Soco AGM - June 23rd 2011: Attendance, Questions And Views? | Murakami

-->

9th Jun '11 by Murakami

109 comments 18593 reads

By popular demand, an event thread for the forthcoming Soco AGM at The Lincoln Centre, 18 Lincoln’s Inn Fields, London WC2A 3ED on 23 June 2011 at 10 a.m.

Who's going?

Anticipated questions?

Thoughts arising?

The best local pub?

Unlock with Email

Unlock with Google

Already have an account?
Login here

About the Author

Murakami

Premium Member

109 comments

kenobi

23rd Jun '11

I've posted some initial thoughts on advfn, I hope no one minds if I post them here too -

well I am on the train back from the AGM, I definitely came away with the impression that they are prepared for a longer haul. Thats not to say that a deal is off the table, I am sure that if the right offer came in there would be a del. At one point, ed mentioned that they had once been offered 25$ pb for cnv but were unable to accept because they were unable to seperate off cnv from tgt.

I think this agm was about saying, look theres a plan here going forward, and its a good plan, which will generate cash going forward hence the projections. There are other areas we are interested in.

I will post something fuller from my notes but the big thing was this is the year of delivery, production is about to start as is drilling in the south. When we have production records and drilling results we will have a fuller idea of what we have, then we will update reserves. I tried to get mr story to give an estimate, he prefered to wait and see.

the other big thing is as ever tgd. They plan to shoot more siesmic and if it warrants it drill. Mr Story suggested there had been a major interested in the licence, but they got it. First second extension in the history od vietnam expo he said.

what is clear is this is it one last shot. I asked why they wouldn t just de risk it by going back to the first position at the crest of the structure. The answer was that it is not clear that this well would have been commercial and thats what we need niw to progress this so its all or nothing. Sounded to me like the costs of the tgd well were only recoverable against tgt if they get a commercial well. Which is not unlike aaying that they are not recoverable really. Did others hear the same??

anyway thats it, all on track for production, tdg in the back ground, some wells in africa, see you next year. EE sorry you couldn t make it I hope you are feeling better after your recent operation,

cheers k

kenobi

23rd Jun '11

Further to the above,
my further thoughts having thought about it a little,

Gas prices, Mr Story mentioned that they were going to mount separating unit to get liquids out of the gas,
They had initiated arbitration, but they backed off from this, it sounds like to me, part of the price of a tgd extension was to let this go, and the compromise has been that they will get the liquids out and petrovietnam can have the dry gas at a price to be agreed, but probably has already been agreed and it's not great for us.

If TGD works out though, it will have been a bargain, if not it's the opportunity cost to have a go.

They went through the slides really quickly, I was struggling to take notes, but the gist of the tgd story, is production to start in august (12th ish), with 40k building to 50 by the end of the year, and trying to tweak production upto 55 to 65k,
August is the start of drilling to the south of tgt, if this finds much more oil, their won't be capacity to process it, but they will be able to put in a 25km pipeline to bach ho, which is in steep decline and has capacity spare.

Another issue, raised I think by Mad dutch or unwise, was whether the tgd formation might extend under the tgd formation, This they said was possible and at some poindt they might explore the tgd basement, lets not get ahead of ourselves eh, lets see if we can secure tgd before getting too carried away. Though the thing about this possibility is that the tgt acrage is secure (unlike tgd).

In africa, theres a few wells planned a couple in marine XI and XIV, and a 3rd optional,

more siesmic in nganzi, later in the year,

the african stuff might come to something but to be honest, it's a side show for the moment, good to have prospects, ahead.

Re the cash projections, I think they said if we spend 100$ per year on expo, then we project in 2015 we'll have cash of 1.5BN$, then later someone asked what are you projecting for this years expenditure, and the answer was $175 M so we need to take those figures with a pinch of salt.

We have not had much luck in africa so far, maybe we are due some soon ??

BTW on the subject of virunga, they said that the environmental impact report was in, but hadn't been rejected,
however I think I overhead the comment that the environment minister is funded by a ngo, so it's not difficult to work out which way he's voting. there may be some work to do there,.

Another snippet, apparently philips conoco are selling some assets in vietnamn which might be a useful comparator as to the value of our assets.

There was talk of other deals in the areas of operation as bolt ons, or new ventures, are they serious ? well who knows , Peter Kensington and another director retired, are they serious about going on , or are they talking the talk to avoid potential buyers thinking, well they want to get out, they'll take a lowball offer ?

Who can tell, anyway, great to meet maddutch, and unwise, and the nice young chap from Scotland who's handle escapes me,

Look forward to the months ahead, and hopefully a healthier share price next year,

Cheers K

emptyend

23rd Jun '11

that they are prepared for a longer haul. Thats not to say that a deal is off the table, I am sure that if the right offer came in there would be a deal.

The whole point about getting a decent deal is that continuing to plough one's own furrow has to be seen to be a realistic alternative. They showed that (even with 100% explo failure from a spend of $100mn pa for the next 4 years) they should still have a cash pile of around $1bn by the end of 2015, based on $90 oil (which is still around $20 below where they will be selling even after today's sharp fall due to the reserves releases).....and that IMO makes a cast-iron case for a buyer.

I don't think the deal situation has changed one iota.....save that they are getting much nearer to proving that their (internal and unadvertised) estimates of potential recoverables from TGT are reasonably accurate. I note that the initial production rate of 40,000bopd is planned to be ramped up to 55-65,000bopd by year end........and if that level can be sustained then you can be sure that not only will they be making a big upgrade to reserves, but the world will be beating a path to their door. As ever, the question is precisely when - and, as ever, I have to point out that it only takes one credible buyer to make a deal.

Finally I should remind people that when KNOC took out Dana last year, the first approach they made was a mere 3 days after the Dana AGM - so do not simply assume that the apparent lack of an imminent deal at the AGM means that we'll be back to waiting for very long......

ps...thanks Kenobi. Disappointing to see that Isaac/Roger was true to form in failing to introduce himself properly - though some useful comments were welcome.

kenobi

23rd Jun '11

Yes EE,
I agree, my comments are really, there was no talk of it being a plumbing job, or for sale as previous years with previous years with yemen and thailand, much more focused on the future. But in the back of my mind, is it just a plan b, and plan a is to sell if at all possible ??

I don't know, as Story said once, why give up while you're having fun ?

I think Story wants TGD, I hope he can be part of the team that brings it in, for all our sakes ! before he retires,

SOCO has become the only fools and horses investment for me, every year, every agm,

"this time next year rodders, we'll all be millionaires !"

kenobi

23rd Jun '11

BTW, I don't know if I mentioned, it was said that a major was interested in tgd, but they got the extension,

and that it's not impossible they could farm in, as unwise said though with the cashflow they have, why farm down ? unless there are other uses for the cash or the partner is bringing some expertise we don't have ?

K

ArtNouveau

23rd Jun '11

How many people attend an AGM (roughly speaking) for a company the size of Soco's?

I should have gone given my interest and investment and have attended FTSE-100 companies AGM's previously.

ArtN

(best regards for a full recovery BTW ee)

Isaac

23rd Jun '11

Kenobi

The major interested was I think Total.

I don't agree with you that Soco are in for the long haul......Ed did say he has been waiting 14 years in Soco with his Investment and that cash was better in his pocket then in the ground.

And I don't buy the idea of recieving dividends, why not sell Soco for £5-6 and recieve dividends from high yielding blue chips?

I just don't think the management are interested in running a production company, let's not forget they are in their 60s and probably don't want to work full time much longer.

kenobi

23rd Jun '11

Well you might be right Isaac, I'm just commenting that the tone, was very different to previous AGM's when they have suggested assets were for sale. It could all be bravado, I don't know. I have a feeling that Mr Story, wants another poke at tgd, and that unless a great offer comes up he's going to do that. As long as the value of the company grows, I'm not really concerned how long it takes, seems to me I have seen a compelling investment case today, if they didn't think there was significant upside, they would all be sipping gin and tonics playing elephant polo, the question is how will that upside be realised ?

At the minimum we saw today a plan B, this is what we'll do if we don't get offered enough for the assets,

I can see the start of next year as the earliest point for a sale realistically, we'll then have 6 months production data ( by feb), all the southern wells will be drilled, but we won't have decided on drilling tgd, there are of course ways we might maintain an interest in tgd, and yes the major was Total, which story refused to say and then "let slip" later,

K

Isaac

23rd Jun '11

I have a feeling that Mr Story, wants another poke at tgd

Well I'm afraid your "feeling" is incorrect...

A)Seismic has not been shot

B) Seismic has not been re-interpreted

Thus they are in no position to make a decision on TGD or indicate with certainty there will be another drill. The way I understood it they are prepared to walk away if they get the right price for TGT. If the chance of success at TGD is low i.e.10-20% then they won't drill it, it is what I was told by the management.

If the tone was very much different to previous AGM's then maybe it means we are close to a sale :-)

I think a sale is very much on the cards, they need a few months production data. No point getting $1bn in 4 years if they can get ee's $3bn in a few months What do you think ?

At the minimum we saw today a plan B, this is what we'll do if we don't get offered enough for the assets,

I think this is a dummy plan to demonstrate to shareholders/potential acquirors the alternative options Soco have.

But do take note Ed stressed Soco are not in the cash building business.........I think that was a strong enough hint the plan b which you refer to is nothing more then fictious.

It makes so much more sense to sell up rather then become a long term producer given the risks...ones I can think of are :

- Political risks

-Oil price risks

-Development/production risks

-Potential Future taxes

emptyend

23rd Jun '11

The major interested was I think Total.

Total was mentioned inadvertently in Unicredit's initiation note on SOCO back in early May. The context of that leads me to think that they were interested in an asset swap (African and Asian assets in part-exchange for SIA VN) and that Total was heavily involved in the "new ventures" that remain unconsummated at this point.

IMO Total is also one of the candidates (along with ENI, for example) for taking out SOCO in a whole company deal.

Watch this space.

ps....ArtN.....the average turnout in recent years has been 30-50, though I don't know what today's was and I also missed last year's. rgds

kenobi

23rd Jun '11

Well I'm afraid your "feeling" is incorrect...

>> Well Isaac, you might be right and I might be wrong,

I won't be unhappy if a buyer turns up and pays top dollar for the assets as is,
especially if we get a reserves update in a few months, and the figure of 20-25 dollars,
per barrel is realised

K

kenobi

24th Jun '11

what I would add, I'm sure Isaac was there listening to the Edd Story, when he was telling us about when Total first saw the siesmic, and that the chap just said "wow",

They will shoot more siesmic, and they might get better ideas about where to drill but the idea that the wow formation will not be worth drilling seems unlikely. (a 2 sq mile formation), unless the new siesmic suggests it's cheese under there !

Personally I believe that it will get drilled, most likely soco will be involved, perhaps after a sale, but retaining some interest, I don't know what the likelihoods will be but my feeling, is that we will be going to another AGM next year, nothing is certain (they'll certainly sell if they get a good enough offer), just my feeling,

K

kenobi

24th Jun '11

one other minor issue raised at the agm, mongolia, aparently the chinese have spent over a billion developing the oil fields in mongolia, and they think there is 1.5BN barrels there, it will cost 4-5 billion to get it out, but the upshot for us is that the 50 odd million we are owed, which shows on the accounts as 35M will likely get paid,

K

unwise2

24th Jun '11

I have to say the biggest surprise to me yesterday was that they have previously been offered $25 a barrel for CNV and they think 2P in Vietnam is worth $20 a barrel, the upcoming sale by Conoco will be interesting to say the least. However I will continue to use $15 as my base case.

Despite trying to push for comments re TGT reserve upgrades not very much was said other than wait for production and phase two drilling, so I think thats going to be a while.

I am of the opinion that they really want to have another go at TGD and they will unless there is a nasty surprise on the new seismic. Therefore I think there is a very good chance there will be another AGM next year, I can't see a buyer coming along that would offer enough to take the whole company at this stage ( I think an offer of up to £6 per share would be rejected). Maybe a deal could be done for Soco Vietnam and Soco creates a new vehicle to farm in to TGD, but that would still mean Soco would exist as an independant company.

During Q&A I asked based on upcoming cashflow would they sole risk TGD and Ed said yes, but afterwards while a few of us chatted to Ed he didn't rule out a farm in either, so not very sure how that will play out. Personally I would rather they go for it, unless the new seismic shows up something that may require specialised expertise that they or their contractors don't have.

It was of course disappointing that TGD didn't work out last year but there is still a lot to play for and I am happy to hold and have been adding to my holding recently.

Unwise

emptyend

24th Jun '11

Despite trying to push for comments re TGT reserve upgrades not very much was said other than wait for production and phase two drilling, so I think thats going to be a while.

Remember what I said about it being easier to cut a win/win deal if this is done before a formal upgrade to reserves. The balance of probability is now firmly in favour of a deal not happening until after 12th August (assuming this remains the first oil date?) but one shouldn't assume that all of the T's need crossing (re reserves estimates, stabilised production rates, gas agreements etc) before a deal can be done.

I am of the opinion that they really want to have another go at TGD and they will unless there is a nasty surprise on the new seismic. Therefore I think there is a very good chance there will be another AGM next year, I can't see a buyer coming along that would offer enough to take the whole company at this stage ( I think an offer of up to £6 per share would be rejected). Maybe a deal could be done for Soco Vietnam and Soco creates a new vehicle to farm in to TGD, but that would still mean Soco would exist as an independant company.

I agree that the bias will be to find a way to continue to participate in another go at TGD. This would not be impossible to construct. I agree that offers under £6 would be rejected....possibly (whole company) offers under £7 too. I wouldn't completely rule out a whole company deal though - there are a few companies with whom SOCO International (LON:SIA) would be an excellent fit and which are sufficiently au fait with the African prospects as well as Vietnam.

During Q&A I asked based on upcoming cashflow would they sole risk TGD and Ed said yes, but afterwards while a few of us chatted to Ed he didn't rule out a farm in either, so not very sure how that will play out. Personally I would rather they go for it, unless the new seismic shows up something that may require specialised expertise that they or their contractors don't have.

I think TGD is a "come and get me". The only way that players other than PV will get a piece of TGD is if they take out the whole of SOCO Vietnam (because SOCO Vietnam own TGD and it cannot be split out). If they don't want to recognise that in the price (and in doing a deal that enables SOCO to back-in to TGD post-sale) then SOCO International (LON:SIA) certainly have the resources to drill TGD sole risk again. All that will happen if a bidder delays acting into 2012 is that the price of taking SOCO Vietnam out will continue to go up as TGT Phase 1 production is plateaued at a higher level, TGT Phase 2 looms .....and TGD drilling gets nearer.

Isaac

24th Jun '11

Ed confirmed 12th August is still the date of first TGT production, if there are any delays then it will only be days from this date rather then months..

kenobi

24th Jun '11

Unwise,

I was there when you mentioned not needing to farm down tgd because of the strong cashflow, I would say though that the reason you might decide to do it would be if the company farming in had expertise that soco doesn't have and access to resources. It might also make sense to do it if they were willing to do it on very favourable terms because that put them in pole position to get the whole company at a later date. though I question whether this strategy would really work for them.

I understood from yesterdays meeting (when someone asked about it), that tgd costs would only be recoverable if there was a commercial discovery, did other people hear this / have the same understanding ?

This is material as the tgd costs must be considerable by now,

I have a figure of 90M$ in my head for the last drill alone, not sure if this is correct,

Cheers K

jseth123

24th Jun '11

K,

My understanding is that costs are recoverable if there is a commercial discovery because they are made back in production - ergo, if there is no production then costs cannot be recovered. I may have got this wrong though.

One thing I asked RC about after meeting was whether cost recovery was transferrable to a buyer in either an asset sale or a whole company sale. I would not like to misrepresent the answer if I can't remember accurately but my understanding was that they are transferrable if the whole of SOCO Vietnam was sold but the situation was a lot less clear in the event that assets within SOCO Vietnam are split up. For this reason my belief is that it is an "all-or-nothing" sale of Vietnam.

Other interesting snippets - relations with Vietnamese were very good and, interestingly, RC (IIRC) does not think uncertainty over TGD (i.e. if it is "unresolved") would not necessarily put off a buyer.

Just a few comments before I head off to Prague for the weekend. Enjoyed meeting many of you yesterday!

Cheers,
JS123

doverbeach

24th Jun '11

My notes from the AGM - sorry there is some repetition here across what others have said... Things in quotes are from Ed, who was on good form as ever, but presentation was noticeably shorter. The following points mix up the presentation, the questions in the AGM and afterwards

VIETNAM - TGT

"Its been a long journey ... but the ship is about to sail away" The ship being the FPSO, due to set sail 1st week July, target Aug 12 first oil. Apparently this will be the first FPSO that will arrive on time in Vietnamese history.
FPSO capacity 55k, but they are hoping to squeeze a bit more out of it (? into it!). Will be ramping up to test this by end year.
"unbelievable cash flow" in initial period whilst recovering their costs for financing PV's explo and afterwards "pretty nice cash flow"
only 10-15k from Southern platform to Bach Ho (slide 6 is NOT to scale) and Bach Ho currently on steep production decline, so a pipeline here would be a low cost option in exceed FPSO capacity
when asked why no reserves update, Ed said they now knew there was more oil in place but were waiting for production to prove how much is recoverable - they are hoping for 50%. These sort of stacked sand / shale sequences are uncommon. Also still need some more drilling in the South. See no point in messing around with reserves numbers when will have the flow data in a few months.

VIETNAM - TGD

they got the 2nd extension because chairman of PV persuaded the ministry.
Ed didn't say so explicitly, but it sounded as though the quid pro quo for this was dropping the CNV gas arbitration in favour of 'more gentlemanly' solution. (I meant to ask him if the 'gentlemanly solution' when it emerges after the seperator is in place will be used to backdate payemnts but didn't get time.)
a major had been interested in picking up the acreage - Total would be a reasonable guess but Ed declined to answer deirect question of course.
shooting seismic in a few weeks, should be processed by year end. Some of this are they already have seismic over, but at the shallower TGT levels, not good enough for TGD levels.
Looking higher up the fan channel. If find good spot will drill next year - may sole risk, but the major previously interested may like to farm-in. Well not on drilling schedule (slide 14)
Just redrilling the last TDG well closer to the crest would not ensure commerciality at that depth. Depth rules out cute ways of handling heavy oil found on the flank.
fan channel is now the big prize and it could be very big, could extend under TGT.
Little interest now in E South - would be deep and v likely to be gas.
TGD costs to date will only be recoverable if TGD is commercial - all the more reason to drill it one more time

Congo block V

environmental impact report now in front of government, when agreed ready to shoot seismic
gorillas 37k from Soco's are of interest, see slide 13. They live on slopes of a volcano - not somewhere anyone would EVER drill for oil
1.5m people live in the area - it's not pristine, uninhabited jungle
gravity data looks very good

Cabinda

seismic nearing completing - may drill H2 12

Congo off shore

Marine XI - MIM-1 will be on large structure - risky - Sept spud
Marine XIV - MKM-2 more modest structure, less risky - Nov spud
plus a contingent well depending on which block looks more promising after two frim wells

Nganzi

in-fill seismic in Nganzi will start in Q3 - 2 wells in drilling schedule for mid next year

Ed emphasised that the cash will NOT build up as per slide 14 - if they don't have new business needing it, it will be returned to shareholders.

unwise2

24th Jun '11

I understood from yesterdays meeting (when someone asked about it), that tgd costs would only be recoverable if there was a commercial discovery, did other people hear this / have the same understanding ?

Yes, based upon what Ed said during Q&A, I wondered if this was part of the deal to get the 2nd extension.

possibly (whole company) offers under £7 too.

I actually think they would reject that much to, but I didn't want to start throwing around too high a number.

I have bought more today.

Unwise

Unlock the metrics for all these stocks and more...

Take a free trial

Facebook Twitter Youtube Instagram RSS

This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.

Unlock the metrics for all these stocks and more...

Take a free trial

Soco AGM - June 23rd 2011: Attendance, Questions and Views?

Unlock the rest of this article with a 14 day trial

About the Author

Murakami

109 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...