Valuation, sentiment, and SP direction

Wednesday, Jun 17 2009 by
19

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 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
64p
Change
4.1%
Mkt Cap (£m)
254.4
P/E (fwd)
19.8
Yield (fwd)
9.5



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1317 Posts on this Thread show/hide all

adam 27th Mar '13 1098 of 1317
2

There is no substantive difference between the situation now and the situation at any poinin the last 5-10 years.

 

Oh but there is....

The industrialsation of China has accelerated and their energy needs have shot up..

https://www.google.co.uk/publicdata/explore?ds=d5bncppjof8f9_&met_y=eg_use_pcap_kg_oe&idim=country:CHN&dl=en&hl=en&q=energy%20consumption%20china

China is throwing its weight around a lot more and has energy and fishing requirements.

Also, in the article there are reasons to be nervous that the politburo is not entirely in control of the military

Professor Huang Jing from Singapore University and a former adviser to the People's Liberation Army (PLA) says a rising cadre of officers has slipped the leash and picked up attitudes all too like the Japan's firebrand officers in the 1930s, when they defied orders from Tokyo. He said these young bloods are on a "collision course" with the US-dominated global system.

 

Also, more prosaically, there is or likely to be a fair number of Asian or Vietnamese investors on the share register, both retail and funds, that might be more sensitive to the news wires in the region. Whilst you might be sanguine about the recent skirmishes, it is likely that, given the illiquidity of the shares especially, that it is indeed a factor that has impacted the price. Like it or not.

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TomKe 27th Mar '13 1099 of 1317
2

The dispute(s) have been going on for some time and the claims in the 'nine-dotted line map' are not new.
http://en.wikipedia.org/wiki/Nine-dotted_line

What is new is the 'hotting up' of the dispute with Japan, the US declaration that they will move their forces to confrount China, or support their allies (chose your own view), the recent Chinese military exercises near Malaysia, the Vietnamese fishing trawler which was, it is alledged, last week shot up by a Chinese warship, and newspaper articles speculating about the possibility of a war in the Far East.

Add to this the succession of the Communist Party leadership in China as the 'dons' appoint new 'don of dons' and you have as the ancient chinese curse says 'interesting times'.

I don't think these geo-political factors are the reason the sp has been volatile, it is Soco we are talking about and the sp is always volatile.
Tom

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emptyend 27th Mar '13 1100 of 1317
7

In reply to post #72003

Whilst you might be sanguine about the recent skirmishes, it is likely that, given the illiquidity of the shares especially, that it is indeed a factor that has impacted the price. Like it or not.

I'm indifferent about the price in the short-term, but what you say is patently incorrect. If the skirmishes were an issue, they would ALSO be hitting the price of Premier Oil, whose blocks are nearer China's 9 dash line. Premier produce nearly as much oil as SOCO do in Vietnam - and their share price has recently been rising.

Oh but there is....

The industrialsation of China has accelerated and their energy needs have shot up.

China is throwing its weight around a lot more and has energy and fishing requirements.

As I said, none of those issues have changed in the last 5-10 years. China's energy needs have been rising inexorably for decades - and the fact that they need a resolution to the issue of claims with Japan and others merely points just as much to the imperative to reach a lasting negotiated solution.

 

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adam 27th Mar '13 1101 of 1317
6



I'm indifferent about the price in the short-term, but what you say is patently incorrect. If the skirmishes were an issue, they would ALSO be hitting the price of Premier Oil, whose blocks are nearer China's 9 dash line. Premier produce nearly as much oil as SOCO do in Vietnam - and their share price has recently been rising.

1) Not so. PMO is a larger stock in terms of market cap

2) It is more widely held. SIA has a few very tightly knit shareholders as we know, so the free float is a lot smaller with SIA.

3) As a corollary of the above, trade volumes are much higher with which look to be about 2m per day for PMO. See here

4) Soco barely muster 200-300k a day, so a tenth of PMO. See here

5) Premier has significant assets in the NS, Falklands, Norway, Paksitan et al and is not "seen" as a Vietnamese play. UK production is 20k boepd according to their presentation , Norway looks to be 40% of 35k boepd, Pakistan 15k boepd, etc

6) On a reserves basis of a toal of 772 MM 2P reserves only 56 MM are booked to Vietnam - about 7%.

7) PMO announced their results on 21st March and this may have had more of a significant bearing on trading, even had there been any otherwise noticeable reaction.

So it patently doesn't follow that PMO should be a proxy for such skirmishes, whereas it does for SIA.

China's energy needs have been rising inexorably for decades

That's true, but in the last 10 years they have tripled and they have a cetrally planned economy. It is a conscious decision that they have made to not throttle their expansion by lack of economic access to energy. Guess what - right on their door step is a very large province of oil.....

http://www.japanfocus.org/-Suisheng-Zhao/2978

In contrast, the state-centered approach is based upon neo-mercantilist thinking that relies on bilateral diplomatic contacts with oil producing countries to beef up energy security by the use of national resource and state-owned enterprise investments in overseas energy assets and tight control of exports and imports of energy products. Although market-oriented economic reform has been the direction of post-Mao reforms, the market-oriented approach has not gained momentum in the energy sector because the Chinese leadership has considered China's energy security strategically 'too important to be left to market forces alone'. [2] Taking over offices in 2002, 'President Hu Jintao and Premier Wen Jiabao decided that securing reliable supplies of petroleum and other scare resources was not only crucial to sustained economic development, but also integral to China's national security'. [3] In 2003, Premier Wen Jiabao formalized seven small search groups to prepare for the first time a long term energy security strategy at the national level. Since then energy security has been prioritized by the Beijing leadership as a national security issue.

 

and the fact that they need a resolution to the issue of claims with Japan and others merely points just as much to the imperative to reach a lasting negotiated solution.

 

I think you are missing the point. We would like to think that is the approach they would take, but they may have a different game plan that is more "muscular".  

Also, from the lack of communique from the ASEAN summit it seems that they intend to divide and conquer.

In any event, whether or not that is their intention, the fact is that many market participants perceive that and therefore it affects the risk premium, hence price.

To what extent though is a different question... If China sinks a foreign boat for "violating" their waters in the nine-dashed line then I guess we will understand their negotiating tactics.

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emptyend 27th Mar '13 1102 of 1317
8

In reply to post #72014

I'm losing the will to live and have other important things to do, so this will be my last comment on this non-issue.

Premier produce nearly as much oil as SOCO do in Vietnam - and their share price has recently been rising.

1) Not so. PMO is a larger stock in terms of market cap

2) It is more widely held. SIA has a few very tightly knit shareholders as we know, so the free float is a lot smaller with SIA.

Yes PMO is larger in terms of market cap (and EV, given their debt) - but so what?

I was making the point that their share price has been rising. It is a directional point, unrelated to liquidity, market caps etc. If the market was seriously concerned (as you have been suggesting) their share price wouldn't be rising - they produce 15,200boepd in Vietnam....and according to their recent results (note 2) their Vietnam operations account for 57% of their operating profits!

It is complete hogwash to suggest that the market would sell SOCO International (LON:SIA) based on Vietnam concerns whilst simultaneously buying Premier Oil (LON:PMO).  It is clear that whatever the reason for the recent weakness in SOCO International (LON:SIA) (and the error-strewn Nomura note is as likely a reason as any) it has nothing at all to do with any coincidental marine skirmishes.

ee

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adam 27th Mar '13 This post is under review
15


To spell it out for you as you seem to be hard of thinking.

Well one of the points is that they have 10x the trade volume and Vietnam is (still) only 7% of their reserves. How does that compare to Soco???

You also did not address the other points I made about liquidity and tightly held share register (thus exaggerating price movements), so it is somewhat pointless in someone who is rude and doesn't bother to read properly.

Soco is much much more about Vietnam than Premier (7% of their reserves). It is very illiquid and tighly held stock so that already pronounced sensitivity to events in the region would become magnified.

> I'm losing the will to live

 

You've made my day.

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emptyend 27th Mar '13 1104 of 1317
7

In reply to post #72018

I'm a suspicious old sod, but someone who is both abusive and obsessively focussed on a single topic that is likely to be (for the foreseeable future) of only tangential relevance, seems clearly to me to have an undeclared agenda. I've no idea what that agenda is - but I'd suggest you stop pursuing it, as you plainly have no logical arguments.

If you really think that the City wouldn't care about 57% of the profits then frankly there is nothing I can do for you.

Oh - and Vietnam is also Premier Oil (LON:PMO) 's second-largest sovereign exposure, after the UK, with over $700mn of balance sheet assets.

It is completely inconceivable that Premier Oil (LON:PMO) shares would be bought if those profits and assets were actually considered at risk.

 

 

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adam 28th Mar '13 This post is under review
14

I'm a suspicious old sod,

Thanks for the information. I got that from your rantings.

Seems clearly to me to have an undeclared agenda.

You mean because I disgaree with you?

So you're a parnoid, suspicous old  sod.

Well at least we agree on something.

I'm tempted to let this go because you are such a bore too, but I'll try one last time to explain to you, but I expect you are just purposefully just misdirecting here.

If you really think that the City wouldn't care about 57% of the profits then frankly there is nothing I can do for you.

Nobody is saying that.

It's not very difficult unless you are being obtuse to understand that Premier is a broader mor eliquid stock that just had its results on March 21st a day after the incident and Soco is a stock that is narrowly focused on Vietnam, very illiquid and prone to exaggerated price movements on little trading. Hence it is hight likely indeed that the Vietnamese skirmishes could have had an affect on the share price and much, much less lilkely that they would affect Premier. Therefore you are talking a load of Horlicks.

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emptyend 28th Mar '13 1106 of 1317
6

In reply to post #72022

I'll just add that Premier Oil (LON:PMO) 's results:

1) mentioned Vietnam 30 times

2) showed that the largest increase in production (a 5-fold increase) was in Vietnam, which now tops their production in both Indonesia and the UK

3) indicated they had reorganised management to include Vietnam as a separate division

4) reported capex plans to drill 3 wells in Vietnam this year, including a 40% paying stake in the Ca Voi well in May....which is in block 121 off Eastern Vietnam. Roughly 40% of block 121 is claimed by China and lies within their "9-dash map" line !

 

I'm very happy to leave Adam's posts up there, now that his true colours have been clearly shown to all.

 

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adam 28th Mar '13 This post is under review
1


The bits you forgot

Indonesia 108
Pakistan 75
North Sea 48
Norway 48
Mauritania 48
Falklands 15

I make that 342 (THREE HUNDRED AND FOURTY TWO) occurences of words that don't fit into your mis-direction (remember the other points i raised that you have ignored.)

Using your figures 40% of 7% reserves is, well 2.8% of reserves.

So on balance (a phrase you are probably not familair with). Vietnam has importance to Premier but not as much as it does to Soco. Which is of course entirely the point.

Then to mention again the other bits of my post you failed to address, namely:

1) The lack of liquidity in Soco's shares and exaggerated price movements

2) The almost exlusive focus on Vietnam comapraed to Premier comparitvely less so.

3) The ten times greater trade in PMO stock and its more widely held nature versus Soco

Which means that your holding up of Premier as proof that Soco price not influenced by Vietnamese skirmishes with their super power neigbour is of course at best weak and more likely entirely bogus

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snaj 28th Mar '13 1108 of 1317
9

Good grief adam, what's your point in all this? Are you suggesting we all sell up or what? I think it reasonable to assume that shareholders who have owned their shares for anywhere between 1 and 13 years are fully aware of the location of Soco's assets, and have also probably heard of China, ASEAN, Japan, the South China Sea, Iain Dunross, the Noble House, Pol Pot and even Saigon - go figure though we're still happy to hold (although one would like to have had something more 'imminent' for extracting the juice from this ripe investment than has turned out, but that's investment and life)!

As I understand it you claim to be a shareholder, yet your writing smells strongly of somebody looking desperately to drive the share price down - one of these is verifiable, the other is not and I'm sure readers are drawing their own conclusions.

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Groundhog 28th Mar '13 1109 of 1317
2

Nothing unreasonable in 'Adam's posts, just countering like with like. Disagree by all means, but there's a silly whiff of 'group-think' about the use of negative recs, accusations of disruptive and abusive behaviour.

It's just a share, not a cult.......

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WeeEck 28th Mar '13 1110 of 1317
4

What we have is two opinions from posters who hold strong ones and tend not to back down. I have my own opinions like most other people but do not feel that I have to post them. I tend to switch off however when posters get abusive and personal. It diminishes them.

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snaj 28th Mar '13 1111 of 1317
6

Hi Groundhog and WeeEck

I'm afraid that I have to disagree, and my views are nothing to do with group-think - I'm as frustrated as anyone else with the slower than expected progress to realisation of final value from Soco. However I don't see where adam is going with trying to draw this connection between China's sabre-rattling and Soco's share price - as I see it, he has yet to actually complete his point with respect to the merits or demerits of Soco as an investment, particularly given that he's moved well beyond just giving facts, and a conclusion to his point is really all I would like to see.

I don't agree with censorship in the main, and certainly not with respect to adam's posts - the way he puts his points across to ee says more about him than ee, and doesn't reflect well but that's his problem not mine. Same goes for ee, myself and any other poster that plays the man rather than the ball.

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kenobi 28th Mar '13 1112 of 1317
3

In reply to post #72038

>>> It's just a share, not a cult.......

what ???

now you tell me so all that shaving my head and wearing pink robes has been for naught ??

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Mancman 28th Mar '13 1113 of 1317
10

In view of Adam's warnings it is strange that there does not appear to have been a sell off of the Ho Chi Minh Stock Index over the past few weeks - in fact it has risen over the past month, whilst SOCO's share price is back to where it was a month ago.

http://www.bloomberg.com/quote/VNINDEX:IND

Of course since Adam first warned us about this (last July I believe) SOCO has consistently outperformed the HO Chi Minh index, and indeed anyone who bought SOCO then would now be sitting on a very good profit.

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redhill 28th Mar '13 1114 of 1317
3

In reply to post #72048

pink robes are optional, and your own choice.......

Seriously though, something is dragging down the Soco sp and I doubt it has a lot to do with adam's theory, and don't believe for a moment that his posts on such a small BB as this would affect the sp.

Coastal (CEO) is often quoted as a comparator to Soco and is also down around 10% over the last couple of weeks - coincidence maybe as CEO's recent decline in sp and has been attributed to anticipated under-performance for 2103 which isn't something expected of Soco. There again, BG (my other main O&G share) is also down, but not as much, and I doubt that could be attributed to China.

Sitting patiently.

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redhill 28th Mar '13 1115 of 1317
2

In reply to post #72050

Correction, I turn my back for a moment and Coastal has just reversed it's downward move and is up 10% today after a good update.

Clearly CEO shareholders are not too bothered about China.........

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emptyend 28th Mar '13 1116 of 1317
2

In reply to post #72050

Seriously though, something is dragging down the Soco sp.......

Coastal (CEO) is often quoted as a comparator to Soco and is also down around 10% over the last couple of weeks - coincidence maybe as CEO's recent decline in sp and has been attributed to anticipated under-performance for 2103 which isn't something expected of Soco. There again, BG (my other main O&G share) is also down, but not as much

I'd observe that the whole sector seems to have been tending weaker over the last week or so (eg CNE). I'd guess this is in part down to macro concerns (eg re uncertainties from Cyprus and over global growth prospects) - the street tends to view these things as a reason to go risk-off and cut high-beta stocks (ie those which are perceived to have more than the market average volatility, which most E&Ps are).

Overlain on that there is probably some profit-taking in SOCO - and a few Nomura clients will probably have jumped off too. As someone likes to point out - it isn't the most liquid stock and doesn't take much to move it down (or up).

Incidentally, I believe that the FPSO testing programme is likely to take several weeks, because they will want a few days steady reservoir info at each stage. I'd guess that implies news in the second half of April.

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kuronagi 28th Mar '13 1117 of 1317
8

Just arrived in Japan on holiday (luggage still in Amsterdam) and amused to log in to Stockopedia and read the Adam/ee duologes. I just do not follow the reasonings of one of the above contributors.

I have held SIA for over 5 years and have a substantial holding at an average price of around 400p. I am under water but not as deeply as other E&P stocks.?AEX has to more than double before I break even. Likewise NOP. Even recent purchases (or top ups in the case of HOIL) including TRAP have dropped even though the whole sector has arguably been at "bargain basement prices". Today, another of?my longer term (4+ years) holdings, SQZ, had a bad day.

The whole E&P sector is depressed against which background SIA recent modest underperformance needs to?be put into context. SIA tight shareholding and "lack of liquidity" are to me, substantial advantages.

Having spent 25 years living in the Far East (mostly as an investment analyst and Head of Research), I am neither a novice in investment, E&P nor?Asian affairs in general.

Sitting here in Kyoto with no luggage and the best part of?bottle of wine in me has prompted me to (temporarily) come out of "lurker mode" and put fingers to keyboard.

Give me ee (who like me worked in Japan in the bubble years) anytime in preference to adam.

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