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

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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.

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Murakami

Premium Member

109 comments

kenobi

24th Jun '11

unwise,

perviously I had thought, tgd costs were recoverable against tgt, this appears to be no longer the case, obviously tgd costs would be recoverable against tgd production. I agree that to me it sounds like this was part of the deal to get the second extension, along with the gas "gentlemanly agreement" . This years talk about that was a lot less bullish than previous years, and I guess we're just going to have to live with that, it will be a small price to pay if tgd comes off, not so clear if it doesn't come off,

cheers K

kenobi

24th Jun '11

and sorry, if the above sounds odd, why should tgd be offsetable against tgt, well they were originally both part of the 16-1 block,

kenobi

24th Jun '11

I too have bought a few more shares today,

but given the weakness of the markets I intend to drip in money over the next few weeks, I imagine that the opportunity will significantly diminish after august, if all goes to plan,

K

Isaac

24th Jun '11

I have to admit there was one thing that really stood out for me in this AGM.

That was other private investors made a noise about another well being drilled on TGD given the failures Soco have had to date.

The reason this stood out for me is not many made their thoughts known on the boards. But readers will recall well I gave the management a lot of flack back in 2008/09 for what happened at TGD.I still think this was well justified despite a lot of other posters making excuses for the management.

I have been a shareholder of Soco a long time now, I would go as far as saying I have liked 90% of the work Soco management have done to date, but the big fatal error was on TGD. That is pretty obvious for all to see. But I don't hold this against management as we all make mistakes and get things wrong. Good times don't last forever.

Which is why when times are good one should remember the bad times and take the necessary steps to prepare for the bad times.

My thoughts on Soco now is it is a rather boring share, I don't expect to see the gains management have achieved in the past. But this suits me perfectly as I simply want a boring low risk investment that will slowly grow it's market cap as cashflow increases from TGT with some success in Africa.

Although having said that I would prefer a sale of Soco Vietnam and a substantial return of cash as there are better opportunities to allocate the capital. I would'nt mind holding shares in Soco Africa though.

I do think other posters should step up and express their thoughts more openly though.

Cutting and running in 2008 would have made a lot of sense, heinsight is great.....

davjo

24th Jun '11

Thanks db, most appreciated :-)

A couple of points if I may :-

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.

Those remarks go some way in explaining the conservative approach adopted in respect of any reserves upgrade. IIRC, TGT reserves are currently based on around 30% recovery. The "uncommon" comment was surprising in that the 50% was supposedly based on likewise horizons already producing within the basin?!

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.

Heavy oil? Is it that crappy?

emptyend

25th Jun '11

Just a couple of points on your points dj:

These sort of stacked sand / shale sequences are uncommon......

Those remarks go some way in explaining the conservative approach adopted in respect of any reserves upgrade. IIRC, TGT reserves are currently based on around 30% recovery. The "uncommon" comment was surprising in that the 50% was supposedly based on likewise horizons already producing within the basin?!

The fact that they are "uncommon" doesn't rule out the possibility (perhaps probablity?) that other locations in the basin are similar to those at TGT. Certainly 30% would be a fair recovery assumption in terms of international geological average recovery rates - but if the similar (but internationally uncommon) sequences locally are producing at rates that indicate potential 50% recovery then it remains an open issue (for now) whether those other areas in the basin are a "one-off" or whether TGT is sufficiently analogous to justify an expectation of 50% recovery.

FWIW I'm not sure that the 500mn recoverables expected for some while is a figure which is dependent on the higher recoery factor. Plainly we will have to wait and see - but I remain of the view that there is a good chance they will be looking at recoverables that are closer to 600mn bbls than 500mn bbls, when all the assessments and production tests have been run.

Depth rules out cute ways of handling heavy oil found on the flank.

Heavy oil? Is it that crappy?

That is a good question - but I doubt that they'd still be optimistic about TGD if we were talking about "heavy oil" of the same quality as at Bentley (for example, in the North Sea). I have two possible ways of construing that comment (though both are guesses):

a) perhaps the oil on the extreme flanks (ie at greater depths) IS heavier than near the crest [heavier oil sinking more?]?

b) perhaps it is just a reference to the lack of gas content and the previously-reported lack of drive?

All a guess and pretty irrelevant for now - until they decide whether to drill TGD again (and decide where they might drill on the structure).

rgds

doverbeach

25th Jun '11

hi dj,

I have just checked my notes.

The "uncommon" sentence you have highlighted was verbatim - it's in quotes in my notes.

The 'heavy' comment is not quite so direct. At one point Ed said something I noted down as
crest = ok flank = too heavy
but that could be my paraphrase. And after the meeting Ed said something along the lines of it would require many too many wells to be commercially viable as it was off shore. Hal, tournesol and unwize were around - they may be able to expand more.

db

extrader

25th Jun '11

Hi all,

I missed the first 15 mins of the AGM, so can't comment on proceedings/presentation, but did get the flwg in post discussion with RC :

- the term 'heavy' oil is oil lacking 'drive pressure' ie the issue re TGD 2 that was the opposite problem (HPHT) to TGD 1. I asked RC (pace Stockopedia interview) whether TGD was a 'teaser' (the oilman's nightmare, where you just carry on drilling.... ;<) . He acknowledged that patience (and pockets) are finite and said that - unless the new seismic showed them a greater than 20% CoS - they'd not proceed to drill.

- RC suggested that the reason for Soco's currently v close relationships with PV was due in part to their TGT programme being the first 'on schedule' development, giving the current higher PV officials (who go on to civil service type functions) lots of kudos.

- he seemed also to suggest that this closeness might find tangible expression in Soco's future investments in VN - I'm pretty certain I heard him say that they were looking at a proposed concession/JV in the disputed waters... and that the VN seemed to see value in having a Union Jack flying (metaphorically, at most, I hope) in the area.....

- Ed's mention of onshore referred to the size/scale of eqpt needed to pressurize or inject TGD 2 to make it commercial ie indirect confirmation of ee's interpretation (b)....

My thanks to all attendees, esp. to those who helped make the post AGM discussions such an agreeable and informative occasion.

MadDutch

25th Jun '11

Apologies for this delayed post.

The AGM presentation is on Soco’s website: http://www.socointernational.co.uk/index.php?cID=101&cType=document

They have drilled 10 successful wells so far on TGT, you can see them on pages 5 & 6 of the presentation. Note the solid black horizontal lines, they are geological faults which are used to delineate the different areas of TGT, and are called fault blocks.

Note that the density of the wells is concentrated at the top, in H1.1 and H1.2, they are mainly the 2010/11 drilling. Note also the extension at the south of the oilfield, it makes TGT about a third longer than before, and fault blocks H4S and H5 have not been explored yet; there are no wells there. Ed said the proposed new wells at the south end of TGT will be “big impact.” and Soco now intends to drill 5 to 9 wells, I think it could be an approximate doubling of oil in place. In addition, they are halving the time to bring the new oil to market; new oil from the enlarged TGT was originally planned for mid 2013 but the completion is now expected to be a year earlier, around mid 2012. An approximate doubling of production in half the time? That tells me a possible exit date may be around August 2012, and could give us a valuation (someone else can calculate that, I am no accountant!) excluding TGD and Africa. What if I am wrong? At a one million plus sterling per day bonus for the waiting time at the higher expected oil output, I don’t care how long it takes!!!

There was some comment about Mongolia, suggesting a nice little divi could be coming our way soon. Something about a ministry approved 1.5 billion oil in place? I did not follow the maths and probably misheard by several zeros; I hope someone else can report here.

The mountain gorillas were mentioned. Ed said they live on a (extinct) volcano, and that is not a place anyone would drill for oil.

After the AGM, I spoke to two very helpful directors, John Norton (Audit) and Antony Maris (Vice President Operations and Production). Both were keen to help. I wanted to learn about the economics of producing LNG and suggested that draft plans to produce it at CNV, may focus our hosts attention on the need to pay a good price for the gas (strengthening our negotiating position). Antony Maris said a small production plant would be completely uneconomic, but their plan to install a separator to remove liquids is viable, giving us a return well above the capital cost.

It was a nice day in London, and my wife is sad she could not join us. Also, it was fun to meet Stockopedia friends.

MadDutch

SalvorHardin

25th Jun '11

re. Mad Dutch's note about Mongolia.

The comments were that the Chinese had already spent $1 billion on Mongolia, and that they'd probably be spending $3 to $4 billion more. There's 1.5 billion barrels of oil in place, with a 10% recovery rate. Expect cash sooner rather than later

The TGD extension was greatly assisted by PetroVietnam. But unless the new seismic gives a really good chance of success we won't be drilling. Must commit to drill by April 2012 and be drilling by Oct 2012.

The Vietnamese were exceptionally impressed with the FPSO being completed on time (the first ever in Vietnam). They want the limits of the FPSO to be tested.

I got the distinct impression that Soco would be offered more options in VIetnam (extrader has already mentioned "The Union Jack" having a beneficial influence upon the Chinese).

What about a capital distribution or a dividend? Ed said that if there were no other opportunities there would be a distribution in due course (I got the impression that there are other opportunities!)

There's now lots of spare capacity at Bach Ho.

luminoso

25th Jun '11

Interesting that it is Total, who are likely to be the 'interested' major. I have always thought that the Patrick Maugein - Chirac - Total connection was likely to lead to either the Vietnam assets alone or the whole company being attractive to Total - as they will have been very aware of Soco's progress for a long time, before and after Patrick's death.

davjo

25th Jun '11

Evening db, ee

Thanks for your observations. Re “uncommon”, I can see the wider context of the use of the word but when the formation is called “Lower Bach Ho”, it’s pretty obvious where it comes from. I also note in addition to Bach Ho, the same sand is evident at Rang Dong and Su Tu Den etc., according to Deutsche’s extensive research note anyway….which says that the same sequences in these fields have a recovery factor of 40% to 55% vs Soco’s assumption of 32%, which represents an average of wide ranging lacustrine deposits outside Cuu Long. It’s interesting to note that the current booked gross 300mmbbls at 32% recovery works up to 500mmbbls at approx 55% !

In respect of ultimate reserves recovery, it’s going to be absolutely crucial imo as to whether the upper of 55,000 to 65,000 bopd is achieved by year end if the mooted 500mmbbls bears any resemblance to reality, simply because there won’t otherwise be time to produce the volume within the licence period. Unless expectations are exceeded beyond their wildest dreams, 600mmbls is pie in the sky imo. Of course, one cannot rule out the possibility that Soco’s 32% assumption proves to be over-optimistic!

Re “heavy”, the jury’s out but it’s sure sounding a lot thicker than we’d wish for! Not that relevant in the big picture since I’d expect SV to be sold with the buyer having the drill option in its lap. What I do hope doesn’t happen is management getting carried away with copious cash inflows, getting sucked in to building a bigger castle. I doubt it will happen but we should guard against it.

oilretire

26th Jun '11

I'm pretty certain I heard him say that they were looking at a proposed concession/JV in the disputed waters...

Good timing then:

http://uk.news.yahoo.com/china-vietnam-agree-resolve-maritime-dispute-081841799.html

China and Vietnam pledged on Sunday to resolve their maritime dispute through peaceful negotiations, a sign of easing tension over rival claims in the South China Sea which is believed to be rich in oil and gas.

Links from that article to maps of the disputed area - no wonder they are disputed!

http://uk.news.yahoo.com/photos/map-showing-contested-claims-south-china-sea-photo-011132423.html

emptyend

26th Jun '11

It’s interesting to note that the current booked gross 300mmbbls at 32% recovery works up to 500mmbbls at approx 55% !

Yes - and remember that all pre-dates the PSDM and recent drilling.....hence my thought that c 600mn may be the ultimate out-turn. A 20% increase over the earliest expectations doesn't sound unreasonable if one looks at the pre- and post-PSDM mapping?

What I do hope doesn’t happen is management getting carried away with copious cash inflows, getting sucked in to building a bigger castle. I doubt it will happen but we should guard against it.

Frankly I think such fears have sub-zero probability. You can't enjoy living in a bigger castle when you are dead!

AIUI there were clear indications given of a capital return, as and when a deal gets done in VN - and that is preceisely what one would and should expect. And if there isn't a whole company deal done at the same time then "Son of SOCO" will have a significantly different executive management line-up and be a significantly different company (I wonder, for example, whether Quantic would be reversed into it).

As to luminoso's point about TOTAL, I would also regard ENi as a candidate....as well as a range of the usual suspects in Asia.

MadDutch

26th Jun '11

Thank you judge Dredd for the useful info in your post 59;

Mongolia; I remember various articles were published on TMF re the potential value of Mongolia should our post sale bonus be valid. We all agreed that a payment would be highly unlikely, but there was a calculation, probably from dj or ee. Could we please have a recalculation, including the difference it will make to the share price?

MD.

MadDutch

26th Jun '11

Sorry, clicked on the wrong button, was trying to reply to Judge Dredd.

MD

PS. If talking to myself is the first sign of madness, posting to myself must be living up to my name!

emptyend

26th Jun '11

We all agreed that a payment would be highly unlikely, but there was a calculation, probably from dj or ee. Could we please have a recalculation, including the difference it will make to the share price?

I'm not sure that I "agreed" such a view. However, I can confirm that the difference it would make to the share price would be roughly bugger all.....

Note 18 in the accounts has all the details - but in sum there is $53mn that starts to become payable as and when 27.8mn bbls have been produced - and this is currently carried in the books with an NPV of $37mn. If it were never to be payable then $37mn would be written off and if it were all to be payable tomorrow (which is won't/can't) then $16mn revenue would be bookable.....

...so at most a few cents per share, either way.

davjo

26th Jun '11

Yes - and remember that all pre-dates the PSDM and recent drilling.....hence my thought that c 600mn may be the ultimate out-turn. A 20% increase over the earliest expectations doesn't sound unreasonable if one looks at the pre- and post-PSDM mapping?

Well the important point is that a max of 65,000 bopd from Phase 1 and 40,000 bopd from Phase 2 will only provide the possibility, stress possibility, of 500mmbbls being produced within the licence period. One has to remember that "earliest expectations" were based on very limited information and in fact such optimistic estimate was not reflected in reserves ultimately booked...these being 300mmbbls gross. It's also notable that management have been consistently reluctant to increase this. I'll betcha that PV's booked reserves are even less! A rather subjective 20% increase of OIP isn't terribly relevant when the recovery factor could range from 20% to 55%. The reality is, as I see it, if the 65,000 bopd is not achieved early doors, then you can forget 500mmbbls, let alone 600mmbbls.

Frankly I think such fears have sub-zero probability

I was of course reflecting on Judge Dredd's comment that "Ed said that if there were no other opportunities there would be a distribution in due course (I got the impression that there are other opportunities!)" .......which clearly leaves the door open to castle building even if we agree to think it is unlikely to happen!

I agree totally your Mongolia comments. Re the 1.5bn OIP, that of course was the figure China's CNPC published 10 years ago.

emptyend

27th Jun '11

The reality is, as I see it, if the 65,000 bopd is not achieved early doors, then you can forget 500mmbbls, let alone 600mmbbls.

Small quibble with your wording there. I would agree that if 65,000 bopd ish isn't achievable early on then it is unlikely to be all produced in the licence period.......but there may be a host of reasons why such production rates could be achieved but it is decided not to run at that rate in practice in the short term. They could, for example, be optimising the well......and some days produce at pretty high rates and on other days produce nothing (;-)). Furthermore licences might always be extended, depending on who owns them and on circumstances....

Similarly.....

I was of course reflecting on Judge Dredd's comment that "Ed said that if there were no other opportunities there would be a distribution in due course (I got the impression that there are other opportunities!)" .......which clearly leaves the door open to castle building even if we agree to think it is unlikely to happen!

I think context is everything with such comments. My reading is that he doesn't expect to accumulate $1bn on the balance sheet - and that the "other opportunities" that are referred to are (or at least include!) a clean whole company sale or a sale of SV....

...either way, a septuagenarian with an elephant polo habit is going to need some cash.... ;-)

kenobi

27th Jun '11

I agree that it was very much suggested that there were or would be other opportunites available to soco,
but there is no harm showing what the alternative is. You would never want to get into a position where potential partners thing they can overcharge you for opportunities based on you being able to afford it, think of it as the Chelsea FC situation, (man city being the uptodate example), where the price is higher if that team wants a player than another.

I assume that any new opportunities will be handled/structured in a way that could be seperated from the other vietnam assets,

cheers K

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

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Murakami

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