helpful as ever,
K
Repo,
About as likely as Ireland winning cricket -:)
I think repo we are in agreement but I would say that if a potential bidder was serious they'd probably see a lot more data that we get in the various RNS's. As you say both sides to a potential deal will know a lot more by September and even more by the end of the year.
To be honest I am quite crap at timing the market so I don't see much point in selling out here and trying to make some more money elsewhere between now and the sale time. Any other investment would also need to pay out in time and perhaps that is a bit too stresseful. Look at Rhu and his investment in Vast over on Advfn. He has been itching to get into SLG for ages but his money has been tied up in VST.
One should not forget though that there is still risk staying long here so it is not all a one way bet. Political risk although small always exists. It is also possible that there is a reserves decrease or some operational problems.
I'd also like to say that my attitude may well change if the price runs up to 450p for example as the risk/return increases substantially. I'm not in the camp that thinks 600p is achievable and I'd take 500p happily.
Log
Thing is repo it could happen anytime really. I would say purely because from experience everything takes longer than expected it is likely to be towards the end of the year but I guess you never really know.
Being out of the stock at these levels seems foolish when a bid might just spring up at 450-500p. The risk at these levels also seems quite low compared to alternatives out there.
Soco sounds like a good stock to hold along with some more speculative stuff like GKP and VST for example. I doubt we'll double our money in short order but equally assets do underpin the price. It doesn't have the same explo upside as an EO or an SLG but there is M&A upside and potential reserves upgrades from TGT.
In short just a different animal really and horses for courses.
Log
Being out of the stock at these levels seems foolish when a bid might just spring up at 450-500p. The risk at these levels also seems quite low compared to alternatives out there.
Really hit the nail on the head there log.
It's completely nuts IMHO.
Hi log,
Being out of the stock at these levels seems foolish when a bid might just spring up at 450-500p. The risk at these levels also seems quite low compared to alternatives out there.
It might and Pompey might win the FA Cup again, but not in 2011, unfortunately.
If they can't nail down the recovery rates at this stage the buyers don't know what they're buying and the seller doesn't know what he is selling. A deal may still get done and in the price range you suggest, but history suggests Soco sell post production phase, davjo has heard whispers and everything with SIA takes longer than expected.
Noone is going to lose money from here if they hold their nerve and the upside looks 50% plus within a year. Don't get me wrong it's a cracking investment at these levels and offer good balance to a more risky exploration led portfolio.
If I get back in in several months I'll just lock the shares away until the deal is done. Current holders have to do the same I feel, but not kid themselves that the deal is 'imminent'. If it happens sooner it is a bonus.
repo
davjo has heard whispers
Not really, just reverting back to RC‘s comment and layering in some new info.
http://www.stockopedia.com/content/meet-the-management-interview-with-roger-cagle-of-soco-international-plc-39617/
we’ve always given the market guidance that we think this field can be in the 4-500m barrel recoverable reserve range and we believe that the reinterpretation has moved us in that direction from what we’ve already booked. So, did it get us all the way there? No and even with drilling these development wells, that won’t get us all the way there either because what you’re going to need is a bit of production so you can ascertain the recovery factor………
I understand that recovery factors in the range of 40% to 55% have been found in similar sands at nearby Cuu Long fields. This is reckoned to be at the high end for lacustrine deposits though and presumably for this reason, Soco have apparently assumed something in the low 30s for now. The potential implications from “a bit of production” are obvious.
we believe the company will be acquired by year end
Certainly not before imo. Picking up on vibes in certain reliable quarters, I'm getting a strong impression that the nature of TGT reservoir is such that uncertainties remain over any upward reserves revision at this stage, principally because of the unknown recovery factor which apparently has a widish range of possible outcomes. I understand Soco have based their assumptions at the conservative end of the scale but only production performance will actually determine what it is.
As to earlier discussions on y/e reserves statement in the upcoming Prelims/Annual Report, I wouldn't rule out reserves remaining unchanged. Reasons being those given above (which could hopefully over time have a very rewarding impact) plus the western side of TGT hasn't been production drilled yet (current well I imagine), so data is incomplete. Also, since CNV reserves are somewhat debateable following production underperformance and VN reserves being grouped as one, I imagine the company would be keen not to over-egg the numbers right now.
In summary, sit back and wait for H2 before any real action enlivens the market with TGT start-up and multi-well Congo drilling campaign. In between time, I think there'll be plenty of short term trading opportunities.
Phew ;)
Isnt a guardian recommendation usually a sell signal?
Isnt a guardian recommendation usually a sell signal?
It's NOT a guardian recommendation. It's the analyst's comment!
Wakey Wakey...... Today's Evening Standard:-)
Chinese whispers over Soco as FTSE breaks losing streak
Shares in the FTSE 250-listed oil explorer climbed 7.3p to 340.7p today as it said its drilling campaign in Vietnam had got off to a successful start.
Production should start in August, at an estimated 55,000 barrels a day during the first stage of its development.
This was enough to revive rumours that Soco has caught a suitor's eye. "The whisper that won't die down is of Chinese interest in Soco, with Sinochem Petroleum the most likely candidate," said one talkative type.
http://www.thisislondon.co.uk/markets/article-23928478-chinese-whispers-over-soco-as-ftse-breaks-losing-streak.do
Guardian
Soco International rose 6.6p to 340p after positive drilling news from the Te Giac Trang (TGT) field offshore Vietnam. Analysts believe the company could be a takeover target for a national oil company such as Sinochem Petroleum. David Farrell at Evolution Securities said:
Our buy recommendation for Soco is premised on the fact that we believe the company will be acquired by year end by an Asian national oil company due to its strategic oil assets of which the TGT field is central. A take-out price [could be] much in excess of our current target price of 400p.
http://www.guardian.co.uk/business/marketforceslive/2011/mar/03/amec-rises-ftse-peace-hopes
I've highlighted a crucial admission from Evolution. They are only a recent convert to SIA - and may take a while (too long?) to get a grip on valuation. I'm still happy with my own expectations after the TGT news, FWIW, notwithstanding dj's caution. The timing issue resolves to whether there is any buyer out there (only ONE is needed!) who is prepared to pay "tomorrow's price today" - and it is my expectation that there is....hence the recent topping up. More particularly, I am not prepared to take the gamble that there isn't any such buyer, especially given the geopolitical backdrop!
ee.
Asian buyers are typically cautious and want as many possible uncertainities firmed up. I just can't see them putting best part of two billion pound on the table without having a good idea about likely recovery rates. I don't know where davjo got his information from but if it's true then there will be no deal, this side of Q4 2011, imv.
A couple of months of production should allow the Asians to move and thereafter it could be quite a scramble and I suspect a very nice price for Soco;-)
The lack of information coming out of Soco Towers as regards TGT is either a sign that a deal is almost upon us or that considerable uncertaintainties remain over recovery rates and reserves. I suspect it's the latter.
repo
There are three sorts of people in this world. Those who can count, and those who can't.
Buffy
Two words. Sinochem.
Looks like the stock is getting beaten up with the general market again today. At this sort of level it must surely attract some interest soon.
I have heard on another BB than perhaps a potential buyer was rebuffed and is unwinding their position. I guess if they bought up to the 3% mark that might have some effect on an unwind but I doubt not very much.
I would probably buy some more at these levels if I wasn't already rather full of Soco already. Looks very decent value on TGT alone. I do hope there isn't anything going wrong with the development of TGT - an update from the company on progress would be nice.
Log
I see I was reported for misinformation. Oh well, I guess it may have been a little misleading given the very small scale relative to the recent protests in the ME. Sincere apologies for that.
http://www.bbc.co.uk/news/world-asia-pacific-12595261
As I say, I doubt it will turn into anything, as the one-party system seems to have a firm grip on things.. but in these revolutionary times I still think it worth highlighting the risk of concentrating assets, and investments, in one particular geographical area.
You pays your money and you takes your chance I guess - hopefully some news soon for Soco holders!
I suspect this `demo` reported by Al Jazeera will have about as much impact on the share price as the Congo-National Park story did - about zero.
I hope progress is made soon on a Vietnam sale - It isn`t about the money. I am not sure i can take a year of dubious `news` of marginal impact being reported as though it is Soco`s Macondo or Ugandan tax fiasco.
Leek
It was a few disgruntled farmers with signs. Al Jazeera reported the story. I doubt it will turn into anything.
I just thought I'd post to highlight the heavy dependency on assets in one geographic area. I know some have a lot of eggs in this basket.
Is there public unrest in Vietnam? The article you linked to says little about it. I note it also mentions unrest in Korea - i didn`t see any when i was there at the week end so maybe it isn`t in Seoul....
Are they any more reliable news links to this trouble?
http://is.gd/NCwXJZ
Public unrest in Vietnam cannot be good for investor sentiment at the moment (further buying opp Monday?).
I dunno, like London buses, you wait around bloody ages for a revolution, and six turn up at once.
Isaac 410p for tgt then add in cash cnv and Africa is nearer 500p and possibly a lot more if there is upside on tgt. That isn't 10% from current levels.
Davjo
There are many Investments that offer 10% upside for much much lower risk....So why Invest in SIA which has one main asset holding 95% of the value, Vietnam.
The likes of BP. & GSK would provide a 10% return from current levels with much lower risk IMO. You could buy SSE and take 6% dividends with relatively low risk, as you can with UU. ....
But then again I don't believe for one second that you honestly think Vietnam is worth just 410p. You clearly believe it is worth a lot more & just trying to create discussion for people to illustrate that it is worth more then 410p.
Listen to Jim Rogers, apparently Oil is going to $150/bbl this summer.........TGT - A great asset to bring online in such an environment.....The economy is recovering according to more recent data in the US & UK so higher Oil prices don't surprise me at all.......
Isaac
I balance my investments according to my appetite for risk at any given time...as any reasonably sane person would do!
2nd question is why do you hold 25% of your portfolio in Soco when the upside is just 10% from the current share price?
CEO & Sterling have been marching ahead lately, surely it would have made more sense to buy those & get a better rate of return ?
So if Vietnam is worth 410p/share why were the management so stupid to not sell Soco at £5.50 which is the recent figure touted in the press?
In trying to anticipate any imminent TGT reserves upgrade, I’ve been running some numbers to see if it’s possible to gauge what this might amount to by considering the production profile as envisaged at this point in time. AIUI, the plan is roughly to produce 55k bopd ramping up to c.97.5k bopd when Phase 2 kicks in after 2 or 3 years. As we all know, once production peaks, decline sets in. This typically happens for this type of development after 6-7 years. Taking all that on board and projecting production through the life of the development licence, I get recoverable reserves resulting from different decline rates as follows :-
10% : 380m
12.5% : 340m
15% : 300m
Does this cover the range of possible outcomes? I don’t know. What I do know is that CERA’s recent study of a 1000 oil fields noted that UK fields declined well in advance of 10% on an individual basis and Norway’s giant fields typically 13% with other subclasses declining equally fast or even faster. So how may TGT compare with North Sea/Norway? Again I don’t know, other than to note that TGT is a conventional sandstone reservoir set in a relatively mature basin, so I imagine it shouldn’t have markedly different characteristics in respect of its production profile…unless some more knowledgeable person knows different?
So what does this tell us? For me, it fits my cautionary upgrade stance stated in earlier posts. It also emphasises the wide range of uncertainty from a buyers’ perspective, which won’t be resolved until a number of years production history is in the bag. Yes, things like enhanced recovery may lift production in future years but that ain’t going to be evident in any near term sale price of the asset. In my view, if Soco sell in the near future it’ll be based within the reserve range noted above, probably towards the lower end, equating to around 410p/sh at a guess. If they don’t fancy that, I can see them holding out for a year or two until they can get what they want.
I’d be delighted to hear opposing arguments ;-)
I don't see any point at this juncture - sorry. It will be what it will be, and I've already outlined my thoughts.
Isaac noted:
....and whether or not one agrees with the $150 idea there is no doubt at all that TGT is coming on stream at the right time - or that this is a very good time to be looking to monetise it, as it will be a very very attractive asset for someone.
ee
Yep made me wonder too because the same interview starts by saying cross made 50m out of selling his stake. With such a massive return quoted it would mean he only invested a few thousand himself and he surely was granted many options along the way. Pity the papers can't get this stuff right.
"...She invested £400 in 1995 and was getting a cheque for £720,000...."
Nice story but it's not true. (Not Isaac's fault - either Cross mis-spoke or the reporter got the details wrong)
See www.stockopedia.com/content/dana-takeover-bid-knoc-makes-preliminary-approach-44069/?comment=845#845
Dana Petroleum chief Tom Cross reflects on the deal of the decade
Tom Cross says Soco looks next in line for takeover....
He also sees further industry acquisitions of the size of Dana, pinpointing Premier Oil and Soco International as two of the next oil and gas companies to attract suitors.
“These things go in cycles and it’s a function of when a small company gets to a size that whets the appetite of a bigger one,” he says. “If KNOC hadn’t bought Dana, someone else would have.
Worth reading the article.....
I'm sure these comments apply to Soco...
Tom Cross received a phone call he’ll never forget six weeks ago. It came after the announcement that he was selling Dana Petroleum, the oil company he founded 16 years ago, for £1.87bn.
“It was from a disabled pensioner in Ireland who was calling to say thank you,” he recalls. “She said: 'Dana has transformed my life’.
“She invested £400 in 1995 and was getting a cheque for £720,000. She was able to move to a new bungalow with wheelchair access and to go to Australia to see her grandchild for the first time.
“There are a lot of people whose lives you have completely changed,’ she told me. That really captured it for me. It really showed me what this means.”
http://www.telegraph.co.uk/finance/financetopics/profiles/8113069/Dana-Petroleum-chief-Tom-Cross-reflects-on-the-deal-of-the-decade.html
Oil hits two year high as analysts predict $100 a barrel in 2011
Full article :
http://www.telegraph.co.uk/finance/financetopics/oilprices/8113846/Oil-hits-two-year-high-as-analysts-predict-100-a-barrel-in-2011.html
Why does it keep coming up ?
at least 2 people have independently spoken to the company and confirmed there won't be another attempt at tgd without licence extension. It isn't going to happen.
(unless they change their minds ! - so not impossible but very unlikely I would say),
I wonder if that rig might be retained for tgt drilling ?
K
Well time is against us if the plan is to have another poke at it anytime soon.
Don't think it will happen, TGD wells take about 4+ months to drill and we are approaching the monsoon season so I just don't see another poke happening.
And I don't think Soco will commit anymore funds to TGD until we have some kind of certainty as to what will happen with the licence.
And if Soco does get an extension and they wish to drill another well then it does'nt make sense for them to rush into such an operation anytime soon.
Analysing the latest results & Planning the next well would take several months. It took us over a year and a half before TGD-2X was drilled.
Lets not forget Ed is 67 and unfortanetly time is not in his favor.....he has to enjoy his $100mn+ stake at somepoint...
Isaac,
Don't be too quick to jump to conclusions. Rigzone have the Maersk Convincer listed as 'Ready Stacked' as opposed to 'Cold Stacked'.
http://www.rigzone.com/data/results.asp?sortField=0&sortDir=1&P=4&Rig_Name=&RWD_Max=-1&RWD_Min=-1&Region_ID=-1&Rig_Type_ID=4&Manager_ID=-1&Rig_Status_ID=-1&Operator_ID=-1
Ready Stacked
Ready stacked status means that a rig is idle but operational and is also referenced in the industry as warm stacked. A ready stacked rig typically retains most of its crew and can deploy quickly if an operator requires its services. In a ready stacked state, normal maintenance operations similar to those performed when the rig is active are continued by the crew so that the rig remains work ready.
Daily operating costs for a ready stacked unit remain close to the levels incurred when the rig is actively working. Thus, a rig is kept in a ready stacked state when its owner anticipates that the rig will be able to return to work shortly - either due to having a commitment in hand or the owner's perception that work will be secured relatively quickly. Ready stacked rigs are actively marketed and considered part of marketable supply.
I think it is also worth bearing the following in mind from the BHP bid.......
The company is under pressure from some investors, including its biggest shareholder, BlackRock, to resume share buybacks which it put on hold in 2007. They say it would be the quickest way to boost value for shareholders.
"Buybacks are always good," said James Holt, investment specialist at BlackRock. "If they dropped the bid and have all this extra cash on their hands and make a strong announcement what they're going to do with all their cash, you could see (BHP shares) rally quite a bit."
http://www.reuters.com/article/idUSTRE6A30QC20101104?pageNumber=2
Considering BlackRock owns about 11% of Soco's shares one has to wonder what their thoughts are to management post TGD.
Interesting. For those that don't know Maersk Convincer was the rig that drilled TGD. So it is a case of extending the licence or TGD is dead. We shall soon find out.....
Oil looks like it wants to go to $100/bbl......As each day goes by Oil seems to be going higher and SIA seems to be getting closer to producing their share of 55,000 bopd. Time is against a buyer as each day that passes Soco is becoming more expensive.
Just for information, a rig search now shows the Maersk Convincer as 'Standing By - Completed Contract' which would indicate that SOCO are not using it for further drilling in the area.
http://www.braemarfalconer.com/rig.pdf
Morgan Stanley have a bit about what BHP might do with all its money now it can't buy Potash
-------------
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Well I can think of a nice oil field they could aquire which should be producing liquid petroleum at a very fast rate by mid next year :-)
If Soco do get an extension to TGD and PTTEP chooses not to back in that effectively leaves Soco with a 58.5% WI in TGD. That is quite a large portion of the asset to hold, fund & develop for a company like Soco.
If Soco do decide to drill another well on TGD what is the liklihood of then farming out their interest to a more expert operator of deep drilling and perhaps even getting this partner to pay a large part of the costs?
I would find that very attractive if they can do it. What I don't want Soco to do is drill TGD with a 58.5% interest as I think they are out of their depth with TGD and we have already explored that route a few times and have'nt been very lucky.
However I personally think TGD is dead.
The one thing that we are all (quiet sensibly) writing off at this stage is DRC, there is still one well to be drilled (with the option of a 4th ?) now we've had one dry hole, and one that found some oil, and might point to the possibility of commercial quanities of oil up dip, and there is a new play. Things are looking bad at the moment, but how quickly the view would change if this next well was a gusher. I agree the odds are against it, and valuation wise at this moment it's looking unlikely, but when we say well in a years time their could be a 50% upside, there might be a chunk for DRC too. I can't remember the amounts per well put in but roughly a pound each wasn't it ?
cheers K
Does a company have to RNS something material immediately?
I know they have to release the information at the same time to everyone.
Buffy
Thanks ee - obviously not an exact situation and currency risk is also a factor here obviously. I found this quite surprising though as it seems reasonable that the POO will reach $100 by the time TGT comes onstream. In which case the market should re-rate the shares accordingly.
Log
it seems reasonable that the POO will reach $100 by the time TGT comes onstream. In which case the market should re-rate the shares accordingly.
Valuing companies on the basis that a given commodity will be markedly above market expectations is not a useful method IMO. You may as well bet on oil directly.
Dec 2011 Brent is ~$88/bbl.
Just on that point, the recent RBC note makes it clear that a $15 move in the price of the Brent benchmark would move their NAV estimate by 19%.....so Brent at around $100 would take their NAV estimate from 497p to 591p.
Does anyone know if or how much this relationship is symetrical e.g. if POO declines $15 does this drop Nav by nearly £1 ?
Log
Assume it is the same extent up or down. It won't be of course - but the error from making that assumption is insignificant compared to the rest of the errors in NAV estimates.
Hi ee,
Interested in yr reply to Q's in msge 98 ! I'd expected you to have simply said that - as a 'material' activity - ANYTHING done on TGD after the P + A would have had to be RNS'd.......
Following on from that, and leaving TGD to one side for the moment, could Soco be doing any kind of drill activity on TGT that hasn't been disclosed to the market ?
I ask mainly to educate myself as to what is permissible in such cases and appreciate that - from a newsflow management perspective - companies may only wish to report when something is fully 'cooked'......
They have said there is a 7 well drilling programme on TGT and that they will be updating on material logs info but will not be flow-testing (because these wells are being drilled as producers). So......the market has been told there is a drilling programme and that it should not be expecting to hear very much about it.
What the market hasn't been told is exactly where these wells are - and exactly what their objectives are.....and IMO it is quite possible that there could be some news on that front fairly soon, as part of the "way forward" news. I wouldn't rule out one or two surprises - and I wouldn't rule out a reserves upgrade at TGT....
...but we'll see.
ee
Sorry if I have missed this in the past. If so please point me in the right direction but -
1. Do we know what happened to the rig after TGD 2 was p&a'd.
2. Is it possible that SOCO could have moved the rig for a 'quick poke' somewhere else on the block and if so -
a. how long could they keep the rig and
b.. when would the weather window for drilling in Vietnam close.
Regards,
Eric
Don't know the answer on those, other than there would have been time for a well or two before the weather window closes. If anything I would have thought TGT would be the priority for now - certainly not doing anything on TGD, pending discussions.
There has also been concerns about whether Soco can sell TGT and obtain a decent price without a decent production record......Well lets look at the results from the wells drilled on TGT - although these are exploration wells they are as good an indication as to what production can be....
TGT-1X
The initial wildcat exploration well on the Te Giac Trang ('TGT') structure on
the previously un-drilled 'H' prospect on Block 16-1 offshore Vietnam, the
TGT-1X, has tested water-free at a combined maximum rate of 9,432 barrels of oil
equivalent per day ('BOEPD') comprised of 8,566 barrels per day ('BOPD') of 37
degree API gravity crude and approximately 4.86 million cubic feet of gas per
day through a 80/64 inch choke size
http://www.investegate.co.uk/Article.aspx?id=200508220700163263Q
TGT-2X
The TGT-2X appraisal well on the Te Giac Trang ('TGT') structure on Block 16-1
offshore Vietnam, an up dip follow-up well to last year's TGT-1X discovery well,
has completed testing with a total combined flow rate of approximately 17,500
barrels of oil equivalent per day ('BOEPD') from the Miocene Lower Bach Ho 5.2
and Oligocene 'C' intervals.
http://www.investegate.co.uk/Article.aspx?id=200603150700177947Z
TGT-3X
The drill stem test was conducted in the Miocene Lower Bach Ho 5.2 ('LBH 5.2'),
the formation that was also tested in the discovery well and the primary
interval in the follow up TGT-2X well. The tested interval, perforated between
2,827 and 2,887 metres, flowed at a combined maximum rate of 9,908 barrels of
oil equivalent per day comprising 9,008 barrels of oil per day of 40.5 degree
API gravity crude and approximately 5.4 million cubic feet of gas per day
through a 88/64 inch choke size.
http://www.investegate.co.uk/Article.aspx?id=200604260700569900B
TGT-4x Failed
TGT-5X
The first drill stem test over the 32 metre Oligocene 'C' interval tested
water-free at a maximum rate of 7,098 barrels of oil per day ('BOPD') of 36.5
degree API gravity crude and approximately 2.07 million cubic feet of gas per
day ('MMCFD') through an 80/64 inch choke size. The most prolific interval in
the other successful wells drilled on TGT, the LBH 5.2 pay zone, was perforated
and tested separately between 2,841 and 2,866 metres with a maximum flow rate of
8,987 BOEPD comprising 8,104 BOPD of 41 degree API gravity crude and
approximately 5.3 MMCFD through a 80/64 inch choke size.
http://www.investegate.co.uk/Article.aspx?id=200612180701180708O
TGT-6X
Further appraisal well success on TGT-6X, with combined maximum flow rate of 14,490 BOPD
http://www.investegate.co.uk/Article.aspx?id=200806160700037374W
TGT-7X
The Company's majority owned subsidiary, SOCO Vietnam Ltd., announces that the Te Giac Trang appraisal well, the TGT-7X on Block 16-1 in the Cuu Long Basin offshore Vietnam, flowed at a combined maximum rate of approximately 8,100 barrels of oil per day ('BOPD') from two drill stem tests ('DSTs'). The TGT-7X well was drilled to test a separate, previously untested fault block, designated H3N, within the TGT Field and was drilled to improve knowledge of the reservoir distribution.
?http://www.investegate.co.uk/Article.aspx?id=200808270700050759C
?The first two development wells on the Te Giac Trang development offshore Vietnam have been completed. Preliminary log analysis of the first well, the TGT-H1-1P, drilled to essentially twin one of the original discovery wells, indicates that the well encountered the top of the target reservoir horizon on prognosis. The second well, the TGT-H1-2P, encountered the reservoir section approximately 10 metres higher in the section than the pre-drill prognosis which strongly supports the favourable structural reservoir analysis following the reprocessed pre stack depth migrated seismic that the TGT field extends to the east.
?http://www.investegate.co.uk/Article.aspx?id=201010120700042158U
Yesterday I made the point that one of the most important aspects for Soco to lock in the value of TGT/CNV was the Oil price. That is the major risk that could impact the ultimate price we recieve for these assets.
Therefore it warranted further digging to understand how big a risk this is......
I visited the IEA website....
Global oil demand for 2010 and 2011 is revised up by 0.3 mb/d on average to 86.9 mb/d and 88.2 mb/d, respectively, on new data showing much stronger-than-expected 3Q10 readings, notably in the OECD, and updated GDP and price assumptions. Yearly growth is now +2.1 mb/d in 2010 and +1.2 mb/d in 2011. If GDP growth were a third lower, demand growth would only reach 0.4 mb/d in 2011
Global oil supply fell by 150 kb/d to 86.9 mb/d in September on lower non-OPEC output, but was up by 1.5 mb/d year-on-year, shared equally between non-OPEC, OPEC crude and NGLs. Estimated 2011 non-OPEC supply is raised by 150 kb/d to 53.1 mb/d on stronger US, Canadian and Chinese output, growing from 52.6 mb/d in 2010.
OPEC crude oil supply rose by 40 kb/d, to 29.29 mb/d in September. The ‘call on OPEC crude and stock change’ is raised to 29.8 mb/d in 3Q10 and 29.0 mb/d in 4Q10, after a large upward demand revision. The 2011 ‘call’ averages 29.3 mb/d, up by 0.1 mb/d from 2010.
August OECD industry stocks rose by 15.8 mb to 2 790 mb, or 61.1 days, reaching their highest level since August 1998. Preliminary data point to a sharp 31.7 mb draw in September, while oil in floating storage increased slightly.
Worth bearing in mind world demand was about 86.5 mbopd back in 2008 when Oil prices peaked at $147/bbl but the IEA is predicting demand of 88 mbopd in 2011.
http://omrpublic.iea.org/
It is also worth thinking about what could impact the Oil price near term.....Floating Storage
Commenting on the factors behind this drastic drop in earnings, Wistoft said: "The main reason is that the number of ships that were kept as floating storage to take speculative advantage of a potential rise in crude oil price has dropped. Whilst last year, there were more than 60 VLCCs kept as floating storage globally, presently they are less than 20. This significant drop in the number of ships on floating storage has now added to the already oversupplied VLCC market, thereby pushing the rates further down."
Worth also bearing in mind : Fos Lavera Strike Will Erode Floating Storage : http://online.wsj.com/article/BT-CO-20101012-708130.html
So Oil can't reeadily be put into the market from floating storage. Tanker rates have slumped the last few weeks from oversupply.....Day rates for crude oil supertankers, VLCCs, peaked in 2009 at around $100,000/day. Today, if you want to ship 2 million barrels of oil from the Middle East to Korea, you’d have to pay just $4,700/day. The collapsing rates are partly the result of a frenzy of new shipbuilding that started in 2008 when demand for oil was driving prices higher and higher. Another explanation is that demand for floating storage is way down, putting those ships back on the market and adding to the glut. http://247wallst.com/2010/10/28/oil-tankers-going-nowhere-osg-tk-gmr-fro-nat-pbr/
So at this stage given that the 12 month contango is about $4.5 : http://futures.tradingcharts.com/marketquotes/index.php3?market=CL
It probably does not make much sense to store Oil when one takes into account working capital costs, storage costs etc which leaves the market more exposed to supply shocks. And if the contago does improve then it will create more demand from floating storage as tanker rates are going to be low for sometime :
And the news won’t get better any time soon. Supertanker rates are expected to remain unprofitable for at least two years.
http://247wallst.com/2010/10/28/oil-tankers-going-nowhere-osg-tk-gmr-fro-nat-pbr/
But it is worth bearing in mind....
Opec has around 6m b/d of spare capacity. This means Opec has the means to prevent prices moving up to levels it perceives as being too high. The concept of a price ceiling exists today in a way that it simply didn’t when prices rose to $150 a barrel in the middle of 2008, and a price band of $70 to $85 a barrel is widely viewed as meeting producers’ needs while being simultaneously “acceptable” to consumers. We see prices progressing to the higher end of this range over 2011.
The return to spare capacity in Opec has reduced the spectre of “peak oil”, at least in the short term and so too have developments in non-Opec supplies. In 2010 we expect these supplies to increase year-on-year by 1.3m b/d and in 2011 to rise by 0.6m b/d. However next year’s increase consists largely of natural gas liquids, condensates and biofuels. In contrast, conventional crude production is forecast to remain flat.
http://www.ft.com/cms/s/0/324399ac-d6cd-11df-98a9-00144feabdc0,s01=1.html
Therefore It is my belief I don't expect Oil prices to race as high as they did in 2008 anytime soon, but at the same time I don't think prices are about to collapse either. More likely to be range bound unless there is a significant event that impacts one of the big producers from producing and transporting their Oil. Saudi, Iran, Iraq etc. At the same time demand keeps increasing
Then into all the above if you add in QE2, more banks/hedge funds/trading houses expanding their commodity desks = more spec trading. Trading companies make money from volatility, most of the volatility is happening in commodities.
The above just demonstrates that Soco is bringing onstream in 8 months time 55,000 bopd in a reasonably strong Oil market and will generate huge cashflow.
Just on that point, the recent RBC note makes it clear that a $15 move in the price of the Brent benchmark would move their NAV estimate by 19%.....so Brent at around $100 would take their NAV estimate from 497p to 591p.
FWIW
ee
Just noticed there was heavy volume in Soco shares again today with about 3.8 million shares changing hands with the shares spending most of its time around £3.
It is about 16 days since we recieved the bad news on TGD from Soco. In 2 weeks 30 days will lapse since we recieved the TGD result, at which point PTTEP loses its opportunity to back into TGD.
If I were to take a wild guess, it is my belief that we will hear more from what next in Vietnam soon after this date.
I'm sure Soco are already underway having discussions with Vietnam.gov about the TGD licence and they are both exploring possibilities like if a happens they will do x and it b happens they will do y etc.
And it is reasonable to think they have a plan as to what they will do once it is clear PTTEP will not back into TGD.
Therefore I am expecting a fairly swift decision to be made in 2-3 weeks time as to what will happen next in Vietnam.
I'm also going to stick my next out and say we have probably seen the low for the year.
I'm also going to stick my next out and say we have probably seen the low for the year.
I'm going to stick my neck out and say you are not really sticking your neck out but guessing.
That said the downside is minimal at this conjecture and it's a great example of market irrationality.
Try to relax and take the wider view. As Warren Buffett said "Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market".
http://www.fool.co.uk/news/investing/2010/10/27/how-to-be-a-full-time-investor.aspx?source=ufwflwlnk0000001
In order to get a full price for TGT it seems likely to me that all the development wells must be drilled and production would have to begin, putting a sale at the latter half of next year at the earliest, unless a buyer is willing to take a gamble, which I think is unlikely.
Unwise, I recall conversations at an AGM re the sale of Yemen, so a few years ago, they mentioned having to produce production details to show production was maintained over time and pressure wasn't falling, I would guess this would mean a year or mores production, it's not so terrible, at that point revenue will be flowing into the coffers,
they may even decide to issue a divi, or use the money to fund more expo in DRC, were I don't think things are nearly as bad as the market seems to think,
cheers K
I thought I would help the thread get back on topic. After recent events I have revisited what I think TGT+CNV might be worth in an asset sale. Previously I haven't taken into account the minority holding of Soco Vietnam due to the complex nature of it, I am now using Davjo's excellent work to provide an estimate. One area I disagree with on the calculations at the start of this post is fully diluted shares. I have spoken to Carol at Soco and confirmed there are 340.4 million shares outstanding and a further 1 million options outstanding ( options in the LTIP are fulfilled by the shares held by the LTIP trust which are included in the 340.4m). The remaining convertable could add an extra 8.2 million shares but that will only come into play if the share price is higher than 546p. So if we are willing to assume that TGT+CNV will eventually reach circa 185 million barrels net to Soco Vietnam then the underlying value at TGT+CNV is 447p per share at $15 per barrel or 582p per share at $20, taking into account the extra dilution of the convertable. These figures are discounting Soco's stake by 12%, extra dilution from options and include nothing for any costs that will be clawed back from production.
In order to get a full price for TGT it seems likely to me that all the development wells must be drilled and production would have to begin, putting a sale at the latter half of next year at the earliest, unless a buyer is willing to take a gamble, which I think is unlikely. Personally I get the feeling that management wants to have another go at TGD/fan/E south, if we get an extension I think it will push a sale further into the future, which I don't have a problem with.
I have sold none of my shares (Average buy price 433p) and am considering buying more.
Unwize.
Unwise
there are 340.4 million shares outstanding and a further 1 million options outstanding ( options in the LTIP are fulfilled by the shares held by the LTIP trust which are included in the 340.4m). The remaining convertable could add an extra 8.2 million shares but that will only come into play if the share price is higher than 546p.
Thanks for ironing out that flaw in my assumption (casually plucked from a normally reliable source). It enhances my 'rock solid base case' from 295p to 313p :-)
if we are willing to assume that TGT+CNV will eventually reach circa 185 million barrels net to Soco Vietnam then the underlying value at TGT+CNV is 447p per share at $15 per barrel or 582p per share at $20, taking into account the extra dilution of the convertable. These figures are discounting Soco's stake by 12%, extra dilution from options and include nothing for any costs that will be clawed back from production.
This is obviously the crux of the matter when considering upside expectations. I think "eventually" could be a bit longer than you think in terms of booked reserves. The first clue will be y/end 2010 reserves statement, possibly not available until Feb/March 2011 prelims. Whatever the addition, it'll likely provide an idea as to whether any upgrade to the southern fault blocks is evident. This will be quite important because TGT will be a phased development and the second stage will likely be a year or two down the line. As to the production history effect, I think also the southern blocks won't stand to benefit until they're drilled and producing. All in all, the ultimate 500mmbbl gross could take a number of years to be booked, if booked at all. That's not to say a near term buyer won't take a view that 500mmbbls is very likely to occur but he will take account of the risk that it doesn't.
As an aside, I see BoAML's latest note includes a line for CNV 2006 appraisal addition of 8mmboe unrisked net to Soco valued at $81m. Ordinarily I'd dismiss that as bunkum but seeing it's from the company broker....! Thinking back without checking, I think it was CNV-4X appraisal which was suspended before reaching target basement because of high pressure encountered in the Oligocene and unofficially, black oil was recovered to surface. Since then, Vietsovpetro made an Oligocene discovery close by between CNV and Bach Ho. Dunno the details but one wonders whether there's some unexpected, albeit limited, upside there? I know from enquiry after the VS discovery, Soco were looking at the western side of CNV in the Oligocene.
I think I should confess my sins....I tried to be clever and its bit me in the arse.
I have sold none of my shares (Average buy price 433p) and am considering buying more.
Despite knowing that the core NAV of SOCO was far higher than the share price last week post the DRC announcement I watched the share price like a hawk expecting it to hit circa 275p due to negative sentiment, it never went lower than 287p. So having waited to see if it would dip again I threw in the towel today at 324p and added an approx 25% extra shares. If the share price does dip again at some point in the future I will probably add again provided oil price stays above $70.
Unwise.
Groundhog
I wonder if bullish holders will manage to gain modesty and realize they have played the recent game poorly? Doubt it, would be too psychologically painful.
Not at all. I'll refer you to my post elsewhere:
http://boards.fool.co.uk/you-miss-the-point-bugs-at-around-450p-475p-soco-12079376.aspx
Not happy that worst case scenario seems to be unveiling but wouldn't do it any different.
DJP
Not at all. I'll refer you to my post elsewhere:
http://boards.fool.co.uk/you-miss-the-point-bugs-at-around-450p-475p-soco-12079376.aspx
Oh the irony that I apparently missed the point and cashed in some chips but
you did it right but lost a big amount of money.
Bugs.
Bugs
Can we keep this thread on topic please, i.e. "What's Soco Vietnam worth excluding TGD". The place for monotonous unsubstantiated digs at esteemed fund managers and such like is probably on an ADVFN "clever dick" board.
Thanks :-)
There is a danger that this board becomes something of an insulated little bubble.
The recent failures off Vietnam and Congo have devastated the share price. They have dramatically suppressed potential acquisition values. They have removed any medium term price stimulation from drilling success.
The self congratulatory mood has blinded participants to the reality of the market. The market has removed realizable wealth from holders' wallets.
I wonder if bullish holders will manage to gain modesty and realize they have played the recent game poorly? Doubt it, would be too psychologically painful.
I've lost a bit on this one. I'll try to learn lessons. Losing money is never fun......................
Before we get too carried away with TGT/CNV being sold, is it realistic to sell these at a good price with no production history ?
Historically this has been when SOCO has sold assets, when they had some production history, now I know stage one TGT is next summer, and I know this is a big deal to them as it's not just an on going asset, they want to exit the area potential, and retire off management, and that there'll be pressure from large holders. But no one will be happy if they don't get a good price.
Cheers K
Different story on SOCO. I've speculated continually for over 10 years - and I'm not going to stop doing so until they hang up their boots.
Why bother being quite so active in research and bb posting then? It seems clear you will almost certainly exit Soco when the directors do so save yourself a lot of work and just wait until then. Maybe you just like reading and wrirting about Soco and other oilies for fun. Surely the idea is to make money and that might mean shifting horses once in a while?
Everyone to their own though I guess.
You are quite right. Silly me. I'd like to think it might have helped one or two people somewhere along the way..and then as and when I look at other shares someone will be able to return the favour. You did OK by buying Barclays after a discussion involving me IIRC.....
I added about 20% to my holding at a variety of prices yesterday, having sat on my hands following the TGD failure. I did this by way of spread bets expiring next June (without using much leverage - I like to keep spread bet positions 70-100% funded in the account). Time will tell whether these bets need to get rolled.
Given the large discount to any sensible view of NAV, it's not necessary to have any view on TGD being extended or re-licensed to see the investment logic IMO. On this point I am not convinced that obtaining an extension or new licence would necessarily block a Vietnam sale. Ed and Roger may well be keen to do more drilling there, but they don't work in a vacuum - if someone came up with an offer for Vietnam as a whole that was attractive to the Contini and Maugein interests and to Blackrock, a deal would likely happen.
I'm also sceptical about how many 'stale bulls' remain - would have thought the failure at TGD, where almost everyone expected success, together with yesterday's result, would have removed most of the weak holders and 'hot money'.
But then, I am frequently wrong :o)
Yep, we can argue all we like about the merits of a son of soco vehicle and what shape it might take but what is completely dominating management thoughts right now is crystalising the value of what's been done at TGT (and CNV).
If anything, you could argue that there could/should be hot money coming in now that the cupboard is metaphorically bare (in terms of big explo upside) and thus focus on monetisation.
As for SoS, I can see some logic for it and have argued for a sub Saharan explo co of size for some time - roll rump Soco into dpl and aex/others and get a liquid mid cap exposed to a "sexy" story... For now, however, I (and other big holders) just want the value outed.
I have posted regularly on other companies here but the response has been muted to say the least.
Encore Oil (LON:EO.) had fantastic news yesterday and pulled off a coup I reckon.
http://www.stockopedia.com/content/catcher-further-exploration-starts-48412/?comment=18#18
Response ...nul zero rien niks nada. The hope/expectation value there is about 5p now I reckon and there is a lot of upcoming newsflow. It won't stop the shares getting badly beaten up if Varadero fails but that'll be an opportunity for the well informed. As will success.
Xcite Energy (LON:XEL) looks to have the potential for making money. The technical discussion on ADVFN is interesting. I agree that a poor flow rate will crush the share price but early 'unofficial' newsflow here is likely. No doubt most of you will turn your noses up at that again, and be wrong again. Buying in after the result will almost certainly bring decent rewards too. There is more than one way to skin a cat.
SLG. Well I've said enough about that one. Some people here have looked and seen the value. Nobody has attempted to put the bear case here. There is one but it doesn't stack up too well for anyone who looks at the investment case properly.
If Soco wasn't so well followed here if you'd put it in that recent London conference it would have been flagged up as one of the better opportunities. Now that TGD has failed and there have been two misses in Africa it has slipped down the list.
I must say that son of Soco has little appeal. I'd rather follow the lower political risk in the NS and the teams of people who know the patch well. Encore, Sterling Energy (LON:SEY), Xcite Energy (LON:XEL), Nautical Petroleum (LON:NPE), EnQuest (LON:ENQ), Ithaca Energy Inc (LON:IAE) and Deo Petroleum (LON:DEO) all have more chance of making me money I believe.
I haven't sold that many shares since the TGD failure and I am in as deep as many but I'm not kidding myself that the route back to a decent result will necessarily be that rapid. Did ee mention 6 weeks yesterday? It is another investment and If I believe there are better intervening risk/reward situations over the coming months I'll let some more shares go. Taking a loss on my pre TGD top up is the medicine that sometimes investors have to take.
The stale bulls argument seems pretty relevant to me having had some feedback from quite a few long term holders. I can see SIA drifting from here and if I sell some more and I am wrong about that or a takeover so be it. It seems to me that not too many here on S'ocopedia like to make that point too openly.
repo
Yes - but not in the context you imply! You've qualified your own expectations with a "necessarily".....whilst I indicated an expected 6 months, whilst declining to rule out something much quicker.....Post 39 quote:
...which is NOT the same thing as suggesting that they will do a deal in the next 6 weeks. Having had my words twisted previously and seen a six month expectation morph into "imminent", I feel I must point that out.
Re the comments about other shares, I rarely say much now about shares "in the peer group" of smaller explorers....unless it happens to be a matter of fact and not too speculative. Most of the situations you raise are essentially speculative, so it is difficult to contribute much without getting speculating a bit oneself.
Different story on SOCO. I've speculated continually for over 10 years - and I'm not going to stop doing so until they hang up their boots.
ee
Hi ee,
I wasn't misquoting you but I see next to no chance of that happening in 6 weeks. I said you mentioned that timescale, which you did.
I don't get this 'essentially speculative' nonsense either. I was comparing these companies to son of Soco
What is speculative about Encore's discoveries apart from the fact that they could turn out to be a lot bigger than the market currently believes? What about the track record of management/technical people? Buzzard/Breagh/Cladhan and Catcher ain't too shabby, imv.
Ditto Sterling with four major discoveries, three coming into production and another one of which could be huge?
Ithaca with firm plans and funding to raise production from 5k to 23k BOPD in a couple of years?
XEL. If they get the flow test, which one analyst with a far better technical understanding of the play then you'll ever have, gives it a 80% chance of success and has had an unrisked value of C$ 22. Current share price C$3.50
Of course there's a risk element attached. Soco shareholders understand this better than most but in comparison with a son of Soco, I would prefer even a new play such as DEO, because it has both assets and people with an intimate NS knowledge, within a much more stable political environment. I think all those I mentioned have better technical knowledge on their chosen patch than son of Soco and there is a big question mark over future management for such an operation.
In the circumstances to say that the likes of Encore Oil is essentially speculative in comparison with wildcat exploration, with most likely a fairly new management team in part, in Africa is laughable. The same argument applies to the rest of the companies I mentioned.
repobear
PS Sorry that had to be said, and this is coming from someone who has benefitted from your insights on Soco and elsewhere and greatly values your input. If you could broaden your application of expertise to other oil and gas companies, I feel that you would make more money and it would help this site to evolve. Dismissing companies, which actually could be recognised as in Soco's peer group before too long as 'essentially speculative' does nobody any favours, imv.
Yes I did - but not in the context you implied. I didn't suggest you had misquoted - but it seemed to leave readers with the impression that I was actually expecting some action in 6 weeks rather than 6 months.....you might say "next to no chance" in 6 weeks, whereas I might put the chance of something happening in that timeframe at 10-20%.....it isn't a great difference!
You completely misunderstand why I am not commenting.
I was not suggesting that the companies you wish to discuss are "essentially speculative" (though perhaps one or two are)....I was noting that in order to have an interesting discussion about investment merits one must necessarily speculate about what the future may hold. I'm not prepared to do that for companies at the smaller end of the market - I have to consider "my other hat"! And for the same reason I am certainly not going to comment on the people.
ee
Well you can relax about Encore Oil and Sterling Resources. They both have more cash than the market cap of AEX and are about ten times bigger. Continued success with the drillbit will see them both move towards Soco's market cap and probably before Soco VN is sold.
We'll see.
repo
I do tend to agree that the downside protection with Soco does mean one can more comfortably take bigger positions while still maintaining decent upside from explo. The trouble I have with this view is that the market can often ignore this and punish bad drilling results regardless. This I think is more because the hot money quickly flows out of a stock if it's prospects evaporate as they have done with Soco.
If the hot money leaves the share price drops and only stale bulls are left all waiting for an exit. This results in lost opportunity cost elsewhere. We can all argue that Soco is worth £4+ but the market won't give you that today.
Probably the most sensible idea I've seen is for Soco to aquire/merger with an operator like Dominion Petroleum which has lots of explo upside but not much money. Soco could then fund a drilling campaign again and get everyone exicited. This would probably be the best way to re-rate the shares for both Dominion and Soco .
Until that happens we'll probably drift around £3 mark.
To be honest I'm very surprised indeed that there appears to have been so much "hot money" in SOCO in the first place, especially as the scale of the price moves has suggested selling on an institutional scale. Prospects for large and quick upside from drilling have certainly evaporated - but the prospects for large and quick upside from a deal haven't, especially when one looks at the market value of the assets (and their scarcity). One can certainly debate the timing etc - but management has a track record and an explicit objective of realising value - so to me a material discount to core NAV make no sense whatsoever.....and is therefore unlikely to persist.
I think the "stale bulls" comment is brokertalk nonsense. I've held the shares for over 11 years; many others here are long term holders. They aren't "stale" - they just know perfectly well that the final exit is now getting to be quite close. "Opportunity cost" is merely a fact of investment life - there is ALWAYS an opportunity cost. And opportunity costs are always trotted out as a reason for trading rather than doing nothing - but there is no guarantee that one won't be jumping on another interesting-looking train just as it hits the buffers.
That is probably the most bonkers idea I have heard in a long while!! I know WShak is advocating it - but if I was long of Dominion I might be arguing for it too! ;-)
Deals in Africa may happen in the fullness of time - but item number 1,2 and 3 on the agenda is IMO the monetisation in Vietnam (and it remains a possibility, albeit now more remote IMO, that Vietnam will be monetised along with the whole company). There are a few i's to be dotted and t's crossed - but it won't be long....
ee
Snap - sorry ee, started my reply then had a phonecall.
Pesky clients....or, worse, pesky brokers! Get your priorities right! ;-)
I'm in complete agreement with you over the downside protection with SOCO (asset and ultimate value protection - obviously there is no protection from market vaguaries in the meantime, even though I have been very surprised at the extent of the move down and the huge discount opening up against core value). Obviously repo (and the market) doesn't agree with me about the timescale for value realisation....but that is fine.....it is what makes a market and creates opportunities for others. There is no compulsion for everyone to believe my view about the timescale (after all, I was wrong in 2008) - just as there is no complusion for people to join repo in upping sticks and rushing off to what some perceive as better opportunities elsewhere.
ee
Well repo, no one's stopping you from starting a thread on those companies.
Trouble is, with many other opps, there isn't the same downside protection in terms of discovered reserves and proven commercial wells. Soco has that in CNV and TGT which, on their own, would provide a decent 50%+ return in the event of monetisation over the course of a year (possibly/probably less).
As I've said before, that's a decent risk reward for me. XEL, if they get a problem with the well in terms of flow, will be crushed - where's the downside on Soco from here? (Ignoring POO collapse which would hit all co's in the sector).
Undeniably there are some great companies out there - I really like the Columbians (gte, pxt, etc - possibly a little over cooked right now?) and others but soco has its place I'd say.
Repo,
This site is becoming more like fantasy island every day.
Spot on. It's been a magical ride.
http://www.fantasyisland.co.uk/
:^}
Buffy
Hi Isaac,
You comment re DRC
Although the last two wells on Nganzi did'nt produce a desirable result the reality is geology takes time to understand and at times it takes several wells to be drilled before we get a decent find.
If you replace "Nganzi' with 'TGD', maybe you 'll see why ES/RC probably want to have a final poke at TGD ?
Just a thought......
ATB
Davjo
The thing that really gets to me is I know this is very likely to be the last big exploration play for both Ed and Roger. So clearly they want to depart on a high with a huge find. And TGD was their baby to do so. But the reality is it just has'nt worked out the way we would have liked.
My concern is will their ego get in the way of them drilling, drilling and more drilling of TGD but not being succesful? Just so they can retire on a high.
I mean it probably not ideal to end a long life career with numerous failures on TGD. But Ed/Roger if your reading this I think you both have done a lot of people proud with TGT, that is no minor find. Most people won't generate the wealth you two have created a lot of people on these boards so there really is nothing left to prove. Think you should both hold your head up high and have a good retirement!
I sincerly hope Soco don't drill TGD again though. Every well we have drilled on that prospect has caused us problems + time + money. It feels like a bad chapter in Soco's history. The sad reality is there is actually a lot of Oil in TGD, we just have'nt been clever enough to date to extract it.
One thing we can be certain of is the booked reserves at year end 09 + upgrades. We can reasonably be confident that Oil prices is more likely then not to be within the $75-80/bbl range in the next week. Therefore if we were to sell near term we could expect to get £4+ for our reserves. So why would one not lock this gain in ? The biggest risk to this value is a drop in Oil price IMO.
1) Soco does not have a bottomless pit of money - Fact.
2) Soco has found Oil in Nganzi - Fact
So would it not be a good idea for Soco to just focus on Nganzi ? We don't have lots of cash to fully exploit everything. I'd rather spend smaller portions of the cash on African wells and have a commericial find rather then plump a large chunk of it onto TGD. Given that we still own a large interest in the block we could farm down further and reduce costs. Although the last two wells on Nganzi did'nt produce a desirable result the reality is geology takes time to understand and at times it takes several wells to be drilled before we get a decent find.
Therefore it is silly for the market to sell this off on what it percieves to be a bad result for a wildcat well when it is the type of result one would expect from a wildcat.
And I don't think we need Dominion's acreage either, I think Soco have enough going on in Africa. And based on the wells drilled so far I think I want to be part of the action in the Son of Soco.
Good post.
Of course they won't be reading this. However, the point is a good one.
The execs have already made a lot of money for shareholders over the years - as even most/all of the more recent holders will eventually come to acknowledge when the deal(s) finally get done. And no doubt they will have wanted to "go out with a bang".....but they have done their job well - managing the company prudently, made some good discoveries, acquired some good licences and have managed to expose shareholders to the possibility of significant further upside via the drillbit.
The fact that it looks as if their best hopes aren't going to be achieved is just a fact of life. They have created additional value for whomever buys the company and that will ultimately be reflected in the share price when deals get done......irrespective of what they market happens to think from time to time in the interim.
ee
While I appreciate the effort that has been put into the valuation of Soco, there seems to have been a significant misunderstanding of both the real risks of failure and the likely market reaction to it.
It wasn't so long ago that I predicted that a sub 300p price tag was a distinct possibility and got a smattering of red thumbs.
I'm not claiming to know significantly better than the next man, but actually my caution of late has paid off and not just with Soco.
I see 290p as a much better reentry price and likely to provide maybe up to 50% upside - eventually.
However I'm not sure what the immediate outer will be, maybe early news about plans for vietnam.
historically we've been waiting for news for years despite optimism to the contrary...so I might buy a few back but I think there's time to accumulate over a range of prices possibly somewhat lower than here. So no hurry I think.
I also think it's foolhardy to ignore the wider economic picture and general stockmarket moves. I don't like the nonesense aspect of chartism but I'm finding that eyeballing charts and looking for ranges to be helpful, and frankly I don't see much to drive the FTSE a lot higher and economic policies that look extremely worrisome to me.
We've had the major stock rally fro its 2008 lows, with stellar gains for some....I don't see that continuing - others may not agree but I feel like less exposure is good.
just my 2p worth.
B
For me, this has only two possible outcomes, extension or relinquishment.
If 16-1 was sold with TGT + Extension for TGD would any value be attributed to TGD apart from the sunk costs?
If 16-1 was sold with TGT + Extension for TGD would any value be attributed to TGD apart from the sunk costs?
Sunk costs aside, not a lot imo but who knows! Thing is, any purchaser is primarily interested in the production/booked reserves...upside is secondary in negotiating a price. If PTTEP didn't fancy TGD, I daresay some potential suitors might feel the same way so there might not be that much competition swayed by TGD prospects.
In reality though, if an extension is forthcoming, I don't see a sale before they drill unless something happens along the way to downgrade their thinking on TGD, so your question really becomes irrelevant in my eyes.
Hi ee,
Thanks for yr various comments/clarifications over the last period. Where do we/PTTEP stand on the 'drop dead' date, by which time they have to decide whether to buy back in to TGD or not ? I thought they had 30 days from drill result declaration or some such ?
My working assumption is that they won't take up their entitlement to buy back in ..... will we see a formal RNS to this effect, if only as part of the process of clarifying 'the way forward' ?
TIA
I want to add a further point. That is it is all well and good RBC saying the Core NAV for Soco is about £4. But the fact is that Nav is based on assumptions...
I would think the assumptions are the same as their note a few weeks back :
http://www.stockopedia.com/content/analysts-reports-31202/?page=10#comments
For a start the £/$ is higher then their assumption above and I suspect as we get much closer to bringing TGT online the discount rate used will be lower.
My main concern though is the Oil price. I personally don't think Oil price is about to collapse infact I'm bullish like JP/Goldman but if there is one major risk impacting the NAV at this point then it is the Oil price & what could happen to it. No one can be certain that the Oil price will be higher in the future then it is now. It is why I am keen to see management realise the value of what they have and lock in profits, it is why I have urged people to pick up the phone and ask the management to sell Vietnam.
I don't think it takes rocket science to conclude what I have above, I think the management have already figured the above out for themselves. And given their age I think they would want to realise the value sooner rather then later.
It goes back to the arguement why bother taking the risk when they can take a very healthy sum of money now and then exploit the upside of TGD/Africa via Son of Soco.
I personally can't see any reason why they would not sell CNV/TGT soon and then drill TGD/Africa via a new company.
Does anyone have any views on what Soco's relationship with the Vietnamese government is likely to be following TGD result? How would they percieve Soco's results on Nganzi?
I'm asking because of this point ee made
If TGD continues to be held, it will be held on a new licence. AFAIAA there is NO requirement to hold it through the same legal entities as hold the other VN assets
One thing you can't knock management for is their deal making abilities. To speculate, if Son of Soco were to be offered a new TGD licence what % of that licence is likely to be held by Son of Soco? I assume PTTEP probably will not be part of it ? And PetroVietnam would want a decent slice of it but probably not too big as the wells will be expensive to drill.
If Petrovietnam took 30%, Son of Soco took 30% and a new co took 40%, are Soco likely to have any say in who the new company is likely to be?
Or even better why not give Son of Soco 70% of the new licence, Petrovietnam keep 30% and then Son of Soco can farm out their acreage bringing in a more experienced partner perhaps giving them operatorship and making them pay a large part of the costs?
I'm not convinced Vietnam.gov is about to shaft Soco in Vietnam. If they wanted to do that they could have done it long ago and not extended the TGD licence. Instead I'm more of the view Vietnam.gov will work closely with Soco drawing up a new licence to exploit TGD. It is in their interest to do so.
I don't think the licence will be as favourable as the current one though. It is in Vietnam.gov's interest to find a way to extract the Oil especially since the Bach Ho field is in decline and energy needs are growing. Soco may not be the best people to drill TGD, but Soco management may have the right skills & expertise to find the right explorer that can exploit TGD & that is quite significant IMO.
When you work in an Indudstry for over 30 years and the industry very much does business based on building good long term relationships then one tends to develop good contacts which are valuable in situations like this.
I would say that ANY sensible oil company would look at the results so far for Nganzi and say "about what we might have hoped to see from a reasonably prospective but undrilled basin". Re the VN government perspective on TGD, I can see no reason to think they would be other than pretty constructive, given that SOCO is a party that has helped drive the development of 650mn bbls of reserves in two blocks over the last 10 years.
I'm in broad agreement with the rest of the comments but there isn't much point in speculating too hard on the details at this point....there are at least one important point of principle first (ie...is TGD worth pursuing)
>>...mmmm...sure there should be a "relatively" in there somewhere ;-)
maybe there was a relative in their, an uncle or aunt, regardless the point holds that they were very confident that another poke into tgd above volcanics could be done easily, anyway all water under the bridge.
Interesting
http://www.businessweek.com/news/2010-10-27/soco-falls-after-second-well-finds-no-oil-in-target.html
“The 700 million target is not obtainable in this drilling program, but it is obtainable over the longer term,” Roger Cagle, chief financial officer of Soco, said in a telephone interview today. “This is a high-risk business. The key is risk management so you can see it through, and we think we’re well- positioned to do that.”
wow bullish or what ?
(ps...sensible comments today Isaac - keep it up :-))
ee - could you be more patronising! I think recent history has now shown that Isaac's comments have been more on the money than your own. He does seem a bit schizophrenic but let's face it recent performance hasn't been great so he has every right to criticise managment at least a little.
Log
Yes I could be a vast amount more patronising!!!
It was a proper smiley....no tongue in cheek....just some sort of flaw in your own reading skills, Log.
I was just going to say now that Isaac is on a real roll today with yet another point that is on the money in the post that preceded yours.....so I was about to say (and indeed still will - because your comments are utterly irrelevant) that Isaac is "on fire" today! I don't know why that is - but I very much hope it continues. .....and I shall not shirk from paying a compliment where one is due! [I imagine you would prefer me not to give credit where credit is due, Log?? Bad luck! And bad, worthless post from you on this occasion!]
Isaac noted:
Yes it is - though this year happens to be chickenfeed in the greater scheme of things.
ee
There is about 10 or so weeks left till Year End.
I think the managements total compensation/bonus is dependent on the share price performance in a particular year. Given the share price was around £3.30 at the start of the year and now that it is trading below that, then this measure would bring down the value of their compensation.
Therefore is it not correct to think that a deal on Vietnam before year end is in managements interest as if they can achieve a share price of between £4-5 then surely that would help their bonus etc ?
of course if it's in a new licence in a new company, the expenses will no longer be deductable against production,
that may well change the consideration as to whether it's worth risking another $100M or so to drill TGD,
btw, I recall 2 years ago now, at the agm, being told by ed, that they would leave below the volcanics as too challanging, but that above the volcanics was straightforward,
oh how these things can come back and bite you !
Yup - expenses already accrued would go with the existing company, raising its value. The future work programme costs would of course only be recoverable if TGD can be made to be commercial.
...mmmm...sure there should be a "relatively" in there somewhere ;-)
So, instead of the possibility of a whole company sale (which I have relatively recently been entertaining) I now think it more likely that they will simply sell their companies holding the TGT/CNV licences in VN....and for a significant uplift over the current share price! This would (for now) make them more of a pure explorer - but with cash in the bank (even after returning a large slice of it to shareholders).
I just don't think Ed/Roger will stick around for this. I think being a pure explorer with large amounts of cash returned to shareholders will just mean a much smaller company, perhaps on the AIM market or FTSE fledgling.
I don't think Ed/Roger will be too keen to manage that.
They are probably better of taking a large part of the cash, holding shares in the smaller company and passing it onto another management team. And if they get anything back from the shares in the smaller company then that will be a bonus.
If they do decide to go down this route I would prefer it if a large part of the cash is given to shareholders and then as they develop their exploration blocks into development I would take part in the fund raisings to support.
It is a bit like you perform well then I will continue to support you.
Rather then management retaining a large part of the cash to develop TGD and Africa. I think if they did this then it would really annoy me. But I don't see it happening as I think Ed/Roger will make a swift exit in the near term and would want to take a large part of the cash with them.
So a Vietnam sale is imminent again...
I've just bought a few more at 293p. I don't think they will still have TGT/CNV in 6 months - and they may not have them in 6 weeks.
Ok - Do you think Roger and Ed will still be around once TGT/CNV is sold?
As I said in my AGM report the impression I got was they were 'tired' of continuing in the E+P business. And it felt like they were looking to exit in the next 6-12 months.
Let's not forget cagle is about 64 and Story is 67.
Don't really see why they would want to continue working full time when they have big portfolios of assets they could indulge in.
Wouldnt disagree there Isaac.
I don't know - but I would certainly expect major management changes in the event of a "Son of SOCO" scenario - as I indicated way back when we first examined that possibility. I would think Ed is certain to step down to a non-exec role - and quite possibly Roger too, though perhaps not for a couple of years yet in his case. The more radical a departure that the new structure is, the more likely they are to step down.......
Ed's main interests were historically Thailand and Mongolia - and both are gone.
I have always felt that they were prepared to exit on a 6-12 month timescale....it just depended on when someone would be ready to pay the "right price". Now that the "right price" will have come down somewhat, that may be fairly soon.
If an ENI or a TOTAL were prepared to make a sensible offer for the whole company, then perhaps they'd sell the lot - but unless someone gets proactive quite quickly I suspect that the "son of SOCO" scenario beckons, with associated management changes.
ee
(ps...sensible comments today Isaac - keep it up :-))
Hi ee,
Nothing will happen until TGD is resolved.
Are you now saying that Soco will lose the license or that they no longer want to hold it?
What has made you change your mind?
repo
No - I don't agree with that, for the reason given in post 39.
See post 39. The key difference from 6 months ago is that SOCO are on their own..... without PTTEP.
We'll see soon enough what happens IMO, but I think that, whether they want it or not, there will be little difference to the way events develop.
ee
Having focused on the value of barrels of oil to SOCO in the event of a company sale (say $18-20), I'm interested to know what each TGT barrel would be worth to SOCO if a sale were significantly delayed and they end up as a producer, even though that's not their stated aim? Assuming oil stays at say $75, do they get approximately half that for production barrels?
Thanks,
ET
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.
So we've arrived, nay dipped below......and above doesn't even credit PV's carry, worth say $150m and likely y/end cash of perhaps $250m, worth a combined 70p/sh......and the African portfolio in for zilch!
Dare I say a strong buy? I've bought today and likely will come back for more but I want see where we settle first.
DYOR
Re post 32:
From Mcquarie slide pack (Soco Website) Jan 2010:
Number(mm) %
Pontoil Intertrade Limited 17.4 23.0
BlackRock, Inc. 8.1 10.8
Estate of Patrick Maugein
(former Non-Executive Chairman) 6.3 8.3
Lansdowne Partnership 3.0 4.0
Legal and General 3.0 3.9
Banca Akros 2.9 3.9
Directors 7.5 9.9
Total 48.2 63.8
Dissapointing today but really not unexpected.
I think the price will probably go further 360p something like that. There won't be much newsflow between now and next year and all the hot and leveraged money will have to come out. Without many buyers around this can only mean the stock will fall. Only stale bulls will be left behind.
The current drilling campaign has certainly not been boring but not very pleasant either. I'm keeping all mine as I think we should get back over £4 in a year or so and so there is no point selling out here. Unlike others I can't see any better opportunities at this price for the money although Soco at this price doesn't represent a huge potential upside. The downside is well protected also. Shame there is no dividend support as it is harder to justify holding based on some eventual take out value but this is the E&P business I guess.
Whoever sold out at £20+ about two years ago old money has been shown to be very shrewd as I think that might well have been the top of the market for Soco.
Shame really as there was a lot of potential in the latest drilling program but the sad hard fact of the matter is that it has all failed and there isn't much left to go!
So what makes it worse is Desire up 50% today on no news and they don't even have any oil! Desire now worth about 1/3 of Soco!
360p?
Id settle for that right now.......
:-(
“The 700 million target is not obtainable in this drilling program, but it is obtainable over the longer term,” Roger Cagle, chief financial officer of Soco, said in a telephone interview today. “This is a high-risk business. The key is risk management so you can see it through, and we think we’re well- positioned to do that.”
http://www.businessweek.com/news/2010-10-27/soco-falls-after-second-well-in-congo-finds-no-oil-in-target.html
* Evolution securities cuts Soco International PLC price target to 327P
from 353P; rating sell
http://www.lse.co.uk/FinanceNews.asp?ArticleCode=v2n84fawxz8rwsy&ArticleHeadline=BRIEFRESEARCH_ALERTEvo_Securities_cuts_Soco_International_price_target
I've picked up this list of Substantial Shareholdings from the 2009 annual report.
Name of Holder Number % Held
Pontoil Intertrade Limited 23.01
BlackRock, Inc. 10.95
Chemsa Ltd 7.68
Legal & General Group Plc 3.60
Ed Story 3.48
I think Chemsa is a family trust of one of the directors.
From my brief dig, it appears the directors are holding around 14 or 15 % in total. Can anyone confirm or correct this?
Of course Pontoil and Blackrock could talk to each other and could make their wishes known to the Chairman and more widely. Remember how Schroders gave support at Dana (but not to the management!).
Under 300p as I type. The sellers must be of the opinion it's going lower. How low?
The role of the Chairman might get a bit interesting if the intentions of the Executive become at odds with major shareholders. BlackRock arent the type of investor to lie doggo.
Regrettably there have also been failures on the corporate level that have been confidence sapping.
Key here will be the intentions of Pontoil...
Thanks David,
In Soco's annual report page 5 they state the following :
http://www.socointernational.co.uk/temp_downloads/y35l91u113q37a68h145a91y113n115z79r122k88x9o102a103/CC1457_SOCO_AR09.pdf
Recognising Opportunity
By cultivating relationships and having early access into regions, projects or situations where there is potential to create significant upside through the Company’s participation.
Mission Complete.
Capturing Potential
By adding the Company’s managerial, technical and commercial expertise to progress activities through the formative stages or through periods of difficulty.
Mission Complete.
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.
Currently Executing. (IMO)
TGD = Dud
Nganzi = Dud
CNV/TGT = Success
I think in CNV/TGT we are past the stage where the Company’s capability to add value begins to diminish.
Therefore we are well placed to realise the value and sell up! :-D
Precisely.
For once I cannot fault Isaac's logic at all. That is precisely the reasoning I think the company will follow and, whilst there remains room to argue at the margin over a whole company deal or just Vietnam....or over the exact timing....the fact remains that if someone picks up the phone to Rui de Sousa they are going to get some sort of hearing.
The door is ajar.....lets see if someone pushes on it.
ee
The logic is fine.
However management do control a lot of the shares and have hyped up expectations about TGD and Nganzi. I don't know how long they'll take to come down to planet earth and cut a deal but, imv, it will be some months after the TGD license is lost.
If they still want to chase the TGD story then they won't cut a deal because it could be hugely material. Once they are no longer in a position to do that then they have something very attractive to sell in TGT and then it is a question of whether the whole company gets sold off. If that is to happen management will need to get real about what the non-Vietnam assets are worth. Not much is my view.
Given the way the Vietnam assets are structured I am struggling to come to terms with some people here who argue that management will try to retain TGD and then turn round and say that a sale has moved closer because of a couple of African failures.
repobear
Do you mean me?
If TGD continues to be held, it will be held on a new licence. AFAIAA there is NO requirement to hold it through the same legal entities as hold the other VN assets - so one can't rule out the sale of the companies holding TGT/CNV.....because it doesn't necessarily affect SOCO's ability to continue with TGD.
Similarly, the non-commerciality of the DRC wells means that any success there (and they plainly continue to think there will be some, from the quotes today) will take longer than expected - which will mean that it is unlikely they will get someone willing to pay what they think is a fair price. So, instead of the possibility of a whole company sale (which I have relatively recently been entertaining) I now think it more likely that they will simply sell their companies holding the TGT/CNV licences in VN....and for a significant uplift over the current share price! This would (for now) make them more of a pure explorer - but with cash in the bank (even after returning a large slice of it to shareholders).
Anyway.....I've just bought a few more at 293p. I don't think they will still have TGT/CNV in 6 months - and they may not have them in 6 weeks.
ee
If TGD continues to be held, it will be held on a new licence. AFAIAA there is NO requirement to hold it through the same legal entities as hold the other VN assets - so one can't rule out the sale of the companies holding TGT/CNV.....because it doesn't necessarily affect SOCO's ability to continue with TGD.
Extremely unlikely in my book. Firstly, I don't think there's been one single instance in Vietnam where an appraisal area has been re-licenced as an independent explo area. Secondly, VN will want to make the relinquished areas of 16-1 look as attractive as possible when they come to market it and that would include TGD. Thirdly, any new TGD-only licence would either come with existing terms, loaded with sunken TGD costs which otherwise would have been recoverable from TGT production(effectively becoming a $200m+ sig bonus from Soco's perspective), or, new, less favourable terms...plus in both cases at least a two well commitment I'd have thought. Either way, nothing like as attractive as a simple 12 month extension with a one well commitment on existing terms. For me, this has only two possible outcomes, extension or relinquishment.
extrader,
Basically they have 30 days - but as a practical matter that isn't now the issue - the issue is purely whether there is a new licence....and there will certainly be an RNS clarifying that in due course.
dj's points:
Both good points of course - but I don't think that would rank as "extremely unlikely".
Well of course there is uncertainty over the terms - and if they were considered to be too onerous then I have no doubt whatsoever that SOCO would just walk away. However, I think you are mistaken in being categorical that there are only two outcomes.....I'd say that relinquishment is a 50% shot but the other two possible structures are each 25% likelihoods. We'll soon see.
ee
This site is becoming more like fantasy island every day. Thank you davjo for sheddding some light on how the TGD situation will most likely pan out. Why on earth should the Vietnamese government give preferential treatment to Soco on TGD? They haven't covered themselves with glory and anyone looking at this rationally would most likely conclude that a fresh start on TGD might be the best option.
FWIW, my numbers are relinquishment a little way short of the dreaded 90%, extension around 10%, a new license around 2%.
Soco, or Soco Vietnam, will get sold for more money than the current share price, probably 50% more, imv. However I would advise holders, or prospective adders, to have a healthy degree of cynicism about these 'scenarios' under which it may happen and TGD is magically retained.
When TGD is lost will probably give the best entry point and shorter wait for the sale. In the meantime there are some quite exciting ways to profit in oil and gas. This looks like a rerun of the Dana 'sold off too cheap 'routine when decent opportunitiues were just ignored by many here
repo
This looks like a rerun of the Dana 'sold off too cheap 'routine when decent opportunitiues were just ignored by many here
Yes, there are some great opportunities out there (tempted to look at Encore again) but Soco is a bit different in that the downside is well and truly copper bottomed and with the chance of a 50% return over the next 6 months to a year it looks stonking risk:reward.
Hi Nigel,
I would say that after the TGD license is lost and another African failure, which look to me to be the most likely outcomes, there is a more than decent chance that the tired bulls will exit for greener pastures elsewhere and at some stage early next year the opportunity might be even better. If the TGD license is extended I doubt that the same optimism will be evident as before and it'll be a long wait till it's drilled and Soco Vietnam is sold.
In the meantime there are companies with upcoming testing/drilling on potentially highly material discoveries and there is next to no discussion.
TMF and ADVFN are streets ahead on some of these opportunities, imv.
repo
Who is stopping you from starting one?
"I am struggling to come to terms with some people here who argue that management will try to retain TGD"
Are you saying that there will be a competition for the right to continue to explore the structure which has delivered 3 expensive failures in a row, and therefore another oilco is likely to be interested in TGD, Reprobear?
My view is, if Soco can convince it is worth the risk of drilling another well, the VN Government is unlikely to refuse.
MadDutch
Davjo
What do you think Soco ex TGD/NGanzi would be worth at $100/bbl Oil? JP and Goldman forecasting $100 Oil next year.
What do you think Soco ex TGD/NGanzi would be worth at $100/bbl Oil? JP and Goldman forecasting $100 Oil next year.
About $6.50/bbl more than they would at $75 oil.....but then nobody is likely to buy reserves based on a prevailing oilprice of $100 !
Well, FWIW I've bought some for underweight clients.
I'm ignoring anything other than TGT (and CNV) and see a NAV 450p-475p with the potential for more reserves being added by the TGT appraisal programme indeed, the first two have added reserves don't forget.
If an extension to TGD can be achieved then a year will see news on that front (fantasy or reality). Either way, I see pressure from shareholders to sell up over the year. So, that's a 50%+ return to NAV plus any premium for takeover (and certainly disappointing after this time given the potential from the explo portfolio). Okay, it isn't stunning but as a bottom line return in a year, I'd take it.
isaac
why did you say what you did in post #19 and then only 15 minutes later buy the shares?
how on earth can you reconcile the frenetic trading style that you report here ad nauseam with your description of your strategy as LTBH?
RG
I am here to make money. I believe I will do so from 315p. The decks are being cleared for Soco to be sold. I think one can make a decent buck buying around here....end of.