Analysts reports

In reply to djpreston, post #130

Extract from the MS note...though some of us have been saying these things for a while ;-):

TGD-2X (Prospect ‘E’, Vietnam)
is a c.60-day well with a planned spud date around the
June 4/5. The announcement of the rig contract is
imminent. Management reiterated a high probability of
success – P50 is 100mb but added that the P10 is
c.200mb. Elsewhere, SOCO’s first well in the DRC is set
for a mid-July spud and coincides with an analyst visit.
Management confirmed assumed PoS of c. 30% and the
first result should be again in August with a second
back-to-back well completed 30-45 days later. A
farm-down continues to be considered by the board –
rather than simply cash, the key attraction for SOCO is
now a partner that offers strategic value.
Vietnam ‘blue sky’ scenario largely ignored? The
seven-well programme could de-risk over £15.50/sh of
upside assuming forward curve oil prices. In addition,
this does not incorporate the significant upside potential
from a fan channel structure on the TGD block (Vietnam)
– our base case is 30mn of net pay with potential up to
100mn. Success from the TGD-2X well should de-risk
the upside case.
Well funded ahead of put option expiry (May 16) –
Management assumes a 2/3 take-up on the convert.

Up 7.9% today?!?!?!

What's going on?

In reply to Groundhog, post #132

Ummm, Goldman and Morgan both saying buy and people waking up to the story.

E&P strong across the board due to POO pick up on good economic data and receding worries over the Euro

In reply to djpreston, post #133

Thanking an anonymous benefactor for copies of the notes, I notice the GS one has some basic, cut and paste type errors - mentioning Ghana and Uganda as stratgeic assets etc.

Working to a deadline I guess.

In reply to lowersharpnose, post #134

I notice the GS one has some basic, cut and paste type errors - mentioning Ghana and Uganda as strategic assets

Or perhaps GS are hearing elsewhere about possible "strategic value" deals arising from a farm down, as mentioned in the MS note  ; )

Great to see the share price edging up towards the 52 week high at last.

perhaps GS are hearing elsewhere about possible "strategic value" deals arising from a farm down, as mentioned in the MS note ; )

If indeed they do end up farming down in Nganzi, I'll be amazed if it is to anyone other than ENI or perhaps TOTAL. Personally, though, I'd be quite happy for them to retain the risk of this year's programme and farm down after that (which will be needed when we get to pipeline issues etc).

There really is no rush!

ee

Case of the surge of the Penguins?
Investors hopping mad about not being in RKH? (and non ISA at that)
Advisors searching madly for the next exciting derisking program?

Exploration may have just become sexy again.

Like I said when these were at £15 by the time we come to drill TGD....these will be trading around £20...I expect the current surge to continue....

Some have only woken up to the story....Problem for them is there is not much liquidity to go round!

8.84% in one day is quite extraordinary. I sense that any trading thoughts should be quashed, a wait for a further surge seems worth it

In reply to Groundhog, post #139

8.84% in one day is quite extraordinary. I sense that any trading thoughts should be quashed, a wait for a further surge seems worth it

I rather suspect that nobody who uses charts would have seen it coming......because it is simply down to a couple of influential banks suddenly reappraising the fundamentals at the same time. Still, no doubt that won't stop some of them suddenly reading some significance into the move and pontificating that XYZ will now happen because their squiggly lines say so!

One of the problems with trading E&P shares in current circumstances is that, whilst the market would appear to be happy to trade £10 notes for £5, £6 or £7 (eg not only SOCO but, more transparently, with lots of others including GBP who have 10p per share net cash and yet their shares stand at 8p) there does eventually come a point where the market wakes up to the underlying value.....

......but it is difficult to tell "when the penny will drop" and a repricing will occur. So if one happens to be holding stocks that are "£10 notes trading at £6"  then IMO it may not be a great idea to swap those for "£10 notes trading at £8" - contrary to what some elsewhere appear to be advocating.

ee

Someone on ADVFN pointed out the commentary in today's Independent. I commented over there, but repeat my observations here (as they are easier to find in future):

The key point in the article is here:
Beyond Vietnam, there is the promise of a potentially high impact campaign in the Democratic Republic of Congo later this year, "success at which could result in a nearly 80 per cent increase" in the broker's 2,819p target price.

Now......that says that Goldman is now countenancing the possibility that they might move to a target price of £50 by the end of the year! [thus finally falling into line with jonnyT and myself ;-)]

....but that ISN'T all, because if you go back to the source document from Goldman it says:
We also expect the potentially high
impact campaign in DRC to begin early in 3Q – success at which could
result in a nearly 80% increase in our target price. In addition, we
believe that the company’s TGT asset in Vietnam could attract the
attention of NOCs – typically willing to pay a premium over the level at
which the equity market values assets. The stock is the least
recommended in our E&P coverage (21% of sell-side analysts currently
carry a Buy recommendation vs. a subsector average of 53%
(Bloomberg)), which leads us to believe that exploration success or
reserves upgrades through appraisal will be disproportionately
rewarded by the market.

....and, furthermore, it would be interesting to know what assumptions underlie Goldman's figures in respect of Nganzi? Are they assuming a farmdown to 40-45%? I'd guess they probably are! Will that happen? Don't know yet - but we might in a matter of weeks!

-------------------------------------------------------------------

So......I'm expecting more upgrades to follow as this all unfolds - and then we'll see by August what the drillbit is starting to produce.

The key question for institutions is this: do you want to be underweight in a FTSE250 stock that could get from £18 to £60 or so by year end? It seems to me, as the share price hovers temporarily at new highs today at around £18 that the answer to that is going to be, for many, pretty obvious!

ee

ee - you are starting to sound like a bit of ramper. I expect Soco will have some success with the drill bit over the coming months but I think it is unwise to assume everything they drill will come in. It could happen and I suppose if so £60 might be on the cards but I would say £25 is more likely if they have reasonable luck.

Log

ee - you are starting to sound like a bit of ramper.

Oh really? Why is that then?  Just because we DO now (finally) happen to be on the verge of a major drilling programme that (in the independent assessment of Goldman and Morgan Stanley) has the potential to transform the share price, you NOW think I shouldn't comment on it????

When I QUOTE Goldman Sachs' report verbatim, is that ramping???? Or is it more of a service to those who might wish to know and be on a level playing field before the institutions (and perhaps you?) take their stock off them?

I expect Soco will have some success with the drill bit over the coming months but I think it is unwise to assume everything they drill will come in. It could happen and I suppose if so £60 might be on the cards but I would say £25 is more likely if they have reasonable luck.

It gives me no pleasure to say this - but that is utter nonsense!!

If the upside potential was merely £25, I would have sold out completely several years ago when the shares were at £23 or so!

Obviously a lower figure than £50-60 IS more likely, but I think that unless there is enough success to see the shares at £35 or so then I suspect a number of those of us who are longer-term holders will be extremely disappointed. I'd reckon £35-38 is a central expectation for year-end and that £25 is in the bottom 1-2% of possible outcomes (assuming no oil price collapse).

ee

If the share price isn't at least £9 by the end of the year 'extremely disappointed' will not do justice to my feelings..

That reminds me, I never did post over at TMF. I meant to tell them that cutting a cake produces crumbs. :^}

Buffy

ee

Interesting target prices you are quoting here. Personally I don't believe the price will get anywhere near 5000 this year. For that to happen, TGD and 1 or 2 Nganzi wells would have to come in. Although next year it is distinctly possible IMHO.

For what it's worth, my absolute downside is around the current price now so my view is that all the exploration and appraisal (of TGT) are basically in for free. Applying some conservative probabilities to all the wells and multiplying up I estimate the chance of total failure this year as being about 6%. This is very conservatve (50% for TGT upside, 60% for TGD first well, and only10% for each Nganzi).

My risked NAV on this conservative basis is around 2800 so that would be my year end target. To hit this, we would only need a hit on TGD and some reasonable flows from the TGT appraisals. Nganzi is wildcat drilling so is thrown in for free.

Soco is my largest holding by far but will not sit complacently through drilling. If the price appreciates from here then I will likely top slice. I still bear the bitter scars of the Encore 90% appraisal well failing. TGD could do the same.

Finally, one question, what would be required for a definitive result for the TGD well. Clearly flowing oil is needed but what if the rate was quite low? Anyone any thoughts on what level of flow would be required to prove commerciality on this critical well?

JL

In reply to johnnylite, post #145

what would be required for a definitive result for the TGD well. Clearly flowing oil is needed but what if the rate was quite low? Anyone any thoughts on what level of flow would be required to prove commerciality on this critical well?

Probably quite low, given that it is an easy tie-in to the TGT platform!

Personally I don't believe the price will get anywhere near 5000 this year. For that to happen, TGD and 1 or 2 Nganzi wells would have to come in. Although next year it is distinctly possible IMHO.

Well I don't disagree that for £50 (£12.50, Buffy  ;-)) to be hit then drilling success will be needed at at least TGD plus one or two Nganzi wells.......but they will be done by September! Why should the share price then not reflect any success before year-end?

In reply to emptyend, post #141

The key point in the article is here:
Beyond Vietnam, there is the promise of a potentially high impact campaign in the Democratic Republic of Congo later this year, "success at which could result in a nearly 80 per cent increase" in the broker's 2,819p target price.

Well that's a pretty significant increase and it looks like the penny's finally dropping for some of our city scribblers.

Who know's where we'll be if we get TGD sorted and a success in Nganzi without a farmdown. I'd like to know what the Nganzi numbers are based on and what they're calculating for the fan.

That bloody 90% number is a problem for me too. The clock is running and the prospect of another series of delays and cock-ups is what worries me.

Que sera sera I am going to West London this weekend but not as yet to Wembley,-)

repobear

Ha ha six thumbs down for my post :-)

Oh well can't please everyone especially those who are long. My point really was that banding around numbers like £60/shr by year end seem a little bit too optomisitc. I realise ee said "could get to £60/shr" but let's be realistic here. Almost all the drillng would have to have spectacular results for that to happen and this is highly improbably.

I'm very long this share and I'd love to see it reach this sort of level but unfortunately when you multiple together all those chances of success they don't equal 100%. That doesn't mean I don't think there is considerable upside from here. I do. I just don't think £60 in a year is realistic.

Bring on the thumbs !

Log

Ha ha six thumbs down for my post :-)

Oh well can't please everyone especially those who are long. My point really was that banding around numbers like £60/shr by year end seem a little bit too optomisitc.

"Over-optimistic" may be fair comment; "a bit of a ramper" is rude.

In reply to loglorry, post #148

My point really was that banding around numbers like £60/shr by year end seem a little bit too optomisitc. I realise ee said "could get to £60/shr" but let's be realistic here. Almost all the drillng would have to have spectacular results for that to happen and this is highly improbably.

Fullbreakfast has made the main point that was irritating. However, you do NOT seem to have taken on board Goldman's figures - they aren't MY figures being "bandied around", they are Goldman's!!

An 80% uplift (in the Nganzi success case, per their note!) to their price target would mean a rise to £50 in present-day money - and they then say that there is the possibility of an additional M&A premium if TGT (and TGD, presumably) attracts the NOCs. So a premium over £50 seems to me to imply something in the £60 area.

Yes that would certainly require some good success at Nganzi as well as TGD - but all of these wells will be done by about October, so "could get to £60"  by year end seems to me to be entirely fair comment - even if it would require good drilling success to do that!

Bear in mind that management risks the TGD well at 90% and that the fan interpretation could well be "severely derisked" (quoting Ed Story) by that well. And also bear in mind that the first Ngazi well is risked at 30% or so.....and is plainly "as good as it gets" for a wildcat well in a new basin (where there are several other independent targets that will be drilled back-to-back).

So yes.....£60 would require good success in drilling - but if Tullow can do it then why can't SOCO? If the City should start to see SOCO as "the new Tullow" then £60 equivalent by year-end wouldn't seem unreasonable, especially if they retain all of Nganzi. Count up the potential increase to their reserves (currently 142mn boe) and make up your own mind.

....and don't forget that the development drilling on TGT, starting in July,  may also add 70-80mn bbls 2P reserves by year-end also.

ee