This thread is intended solely as a place to discuss analysts' notes on SOCO.
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SOCO International plc is an international oil and gas exploration and production company. The Company has oil and gas interests in Vietnam, which includes Block 9-2 and Block 16-1; Republic of Congo (Brazzaville), which includes Marine XI Block and Marine XIV Block, the Democratic Republic of Congo (Kinshasa), consists of Nganzi block and Block V and Angola, which include Cabinda Onshore North Block. The Company's operations are located in South East Asia and Africa. It holds its interests in the Republic of Congo (Brazzaville), through its 85%-owned subsidiary, SOCO Exploration and Production Congo SA (SOCO EPC). It holds its interests in the Democratic Republic of Congo (Kinshasa) through its 85%-owned subsidiary SOCO Exploration and Production DRC Sprl. Te Giac Trang (TGT) field’s Phase I production began on August 22, 2011. Total production net to its working interest from continuing operations, during the year ended December 31, 2011, were 5,437 barrels of oil equivalent per day. more »
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Rhomboid1 - no just saw the headline downgrade. I'd like to see the full report if possible. Obviously different assumptions lead to different valuations but it is probably wrong to only focus on the ones that have nice valuations associated with them. Some think that analysts are almost universally inept unless the figures they produce agree with their own bullish stance. Obviously they do make mistakes but presumably they are hired in senior positions and paid large salaries for some reason so perhaps best not to ignore them completely. The other thing to point out is that although we might dismiss them the wider market who actually have the power to drive prices probably don't.
Ha ha ee. Yes sarcasm lowest form of wit. I think you need to take a chill pill though its only a bulletin board. I did find out a lot more about banks over the last few years though and made close to seven figures investing in them so like most people I have made plenty mistakes and still do but hopefully learnt from them to some extent.
You'll probably cheer up a bit when they drill the AEX well a bit deeper and find enough gas to power a small continent or maybe not.
Log
In reply to loglorry, post #452
Log
The important point i was trying to make is that most analysts make fundamental errors of fact when putting together their models, recent very material howlers involved tax rates, cost recovery mechanisms and even basic stuff like wrong % interests, that aside without knowing the oil price deck they're using or dcf factors it all is of passing interest only.
Granted they impact on wider sentiment but with soco controlling their own exit strategy i'm content to wait it out.
In the meantime polite discussion should be the order of the day IMHO..
Cheers
In reply to rhomboid1, post #453
Just on that point, I'd observe that the range of estimates indicates that the understanding of many analysts is self-evidently weak. You have only to look at the range of estimates to see that. Aside from quite legitimate and obvious uncertainties and differences of opinion (such as over the production profile at TGT), I suspect that many STILL don't correctly model the tax impacts of the JOC structure - and the cost recovery impacts on the P&L are not immediately obvious (even to me)....though I would expect to see the revenue and cashflow line items inflated by the cost recovery and balancing reclassifications of assets in the balance sheet in respect of recovered costs. However, I would also expect the 9% pa rolled-up interest rate chargeable on the cost carry of the minority partner to drop straight through to the P&L (and I'd guess that item alone might be pretty significant for 2012).
ee
I totally agree and without knowing the details of the analysts models it is almost impossible to say if they have missed all these very material details. This is the reason I think Soco is undervalued and I'm also long. My original comment although I admit a bit overly sarcastic was hopefully to flush out the inaccuracies in the Barcap model.
All that said I've yet to hear of many people that are long a stock that can't think of a valuation model that makes them think the stock screaming buy meanwhile there are sellers at the current price a plenty. We all have a natural bias to justify our purchases or long positions. It is normal but that doesn't make it right.
I'd also say that the price the market puts on the stock is at times always going to discount any risked discounted cash flow model. The same is true for almost all Oil and Gas stocks out there at the moment. If Soco bring TGT into production then it should become more and more obvious the are worth more than 300p. I could make the same argument about stocks like Sterling Resources who are bringing Breagh online currently. It doesn't mean the price in the secondary market will reflect these models at all - it could just mean there is lots of equity selling going on in the funds that hold these stocks.
Log
FWIW I haven't seen the BarCap note as yet. However, I would bet a pound to a penny that it doesn't correctly model TGT. I'm not interested in posting to "justify" my long position. The facts will undoubtedly speak for themselves in due course.
I'm interested to see that the Gulf Keystone Petroleum (LON:GKP) share price appears to go from strength to strength. Nothing much fundamental has changed there recently - only the expectation of Exxon appearing with a massive bid, which seems now to be being given more credence by the market.....the shares have more than doubled since December 19th when the company denied it was in talks......
......in the case of SOCO International (LON:SIA) I'm not expecting there to be the same sort of pre-deal rumours in the market beforehand - hence staying long and merely waiting.
ee
Well I don't agree with Soco's approach. Soco could release a trading statement indicating the avg production for Q4 & indicate if there is likely to be a reserves upgrade. The City can then use this updated info in their models & assess whether & how much value there is likely to be in Soco.
The institutions can then shift their focus on buying Soco shares, the general markets are going up because the big boys are buying. So the time to release any good news is NOW IMO. Soco can hardly get a bid on it's share price. The people in the City are'nt all thick, they just need the information to be spelt out...
It is much easier for an acquiror to convince their own shareholders to pay a 50% premium on a Soco share price of £4 rather then a 100% premium on a Soco share price at £3.
I remain to be convinced management understand how markets work.
In reply to Isaac, post #457
I am certain that management understand how markets work very much better than certain individuals here.
They also understand that the present market price is completely irrelevant to the price that would be obtained for control of the assets, because they have effective control of their share register.
That said, I firmly expect the results in four weeks time to go into very considerable detail on TGT production and reserves and, quite possibly, into the plans for TGD. It is clear that many of the City "analysts" are substantially in error with their forecasts (evidenced by the wide range) and there will be no excuse at all for that after the results presentation (not that there is any excuse now, IMO!)
....mmmm....... I've worked there. I'm not sure you are right, especially on the equity side ;-)
What the City undoubtedly is is short-term and focused on the next quarter. And it is also over-reliant on analysts. It isn't the job of the company to help City idiots make money.
ee
In reply to emptyend, post #456
Just on the Barcap note, I have now had a quick look. It is actually part of a sector piece.
Re SOCO International (LON:SIA) they have more than halved their 2011 EPS ...down to 16 cents per share....and have also cut their 2012 estimate to 60 cents per share. You can see from post 448 where this puts them in the range of forecasts.
They also say:
Their 420p NAV estimate, incidentally, includes nothing for any of the assets other than CNV and TGT, partly because they removed the entire African upside from their NAV estimate (cutting it by 15p). "More conservative" views on TGT upside account for the other 42p reduction.
Remember that 16 cents per share EPS estimate for 2011....because in a few weeks time we'll have the opportunity to see just how accurate Barcap's understanding of the assets (production, reserves, taxation and cost recovery) actually is! I wouldn't be surprised if the EPS outcome was double their estimate.
ee
In reply to emptyend, post #458
It is not easy for me to come to such a conclusion because..
a)It did'nt make any logical sense for the share division a year or so back
b)their reluctance to buy back shares at current prices
c)their reluctance to release a trading statement in the current markets
Again, I reiterate..It is hard to share this view when the management seem shy about buying back shares at the current price.
If your generating $2m+ daily then why is it difficult to buy back shares using ay 10-20% minimum of that cashflow? There is hardly a lack of cash so it is hard to share the view that :They also understand that the present market price is completely irrelevant to the price that would be obtained for control of the assets.
Maybe the management think the company is worth say £3.50? Who knows. Their actions certainly does'nt make one think otherwise.
I am not convinced the City will pay much attention to the results as next month there is hardly a lack of results publshed to the Investment community. They will have plenty to look at. Soco probably won't even be on their radar.
So whilst the analysts are 'less busy' I think there is a strong case to release a trading statement asap in the current bouyant markets & focus a few minds to pay attention when the results are published.
Also by releasing a trading statement I think Soco will get a re-rating. The Analysts can pencil in their diary the Soco results date and plan well ahead to attend to results presentation.
I just get the feeling the management have 'given up' on the City analysts. I think that is the wrong attitude as whether we like it or not we need the big boys to buy our shares, it is the City that will move the price....atleast until an acquiror comes along.
It is the Job of the directors to ensure the share price is inline with fundamentals as well as Operational responsibilities etc.
I think it is disappointing, the lack of progress in the share price in recent weeks and management should look to address it IMO.
In reply to Isaac, post #460
Companies sometimes issue pre-close statements but they never issue trading statements within two months of publishing their results.
The share split made sense. If they had subsequently been successful at TGD, the old shares could have been over £40. Granted that, ex-post, there seems to have been no particular reason for it....but we don't know all the facts - and it doesn't do any harm (witness the repeated splits over many decades from many of the FTSE100 constituents).
....err....no it isn't! It is the job of management to increase shareholder value. That is NOT the same thing as increasing (pumping?) the share price. It is a fact that management influence over their share price is very much weaker than those who aren't involved in running companies imagine it is. Usually this means that the shares trade at a discount to what management think they are worth - but sometimes it works the other way (such as Gulf Keystone Petroleum (LON:GKP) at present, perhaps, or Rockhopper Exploration (LON:RKH) in the recent past?)
I REALLY don't care whether they do or not. The only people who matter are those sat in majors/NOCs with a pile of cash. Even if the City ignore the results presentation, I can guarantee that interested parties in the industry will be taking careful note.
I repeat: it isn't the job of the company to help City idiots make money.
ee
ps.....just for reference on these things, at the last public Dana AGM I had an interesting chat with Tom Cross about their languishing share price (c 1150p). Three days later, KNOC made their first approach and a deal was eventually done at £18. Remember also that SOCO are in a vastly stronger position to defend and achieve a full price.
Personally I think management priorities should be focused on delivering the 55k barrels per day from tgt 1 and delivering tgt 2 asap, secondary deciding on a TGD strategy, and what next in africa.
It would be nice if the share price were higher, but my honest opinion is that the biggest issue is delivering the 55k in the first instance, as soon as they do this, brokers will revise up their forcasts and hence targets. I know some people think this is a formality, but it was a target for end of 2011, now we have a target to come up with a plan to do it 3 months later. this has to be delivered. Lets not worry about briefing the market as to why it hasn't been delivered, just deliver it and let the numbers speak for themselves. As long as they don't, there will be the risk that there is a hidden issue and that they can't.
Cheers K
In reply to kenobi, post #462
Small correction re that comment. As long as they don't, the market will certainly fret. However, there is no real risk that they cannot deliver it - it is simply a matter of perfing the most productive* zones in several of the wells and putting them online.
*as per all the test results
Of course there is a small residual risk that production won't settle out at 55k. It might be 54k or 57k. But that isn't material in the context of a further 40k bopd coming on later in the year.
As you say, let the numbers speak for themselves.
ee
Small correction re that comment. As long as they don't, the market will certainly fret. However, there is no real risk that they cannot deliver it - it is simply a matter of perfing the most productive*
Yes sure, you are probably right, I'm looking at it from the point of view of the analysts, who deal in facts and numbers. If the flow rates are lower, the production and eps is lower. So yes, great that we could produce more, but really 3 months to agree a plan to perforate the other sections ? Its no wonder if some people are questioning why it's taking so long. how much production data do we need from the open zones ? I hope we'll hear something soon. It was an outstanding job to get TGT production starting within days of target, we were told they'd be taking it slowly and building up to 55k and beyond, in a we may well over deliver on this target. Unfortunately they have failed to hit these "easy" targets, and given no real explanation as to why it's taking so long, if it's just a question of opening new zones then why can't we agree when it will be done, rather than set aside 3 months to come up with a plan ? I am not surprised that the market reaction has not been good.
I find it astonishing that we're debating whether they should issue statements about production, NO they should not they should hit the targets they've set, and if that means negotiating it with PV and getting it done, then fine. I'm in no hurry for them to do a deal, but once we get up to full flow, then we'll be looking for 6 months production data on the new zones, so lets get this in the can, and the oil flowing at full speed so we can tweak flows at the higher levels.
cheers k
PS sorry if I sound grumpy, but this sorting out the flow rates, whether it be a technical or political issue is the number one thing they could do to out value in my opinion. It sounds so simple, but frustratingly seems to be taking so long!
K
In reply to kenobi, post #464
Hi K,
PS sorry if I sound grumpy, but this sorting out the flow rates, whether it be a technical or political issue is the number one thing they could do to out value in my opinion. It sounds so simple, but frustratingly seems to be taking so long!
I don't think there's much doubt that management also feel frustrated over the flow rate issue, or that it is one of their main areas of attention, if not the main one, at present. The prelims presentation should clarify a lot of this. The time that I will start to feel frustrated (or perhaps in truth more frustrated) and altogether less happy is if the prelims fail to clarify things re the flow rates. However, I don't expect to hear anything substantive before them, and I'm as happy as I ever am sitting on my hands till then.
Unlike our CEO in waiting, I can really see little point in getting worked up about it at this stage, or expecting significant news on the issue in the next month.
The time that I will start to feel frustrated (or perhaps in truth more frustrated) and altogether less happy is if the prelims fail to clarify things re the flow rates
Yes perfectly reasonable, it's about a months time, I think you mentioned, and by then we'll be 2.5 months into the 3 months they promised us a plan by, so it would be good to have a solid plan with dates by then. I agree that this issue must be causing the management all sorts of hassle. I know someone (you?) mentioned it could be to do with PV management "gaming" their production targets, but as far as the wider market is concerned this is an unknown, a risk. Obviously SOCO cannot publically announce that PV are holding up production to get better bonuses next year, that might damage the working relationship. But that leaves us in the situation of not having a clear reason. Hopefully as you say, we'll get something definitive by the prelims , which will perhaps put these issues to bed. The ideal would be to have production up by then, I dare not dream that this will be the case !
K
In reply to kenobi, post #464
I have huge sympathy with management on this one. They know perfectly well that the reservoir can deliver 55k bopd - and they seem to have made the not unreasonable assumption that all the partners would be equally keen to profit-maximise after production start-up. That seems not to have been a sound assumption!
I see plenty of examples of investors blaming management for things that are really not within their control - and I see plenty of examples where partner (or contractor) decisions screw things up for the companies concerned. Look no further than the plastic created by the decisions of the mud engineer at TGD-1X, or the BP debacle in the Gulf, where partner refusals to pay cash calls led to BP having to liquidate more assets than were theoretically necessary. In SOCO's case, if a major partner in the JOC changes their mind and doesn't want to proceed at the same pace as they originally agreed to, then that puts the company in a serious PR bind. They know perfectly well it isn't their fault - but the market remains unsure (or, even worse, convinced that the perceived problem is 100% down to the company!).
Never rush to judge a management just because they are a party to joint decisions with which they may not have agreed. Its like being in a coalition government - you can't get everything you want or even everything that you might reasonably expect.....but, unlike the example in politics, there is unlikely to be any upside in highlighting the party responsible for the actual problem.
ee
Whether the production delay is down to some property of the reservoir or a difficult partner, it doesn't seem that unreasonable of the market to treat these as similar problems since both of them could limit production for years to come as far as we know. If this is some game that PV are playing, do we know when it is no longer in their interest to continue with it?
Thanks
ET
In reply to ExTownie, post #468
Indeed, surely an uncooperative/uncompromising partner lowers the appeal of the assets to a buyer. Bringing the more productive zones on stream ASAP really is the kicker IMO, whether that's Soco's decision or the JOC's...
In reply to ExTownie, post #468
Just to be clear, I don't have a problem with the market waiting to see what happens. At the end of the day, production isn't as high as expected - and that feeds through to earnings etc.
However, it is completely wrong to regard them as "similar" problems. In the case of problems with reservoir, the chance are heavily skewed towards that having a long-term impact - and it is probable that the situatuion cannot be completely resolved. In the case of the present hold-up, though, there is no reason at all to think it is anything other than a short-term delay....and one that will completely disappear when the zones are perfed. The only impact will be that the start of plateau production levels will be delayed by a few months - and the end of plateau production levels will be delayed by a similar amount. Net effect? A few years delay in receiving a chunk of cash. Far from the end of the world, especially if oil prices continue rising.....
and re
...there is no such thing as a perfect partner. Partners that are too small may have problems funding cash calls (and so may defer work) and partners that are too large may not find the project attractive enough to prioritise at the same speed as one might wish. In the case of TGT, SOCO is partnered with two of the larger regional NOCs....which is probably as good as it is going to get for partnership arrangements in that region! Good partnerships usually involve a bit of give and take, even if that might be painful for short periods.
ee
Apologies if I have fallen asleep at the back of the class (I think it was during the "Should the Soco management resign from the Board?" thread) but what is the basis for believing the production delay is down to PV, and that there are no other issues?
TIA