Valuation, sentiment, and SP direction

Wednesday, Jun 17 2009 by

Detailed discussion of Soco's assets should take place on other threads, but this thread is to discuss the latest valuations both by ourselves and analysts, sentiment (ie will the shares go nowhere because there's not much upcoming news) and likely moves in the share price in the next six months.  How should the shares be valued?  How reasonable is it that any drilling without a firm commitment further than several months away is ignored by the market?

I haven't seen many recent analysts' reports on Soco, but I have one from Cazenove with a core NAV of 1370p and no doubt considerable explo NAV on top of that.  I imagine that's approximately concensus, but maybe with crude rising again these concensus NAV figures will start to rise.  Has anyone any other recent broker estimates?

My view, as stated elsewhere, remains that in the absence of much to get the market excited the shares will wander aimlessly for the rest of 2009.  I've previously guessed that if crude were $65 at Christmas 09, then Soco's SP would be somewhere near £13 then, and I'm still very happy with that guess.  What does anyone else think?

Of course unexpected bids and other events may overtake this, but these sort of events may happen to any company, and perhaps Soco (where management seem unlikely to accept bids since they believe there is considerable value not recognised by the market) is one of the less likely companies to be affected by the unexpected.  The key new news for Soco might be (a) a bid (IMO unlikely), (b) some sort of presentation by management of the drilling data they claim to have that demonstrates a significant strike has been made at E, currently ignored by the mkt, or (c) possibly hitting oil off the Congo.


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SOCO International plc (SOCO) is an oil and gas exploration and production company. The Company's segments include South East Asia and Africa. It has field development and production interests in Vietnam, and exploration and appraisal interests in the Republic of Congo (Brazzaville) and Angola. In Vietnam, SOCO'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. SOCO 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. SOCO 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 »

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1317 Posts on this Thread show/hide all

swanvesta 11th May '12 458 of 1317

In reply to emptyend, post #457

It didn't seem to me he was talking of a full MBO, when he said: would give an opportunity for some to 'take the money and run' and others to hold out for eventual greater capital gain.

I guess the language can be confusing when the BoD, and associated insiders, have such a large shareholding.

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emptyend 11th May '12 459 of 1317

In reply to swanvesta, post #458

It didn't seem to me he was talking of a full MBO

Well you very clearly failed to read his original post then, which made it completely clear.

No wonder I got so much flak and he appeared to have so much support for his half-arsed idea (sorry ET - don't take that personally!), if people don't actually bother to read the proposal and think about it.

I'm all in favour of ideas that increase the potential upside for shareholders as a whole - but I'm completely opposed to the idea that my interests are damaged in order to provide some short-term traders with a short-term opportunity for gain! And I would think that any shareholder who has held for more than a few weeks would be too!


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kenobi 11th May '12 460 of 1317

We need to keep in mind what the objective is, is it 1, to maximise the return for shareholders who stay in, or 2 to bolster the share price and allow people to exit at a slightly higher price without damaging the share price ?

If it's the first, then 80M would be best spent on a buy back, if it's the second perhaps it would be better spent on a divi, which would bolster the share price 80M could represent a 7 or 8 % divi. It seems to me from the last agm that the management did not commit to pay a divi, but they did suggest that they would if they couldn't find suitable opportunities to invest. As MD has suggested in the past it might focus the minds of potential buyers if they saw some of the cash flowing out of SOCO to the shareholders.

I guess the truth is that unless they really have other plans needing capex, they could afford to do both, though they'd probably be best advised not to speak of a divi if they are trying to buyback shares in bulk. I would suggest that if they did manage to buy back 10% of the stock, and then paid a 7% divi, the share price would respond very favourably. Especially if the tgt p1 production issues are resolved and p2 comes on line, and there is a plan for handling the capacity upto 90k as originally envisaged for tgt p1 & 2.

cheers K

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emptyend 11th May '12 461 of 1317

In reply to kenobi, post #460

We need to keep in mind what the objective is, is it 1, to maximise the return for shareholders who stay in, or 2 to bolster the share price and allow people to exit at a slightly higher price without damaging the share price ?

It is very clearly the first. There is no "massaging" objective for the buyback.

If it's the first, then 80M would be best spent on a buy back, if it's the second perhaps it would be better spent on a divi, which would bolster the share price 80M could represent a 7 or 8 % divi.

They aren't mutually exclusive. If the share price stays low and there is no VN deal then I'd expect a divi to be proposed (probably in H2) in tandem with buybacks.

However, don't start out with unrealistic ideas for the scale of the divi. Dividend policies are always looked at in terms of sustainability over the cycle (and taking account of investment opportunities). For a company like SOCO International (LON:SIA), I'd expect to see a dividend of about 6p per share per annum (so perhaps a 2% yield) and with dividend cover of 10-12x.


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extrader 11th May '12 462 of 1317

Hi all,

Scene from The Graduate :
Mr Robinson - " Sounds like a pretty half-baked idea to me, son"
Ben - " Oh no sir, it's fully baked".

My apols to ee and others for what came over as a 'half-arsed' proposal.

I didnt mean an MBO in the Lees sense, but rather a larger scale version of what CLS Holdings (EPIC : CLI)has done for many years - a share buyback/tender in lieu of dividend (for reasons connected with the controlling shareholder Morstedt family tax position).
Typically, CLI - a property company - tender to buy back 1 in 40 or 1 in 50 of existing share stock, at a 20-40% preemium to the prevailing market price, the premium often approximating the "NAV" of the property co.

Shareholders are free to tender or not ie to 'take the cash' or to see the value of their holding perCLI share rise.

In Soco's case, others have suggested the tender could be as material as 1 in 10- 15, just from existing cash/cash-flow......throw in a reserves-based short-term loan and Soco could tender for 20-30% of its stock, maybe on a fixed price offer, say 400p (for argument's sake) or some kind of reverse Dutch auction that allowed meaningful price discovery on a company that was no longer (effectively) about E, but mainly about P.

May the debate continue !


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Isaac 11th May '12 463 of 1317

If the company is going to be sold, well if that is the intention in the next 6-12 months I don't favour a dividend as it is not tax efficient.

I would rather they buy back as many shares as possible.

If the management try and do a MBO I think I would go absolutely MAD and all hell will break loose.

The more shares they buy back and the longer the price remains at these levels the easier it becomes for them to do a MBO but they had better not, the way to add value is to find Oil not steal it from fellow shareholders.

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kenobi 11th May '12 464 of 1317

Fair enough ee,

I was really just drawing attention to the £80M we are suggesting using on buy backs and what that represented in terms of a divi. That leaves us to ponder, what would be better for the shareprice buying back 10% of the stock (if this is even possible at these prices ), or a 7% divi. ( as a one off).

clearly a one off divi won't have the advantages that a sustainable divi might. would a 2% divi do anything at all for the share price ? hard to say, at least we'd be getting something back for our hard earned cash. Of course one factor that makes a big difference is the eventual timescales for some kind of monetisation of SV. If we believe its soon (say the next 6-12 months), then buying stock back now in bulk to give us a 5% boost in exit value seems like a good deal. If the reality stretches out beyond then, you have to wonder if the money might not be better invested in exploration, assuming suitable opportunities can be found.

Anyway, the next month will give us some more information in the IMS and at the AGM. The elephant in the room is the market, are we heading to a crisis that will make takeovers more difficult ? or will the second half of the year see a calming of the EZ issues ?

cheers K

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redhill 11th May '12 465 of 1317

In reply to kenobi, post #460

We need to keep in mind what the objective is, is it 1, to maximise the return for shareholders who stay in, or 2 to bolster the share price and allow people to exit at a slightly higher price without damaging the share price ?

To be more explicit about share buybacks in the circumstance of the first reason above for a company looking to sell - the objective will be specifically to maintain or raise the base sp on which a bid may be constructed. Reducing liquidity by a tender of substantial number (10% as suggested?) would (probably) reduce liquidity and therefore should force the sp upwards to the benefit of remaining shareholders.

I'm not proposing management do this as they will know best, just thinking of the effect if they did.


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kenobi 11th May '12 466 of 1317

the objective will be specifically to maintain or raise the base sp on which a bid may be constructed. Reducing liquidity by a tender of substantial number (10% as suggested?) would (probably) reduce liquidity and therefore should force the sp upwards to the benefit of remaining shareholders.


I really don't know,  I can see an approach where paying a big divi and saying,  vietnamese assets are for sale,  we're under no pressure to sell as the shareholders are getting a good return on their investments, we want a good price  might work.   or buying up lots of shares might work.   I'm really thinking out loud.   It is one of those much argued about issues among shareholders what is better divis or buybacks.  My answer is always it depends on the price.   But a sustainable divi would push up prices too,  although it should reduce the eventual buy out price logically  whereas buybacks should increase the eventual buy out price. 

One important factor is when the management believe a deal can be done. 



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swanvesta 11th May '12 467 of 1317

In reply to extrader, post #462

Thanks for clarifying, extrader. And phew - I'm not going mad ;-) Though like Isaac I will be absolutely fuming if they do try a Lees type MBO.

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emptyend 11th May '12 468 of 1317

In reply to extrader, post #462

I didnt mean an MBO

Well you shouldn't have said you did then! Look what happened - not only did I fly off the handle but I seem to have landed up in the same nuthouse as others, who would be equally annoyed by such a thought  ;-)

To be clear - I think there is every reason for the company to tender for its stock. And I would be entirely happy for that to be done if it doesn't compromise the listing or change the ultimate endgame.  One can (rather pointlessly) debate what size of tender might be appropriate - but I think 25-50mn shares (say 10 - 15%) would be a reasonable objective and financeable without recourse to a loan (I'd guess they have c $300mn cash).

Note also that any EGM requirement could be addressed at the same time as the upcoming AGM.

I like the idea of an auction also - and there are various interesting ways in which that could be constructed, depending on precisely what objectives are intended.

As I said in #453 last night: "opportunism is merited by market circumstances".

Lets see what happens.


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Spurticus 11th May '12 469 of 1317

Interesting (for a Friday afternoon) paper explaining the Asia-Pacific shift to dated Brent pricing:

Speaking of which:

- Vietnam's PV Oil sold Te Giac Trang (TGT) crude for
July-December loading to three buyers - Shell, Vitol and Unipec
- at a premium between $6.60 and $6.70 a barrel to dated Brent,
trade sources said.
The exact purchase volume by each buyer was not known, but
they will have to lift a minimum 6,700 barrels per day of TGT as
requested in the tender.
The premium is much lower than PV Oil's offer of $7.65 a
barrel and are also at the lower end of the $6.50-$8.00 range
fetched for June cargoes.

Not sure about the 'much lower', in view of the current market uncertainty.



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Isaac 11th May '12 470 of 1317


L&G have been selling down Soco....Now below 3%

Other (please
------------------- ------------------------------------------------------ -------
3. Full name of person(s) subject Legal & General Group Plc (L&G)
to the
notification obligation:
------------------------------------------ ----------------------------------------
4. Full name of shareholder(s) N/A
(if different from 3.):
------------------------------------------ ----------------------------------------
10 May 2012
5. Date of the transaction and date
which the threshold is crossed
------------------------------------------ ----------------------------------------
6. Date on which issuer notified: 11 May 2012
------------------------------------------ ----------------------------------------
7. Threshold(s) that is/are crossed L&G (Below 3%)

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Isaac 11th May '12 471 of 1317

Also interesting to note that Soco bought back their max, avg vol of 680k the last 20 trading days

SOCO announces that on 11 May 2012 it purchased 170,000 of its ordinary shares at an average price of 266.0641 pence per ordinary share. The highest price and the lowest price paid for these shares were 271.2 pence and 263.6 pence respectively. All the purchased shares will be held as Treasury shares.

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Isaac 11th May '12 472 of 1317

  11 May'12 - 13:56 - 8380 of 8400

The other explanation of course is that they aren't "selling SOCO" as such.....they are just "selling the market". I don't doubt that a chunk of the volume is related to basket trades on the market (or on oil-related stuff). Lets see how that pans out....

Clearly not, interesting to see L&G selling.


They are not very smart at all, they were previously selling Soco in Jan 2009 near the lows....

They then just held on, until recently when they began selling again...


And in that period the chart has done the following :

Soco Share Price (5 years)

Seriously, who employs these idiots? They seem to have a track record of selling at the lows.....And yes I doubt Soco is going to go significantly lower from here.

Management should look to buy out the seller in bulk IMO.



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redhill 11th May '12 473 of 1317

In reply to Isaac, post #472

Management should look to buy out the seller in bulk IMO.

Is that allowed? Buying shares to treasury in the market or by tender is allowed, but are they allowed to make a deal with one shareholder?


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djpreston 11th May '12 474 of 1317

Of course they can. The holder would just get in touch with the company broker and a deal could be done at market price probably or maybe slightly below.

Fund Management: European Wealth
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emptyend 11th May '12 475 of 1317

In reply to Isaac, post #472

They are not very smart at all, they were previously selling Soco in Jan 2009 near the lows....

Actually they have a very much longer track record than that. I well recall them conducting a firesale when the shares were trading at about 110p.......and they sold out at about 80p - only to see the shares promptly pick up to 105p as the Chairman and others picked the stock up. The timescale from start to finish was (IIRC) about a day and a half.......!

It'll be documented in the bowels of TMF somewhere.

It could be deja vu all over again (as they say ;-0)

ee notice that after today's repurchase Pontoil will have 23.994% if they haven't traded the shares since the AR. I have a feeling there could be a few holding notifications shortly.

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Isaac 11th May '12 476 of 1317

Vietnam Energy Profile: Important Oil Supplier To Regional And Domestic Markets – Analysis


Potential companies that may be interested in buying Soco Vietnam Assets :


PetroVietnam also has formed partnerships with several other international oil companies (IOCs), NOCs, and smaller independent energy companies including the following: ExxonMobil, Chevron, BHP Billiton, Korea National Oil Corporation (KNOC), Total, India’s ONGC, Malaysia’s Petronas, Nippon Oil of Japan, Talisman, Thailand’s PTTEP, Premier Oil, SOCO International, and Neon Energy. After a competitive bid in 2011, ConocoPhillips divested its assets in Blocks 15-1 and 15-2 of the Cuu Long basin and the Nam Con Son pipeline to Perenco, a French IOC, for US$1.29 billion.


Exploration and Production

One of the most active areas for ongoing exploration and production activities in Vietnam is the offshore Cuu Long Basin. Vietnam’s oil production has decreased over the last seven years primarily as a result of declining output at the Bach Ho (White Tiger) field, which accounts for about half of the country’s crude oil production. After reaching peak output of 263,000 bbl/d in 2003, the field’s production dropped to an average 92,000 bbl/d in early 2011. It is expected that Bach Ho’s production decline rate will range from 20,000 bbl/d to 25,000 bbl/d through 2014. Vietsovpetro intends to boost oil production by using water injection to stem declines of aging fields and by investing $7 billion on exploration activities over the next five years.


That hardly reads as if PV will want to restrict TGT ramp up.......



Vietnam currently has one operating refinery, but hopes to expand capacity within the next decade in the interests of reducing import dependency for oil products and fostering economic development in the north and central regions of the country where the proposed projects are located. However, the projects have encountered several delays stemming from financial, contractual, and land clearing challenges.

Vietnam began operating its first refinery, Dung Quat, in July 2009. The 140,000 bbl/d facility cost $2.5 billion and lifts about 90 percent of its crude oil feedstock from the Bach Ho field. PetroVietnam plans to expand Dung Quat’s crude distillation capacity to 200,000 bbl/d by 2017, and the feasibility study is scheduled for completion by early 2012. Vietnam intends to expand the refinery’s processing capability to handle both sweet crude and less expensive sour crude oil from sources such as the Middle East, Russia, and Venezuela. The company signed supply deals with PDVSA of Venezeula and Gazprom of Russia for the expansion of Dung Quat. PetroVietnam, the plant operator, plans to sell up to 49 percent of Dung Quat’s equity to a foreign investor in order to finance the expansion, and reportedly, PetroVietnam signed agreements in 2012 with JX Nippon Oil of Japan and PDVSA to invest in the expansion.

PetroVietnam, in joint ventures with other companies, plans to build two new refineries and increase its total refining capacity to an estimated 330,000 bbl/d by 2015. Nghi Son is the second refinery project with a planned capacity of 200,000 bbl/d. Located in the northern region of the country, it is closer to end-users but far from the country’s main oil-producing areas. Construction at Nghi Son began in early 2012. The Nghi Son facility, scheduled to come online by 2015, has encountered several delays due to issues securing financing and land permits. Kuwait Petroleum Company, which owns a 35-percent stake, is likely to supply all the crude to the facility.

PetroVietnam’s third facility, the 240,000-bbl/d Long Son refinery, which is facing delays attracting investment, is scheduled to begin operations by 2018. Qatar Petroleum expects to take a 25 percent equity stake in the project and become the key crude supplier. Other partners in the project are Siam Cement Group, Thailand Plastics and Chemical, PetroVietnam and Petrolimex. If this third refinery comes online, Vietnam anticipates being self-sufficient in oil product demand.

In addition to PetroVietnam’s three projects, two others are under development by other companies. Petrolimex is in talks with South Korea’s Daelim Industrial to build the 200,000 bbl/d Nam Van Phong refinery. The company reported delaying the start date of the project from the original 2015 timeline. Foreign investors, Telloil of Russia and Technostar of the UK, plan to build the Vung Ro refinery by 2015. The plant’s initial capacity is 80,000 bbl/d, though the investors proposed doubling the capacity.


Oil Exports

Vietnam is currently a net exporter of crude oil but remains a net importer of oil products. According to EIA, oil demand has nearly doubled in the past decade from 175,000 bbl/d in 2000 to an estimated 320,000 bbl/d in 2010. Vietnam still needs to import about 70 percent of refined products and petrochemicals since the output from the Dung Quat refinery does not satisfy domestic demand. As more refineries are scheduled to come online, PetroVietnam anticipates meeting 50 to 60 percent of the domestic product demand by 2015. FACTS Global Energy forecasts that domestic petroleum product demand will more than double by 2030 to nearly over 830,000 bbl/d from around 375,000 bbl/d in 2011. The transportation sector, which uses gasoline, diesel, jet fuel, and fuel oil for rail, drives about 60 percent of petroleum product demand. The remaining oil product demand originates from liquefied petroleum gas (LPG) use in the residential sector and small amounts of products used in the industrial and power sectors.

Ample evidence as to why it is is in the Governments interest to ramp up TGT. What does TGT produce a lot of ? Anyone know?

It is a very sweet, low sulphur crude that refines into high value products hence the premium of $6 to Brent.

What is there a shortage of in Vietnam that they have to import? Refined products.

So why does it make any logical sense for PV to restrict TGT production when

a) Plenty of demand for products that they are importing

b) Refining capacity is expected to increase in the next few years i.e. more demand for crude

Someone needs to give Mr Market a good shake on the head....

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kenobi 13th May '12 477 of 1317

That hardly reads as if PV will want to restrict TGT ramp up.......


And yet remind me what the production level is nearly 6 months after the 55k target ?

and now many zones out of how many are in production ?

I agree with the sentiment though though,  everything I read suggests that the vietnamese should be keen to maximise production,  but here we are. 

I look forward to the opportunity to hear soco's side of this at the agm, 



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