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6th Aug '09 by emptyend

736 comments 241847 reads

This thread is intended solely as a place to discuss analysts' notes on SOCO.

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Emptyend

Premium Member

736 comments

peterg

24th Mar '10

On the footnotes of page 4 of the presentation, they refer to "US$150 Capex estimated for 2010—US$135 in VN". I thought the Nganzi wells would cost about $60m but the footnote implies that only $15m will be spent outside of Vietnam? Does that figure assume a farm-out of Nganzi?

Presumably, yes. Assuming a farm out and partial carry then $15m for Nganzi seems plausible. Of course if there isn't and they go it alone then costs will be higher.

davjo

24th Mar '10

I thought the Nganzi wells would cost about $60m but the footnote implies that only $15m will be spent outside of Vietnam? Does that figure assume a farm-out of Nganzi?

Agree with PG, almost certainly yes, imo

Re Congo-B wells, the delay is probably operational.....down to the Marine XIV seismic interpretation not being complete just yet.

The only other thing that stood out for me was in RBC's note referring to TGD-2X being downdip. When you look at slide 11 it appears fairly obvious although hadn't struck me before. I always assume downdip is more risky, depending how far the step out is. Slide 11, whilst unclear looks about 2kms. However, Nomura say 1km, so not too far. Interestingly, they also say "thickening sands", so hopefully more exposure to the reservoir, raising the chance of a better flow. I guess this also means a stratigraphic trap?, more difficult to define its size? Over to the those who know what they're talking about ;-)

AnonymousUser858

24th Mar '10

Re Corkboy's question on capex

I would expect appraisal/development (as in VN) to be treated as capex but I would not expect exploration costs (as in Congo) to be treated as capex. I'd expect explo costs to be treated as expense items at the time they were incurred. If exploration proves succesful and (after appraisal) reserves eventually get booked then and only then would the expensed costs be backed out of expenses and capitalised.

There again I'm no accountant so WDIK

peterg

24th Mar '10

Hi DJ,

I had the same thought about risk and drilling downdip this afternoon. On further consideration I wonder if part of the judgement made is that if the oil doesn't extend that far down dip then the size of the resource may not be commercial, and the derisking of the rest of the fan would also presumably be less, so it's better to step out down dip and, hopefully, hit a thicker reservoir? Clearly, SOCO Towers don't see it as a very risky move, so presumably they are reasonably confident of hitting oil that far from the crest.

emptyend

25th Mar '10

I'd think the well location choice is all about the likely reservoir thickness and likely reservoir quality. I'm guessing that the shading shown within the fan on slide 11 is an assessment (based on TGD-1X well logs etc) of where the most permeable/porous sands are (darker being better?)....because the well location seems pretty central to the dark patches and perhaps designed for maximum drainage?

I think we could reasonably expect to see a good success (coming in as prognosed!!) leading swiftly on to a very big step out well to prove the rest of the fan. It would be very interesting to know the terms of the rig contract agreed in February - but there seems to be no info out on that (unless someone asked on the conference call!)....

ps......I've now had a look at the rest of the results presentation - slide 15 leaves the analysts with zero excuses for not understanding the explo upside:

I can't seem to format this properly with a cut and paste, but the clear statements and emboldening of the word NET ....and the pointing out of the potential for "more than 10 fold" increase to the 30mn TGD if the fan is proven up makes the situation crystal clear.....

One REALLY couldn't wish for a clearer statement!!

So....validate the TGD interpretation and sole-risk Nganzi with 100% success, and we could be looking at a company with about 1bn bbls of NET reserves! ;-)

I don't think that most analysts have paid any serious attention to that possibility at all!

peterg

25th Mar '10

slide 15 leaves the analysts with zero excuses for not understanding the explo upside:

I see Macquarie are still sticking to the line: very high operational risks of drilling the TGD HPHT, so I'd think at least one lot of analysts are not paying a lot of attention to what the company says!

emptyend

25th Mar '10

Well to be fair to Macquarie on that point Peter, they aren't referring to the explo upside - they are pointing to the risks of a repeat of TGD-1X. However, what they utterly ignore (in saying "very high") is that:

a) there were plenty of lessons learned immediately from TGD-1X

b) they have spent over a year planning in minute detail for this well, using a world-class specialist specifically hired to put his reputation on the line with this well (sorry to worry you, if you are reading this Mr W-C E ;-))

c) they have decided to drill only the upper section of the well, thus avoiding most/all of the major issues which afflicted the first well

...so, as you say, they simply haven't been paying attention!!

MadDutch

25th Mar '10

Apologies for this question; where can I see the presentation?

MadDutch

gibson330

25th Mar '10

MadDutch

Soco website > Financials > Presentation > see pdf
or
http://www.socointernational.co.uk/?id=82&entityType=Document

emptyend

25th Mar '10

Hi MD,

It is here: http://www.socointernational.co.uk/?entityType=Document&id=82

Bythe way......

The Chronic Investor apparently thinks that this year's explo programme is now "in the price"....lets come back in three months time and see just how far out that was shall we? ;-)

And one should also note that when SOCO say "600mn bbls net" they are talking about net recoverables on a P50 basis....they are NOT doing what certain other (large!) oil companies do and talking about OOIP or quoting recoverables estimates on a P10 basis. If they WERE doing what certain other companies do, then the headline number would be more like 2bn bbls........which would, indeed, be more likely to grab headlines (as evidenced by some of the market's current "darlings").

MadDutch

25th Mar '10

Thanks ee and gibson.

I was confused by the reference to RBC in djpresron's post 71, especially because I never remember what the acronym stands for! I would like to see the RBC presentation, can anyone help please?.

ee, I recently got a mail shot from the Chronic Investor, offering me a special deal on a subscription. It was very useful, I converted it into lighters for my log fire!

My wife & I hope to see you & our other friends at the AGM.

Mike

repobear

25th Mar '10

So....validate the TGD interpretation and sole-risk Nganzi with 100% success, and we could be looking at a company with about 1bn bbls of NET reserves! ;-)

I would say the chances of that are about 1 in 10.

Two succesful pokes into TGD and one hit, one miss and one in between in Nganzi would produce a nice return though and the chances of that are probably between evens and 2/1.

Any views anybody?

repobear

jonnyt

25th Mar '10

Two successful pokes in TGD, assuming the second is in the fan would likely see a doubling from here.

BTW I DID SAY I WOULD BE BACK

You have been warned ;o)

JonnyT

repobear

25th Mar '10

Hi JonnyT,

Your laughable;-) 9 quid forecast was pretty good. Welcome back.

What's your best guess on a top from here?

repobear

emptyend

25th Mar '10

So....validate the TGD interpretation and sole-risk Nganzi with 100% success, and we could be looking at a company with about 1bn bbls of NET reserves! ;-)

I would say the chances of that are about 1 in 10.

Two succesful pokes into TGD and one hit, one miss and one in between in Nganzi would produce a nice return though and the chances of that are probably between evens and 2/1.

Any views anybody?

Think that is too optimistic, really - at least in terms of probability maths:

Lets say 60% CoS for TGD-2X and a contingent 30% risk on a follow-up step-out well....and lets generously (?) risk each of the three (independent) Nganzi prospects at 25%. The chance of both TGD wells (assuming we get two!) coming in would be about 18% and the chance of all three Nganzi wells coming in would be less than 2%......so the mathematical chance of the whole lot happening is substantially less than 1%.....

...but, as we know from Tullow's experience in Uganda, if you actually understand the geology then (even in fresh territory) the CoS of a succession of finds may not be independent. Obviously Nganzi is virgin territory, so it is certainly possible that the confidence of SOCO's internal teams may be misplaced....but if it isn't then........ ;-)

Different situation with TGD - they have spent years on understanding the geology and, after the 4th reprocessing of the seismic, may now be in a position to unlock the full potential.......but we won't know until it is drilled.

I note we have jonnyT rejoining us and I for one (again) won't be rubbishing any thoughts of a potential £50-60 a share valuation. It may not have a high likelihood - but it certainly isn't impossible, given the near-term drilling plans!

repobear

25th Mar '10

ee,

Fair comment but I can be publicly more optimistic because I won't get burned by disappointed parties later;-)

0.9 *0.7*0.3*0.6*0.7 assuming they have understand the geology very well and they have a couple of things to be really confident about and the step out isn't outrageous.

What odds oil above 100 bucks in a year or so?

Now JohnnyT can run the numbers;-)

repobear

extrader

25th Mar '10

Hi ee,

Interesting comments from various parties - and to see (on another thread), news that ES and RC/CC have realised most of their LTIP entitlements....

Re your msge 82 (c), why have Soco gone to the trouble/expense of sourcing an HPHT rig (IIUI) when they're not planning to poke below the volcanics ?

emptyend

25th Mar '10

Re your msge 82 (c), why have Soco gone to the trouble/expense of sourcing an HPHT rig (IIUI) when they're not planning to poke below the volcanics ?

Well it isn't so much the rig that is HPHT but the kit that is used on it (such as blow-out preventers).

I recall investigating some while ago and, whilst they aren't planning to drill anything over 10,000psi (I think they are expecting about 8,000psi at this location IIRC), it was an unexpected higher pressure that started the problems with the last well (exceeding the 12,000psi rated BOP they had provided for).

I think the motto with this one is "belt and braces".

cheers

[ps re LTIPs......I suspect Isaac might be right and all available options have been exercised by the Cagles to get them into the current tax year]

Groundhog

25th Mar '10

Has the AGM date been announced? Couldn't see it on their site

emptyend

25th Mar '10

No - not yet, AFAIAA. It will be set before the AR gets posted

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Emptyend

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