Soco End game Timings and Price Targets

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28th Aug '12 by Isaac

80 comments 34354 reads

It really does become difficullt to keep track of all the end game timings and various price targets. So I though I would keep track of them here :

ee reckons Soco will be sold for more then £6.60 :emptyend
28 Aug'12 - 11:45 - 9165 of 9172

loglorry think no more then £4.40

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About the Author

Isaac

Premium Member

80 comments

kenobi

4th Oct '12

>>You'd be safer pencilling in December, I think, based on my latest enquiry.

Thanks for the update ee, maybe it'll be a nice Christmas present. I wonder if it wouldn't have been as well to wait until connectivity could be proven, but I guess this is what they are trying to do.

What impact might you expect the p3 figure to have on the valuation ? usually people just use the P2 figure, I suppose a buyer might take a view that some of the p3 is upside ?

I guess that this means there's no rush to get in, if I miss it, I miss it, might be upsides to having some dry powder later in the year,

thanks again,

K

Isaac

4th Oct '12

I am just sitting in the background now waiting for a deal to be done.

thebuffoon

4th Oct '12

Worth listening to Jim Rogers - Still bullish commodities and Oil, apparently Oil is going above $200/bbl over the next decade.

That's fine for you. Some of us will be well into retirement...

Buffy

emptyend

4th Oct '12

Thanks for the update ee, maybe it'll be a nice Christmas present

Start of December, not end. But (to repeat myself) I wouldn't rule out sooner. My stance is basically the same as Isaac's.

What impact might you expect the p3 figure to have on the valuation ? usually people just use the P2 figure, I suppose a buyer might take a view that some of the p3 is upside ?

No idea. It'll depend precisely what is said and how. I haven't changed my view on what might be expected, either in terms of 2P reserves or price....but obviously any deal will take account of all relevant factors.

redhill

4th Oct '12

My stance is basically the same as Isaac's.

That's a first............:>)

emptyend

4th Oct '12

Not quite. I remember saying something similar a couple of months back.

It is a sign of the ever-reducing room for argument as the various milestones are reached.

kenobi

24th Oct '12

So why is the reserves review taking so much longer than anticipated, and is this good news or bad news ?

Well I've no experience of these things, my guess (hugely devalued by the preceeding statment), is that they are trying to establish a reserved upgrade based on the connectivity argument. In order to do this I would suspect they are producing oil from some zones and then others, all the while monitoring pressure changes.

So is this good news or bad news ? Well clearly good news if they manage to convince the monitors that there is connectivity and thus a major upgrade is warranted, bad news if they spend all this time (and presumably some expense) and don't manage to achieve it. The last date suggested here, by ee was early december, this is little over a month away now. Hopefully the revision will be significantly upwards as we're all hoping and that will give the share price a good kick. It will also mean that some kind of debate about possible takeout prices will be more informed, no doubt the range will narrow somewhat, although around what middle point remains to be seen,

I am guessing that the management are being particular insistent on this review as it has major implications for any takeover bid,

cheers K

emptyend

24th Oct '12

So why is the reserves review taking so much longer than anticipated

I'm not sure that it is, to be honest. I know that there was talk at the AGM of having something by the end of September, but AFAIAA there was no promise that it would be published at that point.

So is this good news or bad news ? Well clearly good news if they manage to convince the monitors that there is connectivity and thus a major upgrade is warranted, bad news if they spend all this time (and presumably some expense) and don't manage to achieve it. The last date suggested here, by ee was early december, this is little over a month away now. Hopefully the revision will be significantly upwards as we're all hoping and that will give the share price a good kick. It will also mean that some kind of debate about possible takeout prices will be more informed

Still is early December..... IF they go the route of publishing the reserves report as a precursor to starting to negotiate a deal. Thats a big if, IMO, because I'd think they may look to do a deal with parties who have signed a CA in relation to the reserves report - and then put all of the deal/reserves information into the market at the same time.

I am guessing that the management are being particular insistent on this review as it has major implications for any takeover bid

I'm sure that is right. It is a crucial review - and, as you say, the treatment of any connectivity evidence could have a very material bearing on how matters develop from here.

The IMS next week may give some useful steers in these areas......or not........ ;-)

emptyend

25th Oct '12

Cross-posting here from a less appropriate thread:

I gave the £6-8 range a long time back, well before the connectivity thesis emerged. At the depths of the financial crisis in 2009 I acknowledged that a deal might only realise c.550p per share for Vietnam, but the buy-backs and the sweep-up of the minority restored my floor to £6.

To repeat a calculation process I've given several times before, if you back-calculate from £6 a share and ignore everything outside Vietnam (and ignoring cash...even though it is substantial - though you can repeat the process and net cash off if you wish!) then that is fractionally under £2bn. Take £2bn, convert to USD at a conservative 1.60 and then divide by a conservative $20 per 2P bbl (per Perenco)....and you get to 160mn bbls of 2P in Vietnam as the number that is implied by £6 per share...compared to 121mn bbls reported at last year-end.....

That would be a 32% increase in 2P since the last revision in 2008. You'll have to make your own assessment of whether that a reasonable expectation in the light of:

greater areal extent of TGT, following 2009 PSDM reprocessing, since validated by multi-well drilling
indications that recovery rates could be 45-50% rather than the 30-35% assumption embedded in the 2008 analysis (according to dj)
15 months production history from TGT H1 and 4 months production history from H4
apparent indications of connectivity within the TGT reservoir that have been evident over the last 9 months
finally getting credit (soon, honest...;-)) for CNV liquids production

I really can't be any clearer about my views and I think they are sufficiently conservative in the light of all the above - but the proof of the pudding will be revealed in the coming weeks by one means or another. I'd simply note the comments of Ed Story in the RNS relating to the sweeping up of the minority.....

The Acquisition will be significantly value accretive, generating substantial future return for SOCO shareholders.

Couldn't be any clearer, IMO.

And, despite the pop on the day the sweeping up was announced - and the mathematical impact of the elimination of the 20% minority on asset values - I see that the shares have done precisely nothing since then in relation to the wider market:

....so go figure, as they say!

tiswas

25th Oct '12

Hi EE

Can not argue with any of the above.

How much cash do you or anyone else think they will end the year with, assuming any sales process is delayed.

The Macquarie presentation at the beginning of the year showed something like $350m for the end of 2012 but at $90 oil and of course $95m was paid for the minority (has this been paid yet?)

So is $350-400m realistic or 60-70p per share? Should have no excuses for paying a chunky dividend if this does drag on.

emptyend

25th Oct '12

How much cash do you or anyone else think they will end the year with, assuming any sales process is delayed.

...mmmm...thats a bit of a guess. Perhaps there will be an updated number in the IMS?

The Macquarie presentation at the beginning of the year showed something like $350m for the end of 2012 but at $90 oil and of course $95m was paid for the minority (has this been paid yet?)

The interims gave a fig of $224mn, with a further $20mn or so net debtors outstanding. Since then they have committed (but not actually physically paid, when I last checked) $95mn for the minority....so say ballpark $150mn plus whatever has been made since 1/7/2012. My best guess (to end October) would be $250-260mn after netting off costs and tax liabilities...so something over $300mn by year-end, though perhaps not quite as much as you suggest.

Should have no excuses for paying a chunky dividend if this does drag on.

Indeed. A prudent return of, say, $200mn to shareholders would be c 38p per share. Much depends though on whether they look at doing special dividends or the more traditional (and more conservative) approach.

loglorry

25th Oct '12

Thanks for your post ee - it is certainly possible to reach these levels but I remain a bit more conservative. One should note that some of the 121m of 2P will have been produced thus increasing cash but decreasing reserves. Since net backs will be much higher than the $20/bbl you assume it is fair to say there is still something to add on for the cash but we should also prudently reduce reserves as well. It doesn't make a lot of difference though.

Thanks for posting your analysis.

Log

emptyend

25th Oct '12

it is certainly possible to reach these levels but I remain a bit more conservative. One should note that some of the 121m of 2P will have been produced thus increasing cash but decreasing reserves. Since net backs will be much higher than the $20/bbl you assume it is fair to say there is still something to add on for the cash but we should also prudently reduce reserves as well. It doesn't make a lot of difference though.

Fair enough.

I would think that any deal before year-end wil be back-valued to July 1anyway.

Regarding conservatism or otherwise, I'll leave that at the door for a moment and fly a kite......

Net reserves of 121mn bbls at 2011 year-end implied gross 2P reserves for TGT/CNV of c.400mn boe prior to TGT production start-up......but, as you'll know, CNV was touted originally as being c.155mn bbls recoverable (c.one third gas IIRC) which suggests that TGT numbers are presently based on a gross figure of c.300mn bbls recoverable. BUT, you'll also recall that SOCO always argued (pre-connectivity and pre 2009 PSDM) that there would be c 500mn bbls recoverable at TGT (including H5)......

....so...for TGT....lets assume that the starting point for the 2008 assessment was, say, 900mn bbls OOIP with a recovery factor of 34% ....THEN consider the potential impacts of:

an increase in the average recovery factor to 43%
an increase in OOIP related to the PSDM of 10%
an increase in OOIP related to connectivity of 25%

....what would that get us to, ignoring H5 upside? If I plug all those hypothetical numbers in..... then TGT's 900mn bbls OOIP with a recovery factor of 34% (gross 306mn, net 93mn 2P...with 28mn net at CNV)....could become 1238mn bbls OOIP with a recovery rate of 43%......

....which would imply gross 2P recoverables of 532mn bls, 162mn net at TGT........or 190mn bbls for SOCO VN if one adds back CNV.

And 190mn bbls might be worth 718p per share using the same metrics as in the posts above (+28p cash as at 1st July, adjusted for the minority sweep-up cost).

No doubt some might speculate on even bigger numbers, but I think my £6-8 range remains pretty robust.

extrader

25th Oct '12

Hi ee,

Re your suggestion in # 51 of a defensible divi of 38p ('special' or otherwise), would an alternative way of returning value to shareholders not be a 'special buyback'', tendering for , say , 1 in 20 shares @ 600p ?

This would potentially address income tax issues for anyone unsheltered ; give a 'marker' to the market as to believed underlying value esp. if management indicate take-up intentions (or otherwise) ; and allow PI's to tender or not according to their circumstances/expectations.

ATB

emptyend

25th Oct '12

Re your suggestion in # 51 of a defensible divi of 38p ('special' or otherwise), would an alternative way of returning value to shareholders not be a 'special buyback'', tendering for , say , 1 in 20 shares @ 600p ?

This would potentially address income tax issues for anyone unsheltered ; give a 'marker' to the market as to believed underlying value esp. if management indicate take-up intentions (or otherwise) ; and allow PI's to tender or not according to their circumstances/expectations.

davjo and I have both (to my certain knowledge) previously marked the company's card in relation to tax efficiencies. Not that this was really necessary - but it didn't hurt! ;-)

I think there are a wide range of possible structures that could be used, but obviously the cleanest way to return cash to shareholders is to sell the company (and offer newco shares in a smaller entity if necessary). Some form of tender would also be a possibility.

Anything in the order of a 38p return would be labelled "special" and structured carefully, I think. I doubt that a conventional dividend structure (which might imply a level of 4-10p?) would float anyone's boat - least of all the board's.

Not long to wait now before we can stop hypothesising, I think....

AnonymousUser858

29th Oct '12

At the AGM, in the post meeting discussion, I asked Roger Cagle about timing. He had answered a previous question about the sense of urgency for a deal by raising the issue of the potentially significant impact of the potential inter-connectivity. I asked how long it would take to get to the bottom of that question so as to be able to determine asset value with some degree of confidence/precision. RC said they would need 6 months from the date of the AGM - so round about the end of the year. I've been snoozing at the back of the classroom since then, waiting for the bell to ring. The alarm won't ring for another few months......

emptyend

29th Oct '12

He had answered a previous question about the sense of urgency for a deal by raising the issue of the potentially significant impact of the potential inter-connectivity. I asked how long it would take to get to the bottom of that question so as to be able to determine asset value with some degree of confidence/precision. RC said they would need 6 months from the date of the AGM - so round about the end of the year.

......mmmmm

As you know, I missed the AGM - so I asked a few questions shortly afterwards. One of those was:

"What is the timeline for the updated independent reserves assessment in VN?"
...and the response was "Sometime after the second platform has a bit of production history. How much history is really an open question."

Plainly the issue of potential connectivity is subsumed in the above comments. And, also plainly, they wouldn't have bought the minority out a few weeks after the AGM if they weren't optimistic about reserves......

So IMO the question about the amount of data required remains very much an open issue. 6 months was probably a fair (conservative?) guess back in early June....so 13th December......

......so it is perhaps no coincidence that the guidance since then has been to expect a reserves report in early December.

BUT....I go back to the comment I highlight above. It is an open question as to what would be considered necessary to prove up the reserves to 2P standards - and we are now more than four and a half months on from the AGM. We may yet find that three or four months' data is sufficient to convince XYZ Corp that the time to act is now, rather than waiting for a more crowded playing field in December or the New Year......

emptyend

21st Dec '12

I must say that I rather like the Major/Minor points in here.....;-)

The appearance of these companies is a new feature, AFAIAA, and probably tells you something about where we are in the timeline of events (events such as distributions and/or asset sales).

fuiseog

21st Dec '12

Isn't it lovely to see all those ducks being lined up -:)

extrader

21st Dec '12

Hi ee/fuiseog,

With hindsight, I suppose we might have anticipated that there was unlikely to be any major price-moving news until personal tax-planning arrangements had been optimised...;->

Far better to forgo shares in lieu of tax based on 350p or so than on any higher figure....!

Methinks (pace tournesol) I hear some gargling in the wings - even from my cheap seat up here in the 'gods'.

ATB

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Soco End game Timings and Price Targets

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Isaac

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