SOCO Int'l - Jam Today And Possibly Lots More Tomorrow

Thursday, Oct 11 2018 by
22

Well, it's not your typical mid-cap London listed oil stock. For starters, SOCO International (LON:SIA) actually pays dividends. And when I say pays dividends I mean that from 2006-2017 it distributed some US$476 million to shareholders. It has a policy of distributing excess cash to the owners of the company. It's not simply about drilling more holes in the ground and paying increasing amounts of cash and shares to its Directors. In essence, it's not simply a jam tomorrow stock.

Its main assets lie offshore Vietnam. These comprise two oil producing fields: TGT and CNV. In total, its production is around 7748 BOPD (H1 2018). These assets obviously require an investment that has not been forthcoming. In both blocks, it's partnered with the Vietnamese state oil company, PetroVietnam. The latter has clearly been strapped for cash, therefore, new wells have not been drilled at a pace that SOCO would like. That could be changing – A Vietnamese delegation was recently in London discussing investment proposals with SOCO's management. Nevertheless, some development is going ahead and the results should be revealed before the end of the year. It has also put in place measures to reduce its already low operating costs (Currently US$14 per barrel) with the extension of two major operating contracts on more favourable terms. And it should be remembered that its oil sells at a US$3 plus premium to Brent. However, the lack of investment in its offshore assets has obviously impacted its bottom line. In 2012, its revenue was around US$621 million and its operating profit was US$448 million. But by 2017, its revenue fell to US$156 million while its operating profit was a little under US$23 million.

On the back burner sits its other Vietnamese offshore assets – blocks 125 and 126. The company plans to buy existing seismic data in 2019 with drilling planned for 2021. Not used to superlatives and having researched the area since 2010, SOCO describes it as having the “Very real possibility” of becoming a new oil province.

Historically, the company has had a very strong balance sheet with a large amount of cash. In recent years, the question has been what it would do with that cash. Earlier this year, it seemed that there would be a merger with Kuwait Energy. But that fell through.…

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SOCO International plc (SOCO) is a united Kingdom-based oil and gas exploration and production company. Its segments include South East Asia and Africa. It has field development, production and exploration interests in Vietnam, and exploration and appraisal interests in the Republic of Congo and Angola. In Vietnam, It’s Block 16-1 and Block 9-2 include the Te Giac Trang and Ca Ngu Vang Fields, which are located in shallow water in the Cuu Long Basin, near the Bach Ho Field. It holds working interest in Block 16-1 and Block 9-2 through its subsidiaries, SOCO Vietnam Ltd and OPECO Vietnam Limited. SOCO holds its interests in the Marine XI Block, located offshore Congo (Brazzaville) in the shallow water Lower Congo Basin, through its subsidiary, SOCO EPC. It holds working interest in the Mer Profonde Sud Block, offshore Congo (Brazzaville) through its subsidiary, SOCO Congo BEX Limited. SOCO's subsidiary, SOCO Cabinda Limited, holds participation interests in the Cabinda North Block. more »

LSE Price
66.7p
Change
0.2%
Mkt Cap (£m)
264.7
P/E (fwd)
18.0
Yield (fwd)
7.7



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8 Posts on this Thread show/hide all

nigelpm 11th Oct '18 1 of 8
4

Excellent post and summary. I concur with all of that. I'd add that upside could be had from exploration on the Egyptian deal, a positive outcome from talks with PV and more potential acquisitions on the way. In summary lots to like and a decent level of downside protection should nothing go to plan.

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LongValue 12th Oct '18 2 of 8
2

Strange as it may seem, but I am not that bullish about oil. However, between now and its eventual demise could be decades. In the meantime, low-cost and full-cycle producers such as SOCO can make good profits. But the real issue, in my view, is how those companies manage the decline. SOCO appears to have a model not dissimilar to many large tobacco companies. It has a core policy of distributing excess cash flow via dividends. In a world of rising interest rates, I would suggest that this makes even more sense. Its model is not centred on being bought out at some point by a company as yet unknown.

As for the proposed acquisition, Merlon Petroleum's assets are onshore and, therefore, are relatively low-risk: it appears to operate in a technically easier environment than offshore Vietnam. Its estimated break-even is US$34 per barrel – so basically it fits into SOCO's full cycle model. Its current production is net 7859 BOPD. That's roughly the same scale as SOCO – the company is not taking on something out of its depth. And SOCO is looking at increasing that production to some 15000 BOPD by 2023 through low-risk development such as workovers and infill drilling. And Merlon has substantial acreage covered by 3D seismic that offers the prospect of successful development and, interestingly, according to SOCO, this can be exploited by repeatable well designs (Low-cost).

As with any resource stock, it's inherently risky but based upon what it has delivered, I think that SOCO can manage the risk reasonably well.

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Elias Jones 2nd May 3 of 8
2

The 7.3% dividend impact on current sp looks appealing, oil price above $70 and Merlon production increase to come in the future.

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LongValue 2nd May 4 of 8
3

Dr Mike Watts, Managing Director of SOCO International (LON:SIA), will be giving a presentation at the Scottish Oil Club next week. I will be attending so should anyone have any relevant questions, please let me know. With the acquisition of Merlon now completed, this seems an ideal time to find out more about what the company is planning to do.

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Oilinvestor85 2nd May 5 of 8
4

Hi LV

A few questions that spring to mind.

Why hasn't there been further acceleration of development drilling in Vietnam following the positive press about this late last year? Are PV still reluctant to spend even with oil in the 70s?

How are they planning to halt the production decline in Vietnam that has continued for the last 5 years?

Any update on the Compressor/ gas issues in Vietnam would be welcome.

Why haven't they been able to secure meaningful acquisitions despite having one of the strongest balance sheets in the O&G sector and despite actively searching for the past 3 years?

Are there priorities for future acquisitions with in Egypt or in other areas (for diversification)?

Why hasn't the market reacted positively to Merlon and how are they addressing that?

How do they plan on addressing the chronic lack of liquidity that the shares have been suffering from ?

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aflash 5th May 6 of 8
1

Thank-you for bringing me up to date. A small holding showing a 30% loss from 'back in the day' has not received much attention from me.
I wonder if any of you know about director purchases and sales?
Not a question to ask at the meeting but if the CEO, CFO and other officers have such large personal holdings which promises a sustainable dividend they must follow the price which has been down since 2014ish.
Did any sell when this was popular?
Are any buying now?

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Oilinvestor85 10th May 7 of 8

LV

Did you manage to attend ?

Any feedback?

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LongValue 13th May 8 of 8
4

It really was an incredibly interesting event. Dr Mike Watts used his coin collection to give a potted history of the period covering ancient Egypt to the end of the Roman Empire. Completely unexpected. So, what does that have to do with oil? Very little to be honest. However, I did manage to speak to him for a short time after the talk. And I did convey my request to get some questions about the company answered. I have sent him a list of questions and issues and I await his reply.

Clearly at a crossroads after the Merlon acquisition, I would suggest that opening up about its plans would make sense for all concerned. To some degree, the stock seems to be drifting because of this lack of news. Having made a strategic acquisition, investors need to know what the company's direction of travel will be.

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