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 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 »

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1317 Posts on this Thread show/hide all

Asagi 19th Jan '14 1278 of 1317

reported as "Currently drilling the second well of the two well programme, Dinge 20-7 well" in Cabinda.

That puts me right, who was thinking that both wells had been drilled but no results made public on either.

I'd like this to work for SOCO as it would demonstrate some success outside Vietnam.

Asagi (long SIA)

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emptyend 19th Jan '14 1279 of 1317

reported as "Currently drilling the second well of the two well programme, Dinge 20-7 well" in Cabinda.

That puts me right, who was thinking that both wells had been drilled but no results made public on either.

IIRC the timeline suggests that, even with Sonangol inefficiencies, 20-7 can't be far off completion. So the question will then be: what can be announced for both 20-6 and 20-7? We know that 20-6 was worth some testing.

I'd like this to work for SOCO as it would demonstrate some success outside Vietnam.

I'd prefer to see a success made of MPS - assuming we still own it by the time of drilling. Ideally I'd prefer everything to succeed but really Cabinda (17%) is a sideshow at this point.


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flyinghorse 19th Jan '14 1280 of 1317

I also picked up (my interpretation) :
Preference for oil over gas (slide 5) that would also exclude gas from many farm ins.

TGT H4S would appear to be crying out for a well,but nothing I can see in 2014 plan


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emptyend 19th Jan '14 1281 of 1317

In reply to post #80727

I also picked up (my interpretation) :
Preference for oil over gas (slide 5) that would also exclude gas from many farm ins.

My understanding is that this preference is mainly expressed in having a higher threshold size and in requiring a clear channel to market. In other words, there will be no blue sky LNG or sub-scale gas......and you are right that this certainly excludes many situations

TGT H4S would appear to be crying out for a well,but nothing I can see in 2014 plan

It may be the case that wells to develop H4S would be drilled from a platform installed for H5. So, until that is agreed, there won't be a firm plan to drill H4S. I would also note that is there should happen to be connectivity from H5 (as I think there is) then that implies that some sections of H4S are connected to H5. If that is the case, you may find that the analysis of the H5 well tests cause some degree of upgrading of the H4S "possibles" without further drilling. The answer to that point lies with RPS at present...

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ExTownie 19th Jan '14 1282 of 1317

Do we have an idea when any change to the reserves would be announced? I had end of Q1 in my mind, not sure why, or would this be an AGM item?



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emptyend 19th Jan '14 This post is under review

In reply to post #80731

Normally (ie for the last 15 years...except last year) updates on reserves have been made with the (printed) annual report.

My understanding this time round is that the RPS report conclusions will emerge with the prelims - or perhaps before?  Last year the RPS report conclusions were made public in mid-February as part of an Operations Update that included comments on CNV and Cabinda. Perhaps a similar thing will happen this year?

In sum, my expectation is that the reserves update will come out sometime in the next 6-8 weeks.....most likely (IMO) after a board meeting sometime in February.  FWIW



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ExTownie 19th Jan '14 1284 of 1317

In reply to post #80732

Thanks ee

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emptyend 23rd Jul '14 1285 of 1317

Rather tricky to know exactly where to park stories like this, but I somehow suspect that this one is a bit more than merely "incidental" to SOCO International (LON:SIA) 's interests:

Talisman/Repsol rumours:

Shares in Talisman energy were briefly halted on the Toronto Stock Exchange Wednesday after reports that Spanish oil conglomerate Repsol SA is considering buying the company.

Published reports Wednesday suggested that Repsol had hired investment bank JP Morgan to advise it on plan.s to make international purchases. Calgary-based Talisman is considered to be at the top of that list, Bloomberg reported early Wednesday.

IIROC, the regulatory body that oversees the TSX, halted Talisman shares at mid-morning Wednesday, citing "pending news" from the company.

"Talisman acknowledges that it has been approached by Repsol with regards to various transactions,"

My bold!

Talisman is highly likely to be a seller in Vietnam - and it may very well be that this is one of the "various transactions". If that is the case, then it is quite possible that Talisman's interests aren't the only item on Repsol's shopping list.

Talisman is currently up 11% today on the TSX, but has been up more.

I'd guess that the fresh interest in SOCO International (LON:SIA) seen this week isn't entirely unconnected....... also:

Recent news on Talisman's plans to sell Asian assets & Recent REPSOL entry into Vietnam lubricants

<TommyCooperMode> .....Ah-hah!  ;-)

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emptyend 23rd Jul '14 1286 of 1317

In reply to post #84930

It is worth noting that there is now a considerable amount of speculation out there about Talisman's attractions to Repsol - most of which is completely self-contradictory! Virtually all of Talisman's assets are held up as particular attractions - but IMO there are too many problem areas and too much gas in their portfolio to be of interest to Repsol.

Talisman is also too big - maybe $15bn or so to buy, for a company that is barely $30bn or so itself. Repsol has about $9bn in cash though, following its exit from Argentina...... so perhaps one might think they have more modest ambitions centred on particular asset areas? Buying out an oil-rich, long-life development asset with explo upside would seem to fit the bill (though arguably the political environment may not, with Repsol having indicated a preference for OECD-style stability) - and they would still have a few billion to spend on specific assets to add to that.

But then I would say that......

Repsol's results are out tomorrow, and will doubtless be scrutinised for clues by Talisman's army of analysts. Look out for any indications that parts of Asia might be favoured, as that would blindside a number of Repsol followers, it seems*.

*FWIW I wouldn't have picked Repsol as an obvious candidate for SOCO International (LON:SIA) , mainly because SOCO's portfolio doesn't align well with Spain's historical colonial map....

I might also add that if the Talisman assets in Vietnam are a block to a biggish deal with Repsol, then there may also be the possibility of them being picked up cheaply (which may have operational benefits re capacity management).

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emptyend 24th Jul '14 1287 of 1317

In reply to post #84931

Further comment from analysts below, quoted on FT Alphaville just now (my bold):

.......the Repsol webcast (starting in 20 mins) may have some illuminating Q&A, for those with the time to listen in?



RBC takes us through the bullet points.


Here are the pros of a combination.


TLM would add ~370kboed, so effectively doubles Repsol upstream
production for ~40% of its EV. We have consistently highlighted volume
as a key driver for Repsol.
• Repositions Repsol more effectively as an upstream company - presently
has highest downstream exposure (20-25% of group op income) and
exposed to challenged European refining.
• Repsol specifically identified "US, Canada, Norway, other OECD" which
is footprint TLM could bring.
Also referred to "taking Repsol into new areas", which would fit Asia
Pacific (28% of TLM production in 2013, 4% of REP) and in Malaysia/
Repsol looking for early increase in volume, not early-stage exploration/
• All-cash offer at a 20% premium to yesterday's close would take REP
gearing to just over 40% (including consolidated net debt) - high but not
• Better balance would be 50/50 cash/stock - EPS neutral and gearing
optimal at 30-35%. But unlikely to get much traction with TLM holders?
• Repsol now sees itself as having done good disposal deals following YPF;
could claim to generate value from portfolio rationalisation.
• Repsol's financial target for an acquisition - "must return the cost of


And here are the cons.


Repsol is already at the low end of the oil/gas production ratio at 40%,
and will want to increase that.
TLM is ~66% gas so would take Repsol in
the wrong direction.
• Repsol is less able to optimise value from gas production. No access
to LNG exports in US/Western Canada, and no domestic marketing. No
presence in Asia (little production and no LNG).
Repsol is looking to access DW assets where it can learn from those with
more experience, rather than turn round very assets which have been

At just 3% ROACE (2014E), TLM has lower returns than Repsol. Dilution
takes Repsol even further below the pack on ROACE


And Credit Suisse, which doubts the financing stacks up.


Bottom line, we do not think a companywide sale is likely to occur
here given the funding gap that still exists within TLM. We further postulate
that it would make very little sense at this juncture for TLM to part ways with
certain core cash generative assets in North America and Asia Pacific while
keeping more capital intensive non-core assets such as in the North Sea as
this would further exacerbate the existing funding gap. We note the North
Sea and Kurdistan alone represent ~30% of TLM's capex. Net of dividends,
we forecast a funding shortfall of over ~US$1 billion this year and next which
will require asset sales or further debt to balance cash inflows/outflows.
Management is targeting to reduce D/CF further with any sale proceeds.


TLM's Assets for Sale: We remind investors that TLM has previously
messaged it was aiming to monetize ~US$2 billion in assets in the coming
12 months which could potentially include a JV in the Duvernay, sale of its
Marcellus midstream assets, and Kurdistan farm-down. While the North Sea
is viewed as non-core at this juncture, we think more work needs to be done
to improve asset performance and outlook before the region is saleable.


Valuation: TLM shares currently trade at 5.9x 2015E EBIDAX, in line with
Canadian large-cap peers at 6.0x. Our target price of US$12 equates to 6.5x
2015E EBIDAX, a ~10% discount to Canadian large-cap peers, and is set in
context to our risked NAV of US$14.14/sh. At strip, our risked NAV equates
to US$14.58/sh.

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kenobi 24th Jul '14 1288 of 1317

I might also add that if the Talisman assets in Vietnam are a block to a biggish deal with Repsol, then there may also be the possibility of them being picked up cheaply (which may have operational benefits re capacity management).

apart from the bit on tgt, what is the size/value of the talisman assets in vietnam ?
I wonder if a deal might involve buying the lot having pre sold, or planning to sell chunks of the company to make it more affordable. Interesting idea.


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emptyend 24th Jul '14 1289 of 1317

In reply to post #84946

Since writing the point about SOCO possibly picking up the Talisman assets, I now think that is unlikely.

It may be of come interest to look through a couple of recent Talisman presentations on the region:

October 2013


May 2014

Proved oil reserves in "other SE Asia" (excluding Indonesia, which is big but mostly gas) were 22.6mn bbls plus 139 bcf of gas....FWIW...from the Talisman AR 

Reportedly, Talisman think their whole SE Asia business is worth about $4bn - and I suspect that they think Vietnam may be worth 20-25% of the total, due to high netbacks. I'd be very interested, though, if someone can find some hard info on what Talisman think their VN 2P bbls are worth!!

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MadDutch 29th Jul '14 1290 of 1317

ee, I thought HST was "a pimple on TGT's arse" according to our favorite CEO, or is my memory playing tricks with me? If not, it must be a rather big pimple!

Would you trust Talisman's claimed figures?

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extrader 29th Jul '14 1291 of 1317

Hi MadDutch, must be a rather big pimple!

Or a humongous arse.... ?


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emptyend 30th Jul '14 1292 of 1317

In reply to post #85041

I thought HST was "a pimple on TGT's arse"

It is. But Talisman's SE Asia numbers include a bunch of other things too - and even the 15-2/01 block includes HSD.

A fuller description of their VN assets is on their website. Their total VN production is only 8% of the SE Asia total - and 85% of that 8% is produced via "our" FPSO:

Talisman holds a 60% interest in Block 15-2/01 as a partner in the Thang Long Joint Operating Company (‘‘JOC’’), which operates the Block. Block 15-2/01 lies in the Cuu Long Basin, the predominant oil producing basin in Vietnam. The Company holds a 49% operated interest in Blocks 133 and 134, 40% in Blocks 135 and 136, and 40% in Block 05-2/10 in the Nam Con Son Basin. In 2012, Talisman acquired a 35% interest in Blocks 45 and 46/07 adjacent to PM-3 CAA in the Malay-Tho Chu Basin. In July 2013, Talisman acquired a 55% operated interest in Block 07/03, including the Red Emperor discovery, adjacent to Blocks 135 and 136. Block 46/02 was relinquished to PetroVietnam in November 2013.

In 2013, the HST/HSD project, situated in Block 15-2/01, was completed under budget and ahead of schedule, producing on average 8.5 mbbls/d (net) of oil for the year. Overall, Vietnam production averaged 10 mboe/d in 2013, accounting for approximately 8% of Talisman’s total Southeast Asia production.

In 2013, three exploration wells were drilled, and subsequently plugged and abandoned, in Blocks 45 and 46/07. The Company also drilled the first appraisal well and subsequent sidetrack following the acquisition of Block 07/03 in July 2013. The final exploration commitment well for the block commenced drilling in January 2014.

Two exploration wells and seismic studies are planned for Blocks 135 and 136 in 2014, complementing Red Emperor appraisal activity in Block 07/03.

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MadDutch 30th Jul '14 1293 of 1317

In reply to post #85047

Brilliant, Extrader. Such a good laugh deserves a thumbs up!

Thanks for so much info, ee. Could the pimple have played a part in a double counting? Sort of "buy two but get only one? Maybe I have misread.....

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kenobi 4th Aug '14 1294 of 1317

I would have thought that SOCO will investigate buying the pimple, not sure there's any advantage to buying the other assets, whether talisman would want to seperate them off would obviously depend on how that effected the overall price and perhaps other issues. Surely it would be worth more to soco than to another buyer ?


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emptyend 7th Aug '14 1295 of 1317

Activity update published today

I've already given my comments elsewhere, but transcribe them below for completeness here:

  • Finally get the spud RNS this morning, together with an activity update. Drilling an explo well on TGT as well, I see.....TGT-11X. Also note that that investor relations baton is in fresh hands.....
  • Essentially there are due to be three important well results in September, followed shortly by agreement of the FDP for H5 (which may also unlock the production constraint of the FPSO) and payment of the 4%+ distribution.
    Should impart a small upward bias to the shares over the next 1-2 months I would think.
  • .....the RAR for H5 is just a small part of the much bigger picture concerning TGT as a whole and the ERC Equipoise analysis of the field. This will itself be unlocked when the FDP is agreed and the production plans for the enlarged TGT can finally see the light of day. I'd expect a formal reserves update sometime between December and the prelims.
  • I was already aware that CNV-7P was a tricky drilling job. Kind of goes with the territory sometimes, despite best efforts. Similarly with the Hercules rig (the details of which I don't know but which seem to have been serious enough to prompt an early release of the rig). 
  • The net effect is, of course, less time available to drill other wells this year - so they are now saying 4-6 development wells in 2014 on TGT instead of the original 6-8 in the plan (see slide 10 from the AGM). The 2015 capex plan is normally agreed in Q4, so I would expect those wells to be rolled into early next year and perhaps an additional rig hired if time is of the essence to facilitate production increases on time when capacity is available. However, the 2015 capex programme will be pretty big and important anyway - so in the great scheme of things it is just a minor irritation.
  • The TGT-11X well now drilling is into the undrilled Bach Ho 5.2 part of the H2S fault block. The remaining agreed wells for 2014 are the TGT-H1-19I (which I suspect is an intended water injection well), the "H4 Olig C infill N" and the TGT-9X. The first and last of those three were originally planned for 2013 so I suppose would be the more likely priorities, before they pack up for the typhoon season.
  • The RAR in itself isn't really that important - it is all about establishing that the proposed project crosses a minimum hurdle for expected returns and will be superseded by continuing work and drilling.
  • ps...the 8-10 wells number from the AGM wasn't a 2014 number - it was a production capacity planning assumption for the next 3-4 years or a multi-year average assumption
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kenobi 7th Aug '14 1296 of 1317

In reply to post #85200

Good news re the spud,
shame about the cnv well, hopefully that will work out without too much extra work. as that well at least could be bought into production without any fpso constraints.

hopefully at some point a deal will be done re the fpso production rates over 55k, although this might not happen until changes are made to allow production at 70k from previous discussions. Hopefully this will be pretty high priority.

hopefully some good news from the wells currently drilling, especially cnv and the congo extension test well.

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peterg 7th Aug '14 1297 of 1317

In reply to post #85203

My memory seems not to be what it once was! Can anyone remember if any guidance on timing was given for the next TGT FPSO capacity test at the AGM? With 2 more development wells drilled and producing they must be moving towards being able to do it.

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