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…
extrader,
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' ?
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:
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.
Both good points of course - but I don't think that would rank as "extremely unlikely".
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.
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
