I'll just start by saying that I was over-optimistic for the 2011 financials, with the out-turn numbers coming within the range of analysts' estimates at:
Revenue $234.2mn, EPS 26.2 cents - with entitlements production currently at 17,300 bopd. Production and revenue were lower than I'd hoped but were above consensus, whereas EPS was pretty well on consensus.
Moving through the results announcement:
Phase II development drilling on TGT got underway from the H4 platform in the third quarter of last year. It continues on track with a further five development wells due on production during the third quarter of 2012..........
The Group saw 2011 out with net entitlement volumes of approximately 14,700 barrels of oil equivalent per day (BOEPD) compared with approximately 2,600 BOEPD at the end of 2010. [nb doesn't agree with figure in headline].........
Company was able to benefit from the record high average oil price during 2011 realising nearly $113 per barrel of oil sold compared with approximately $84 per barrel in 2010......
Due to the following factors: the early stages of production from TGT Phase I, continuing work on the Phase II development and another extensive exploitation cycle, extensive pre-drill expenditures associated with continued exploration activities along with the expectation of adding several new ventures during the year, the Board of Directors are not recommending the payment of a dividend.....
The field has now demonstrated performance in excess of 40,000 barrels of oil per day (BOPD) with no significant impact on the main reservoir performance parameters. Although there remain alignment issues with Petrovietnam over the rapidity of raising production levels, the evidence from the field is compelling in support of that agreed by all partners in the Government approved Field Development Plan. Accordingly, we are confident that full Partner concurrence of a field production rate of at least 55,000 BOPD will be achieved by Q3 2012......Production from the H4 platform is projected to commence in July or August of 2012.
As suggested previously, they need PV to pull their fingers out. The above statement is less positive than I would have hoped to see.
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TGT is a highly complex field with three main reservoir horizons-the upper and lower Miocene 5.2 and the Oligocene "C"-with approximately 55 individual producing intervals. Well performance to-date has demonstrated the ability of all wells to produce oil at high rates with minimal drawdown and field productivity from the reservoir intervals perforated to date has met or exceeded pre-development model prognoses. Stable flowing pressures of the initial producers indicate a strong level of aquifer pressure support, importantly deferring the need for water injection. Similarly, initial interference tests confirm a high degree of connectivity within the main sands. Clearly we need information from more than the seven intervals that have been perforated to date in the eight producing wells in order to obtain the information necessary to establish the most efficient and effective way to fully exploit the field. Thus, 2012 will be about accelerating the programme in step changes in order to establish the most efficient rates at which to drain the field.
It is my expectation that they will convert some of the water-handling capacity of the FPSO (75,000bopd) into oil handling. Note the reference to "all" wells capable of production at high rates. Plainly they are keen to expand production from unperforated intervals - not least to gain more info.
Entitlements production was over 40% higher than working interest production as the contracting partners recovered those pre-field certification costs carried on behalf of Petrovietnam.
The relationship between entitlements and WI is quite a bit lower than I had assumed (obviously this depends on details in the PSA, but the company had previously indicated 50%+ quite recently), and accounts for most of my over-estimation of revenue. What this means is that cost recovery (and high entitlements) will persist for longer than I had assumed (probably into 2013?).
I'll stop there in the header and post again in the thread.
ee
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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 »
129 Posts on this Thread show/hide all
In reply to emptyend, post #6
Yes ee, I did realise that when I first read it, and that is the positive side of TGD. I was only partly happy to wait for another 5 years, or so!
On the Jam Tomorrow scale, we already have a great deal of jam coming in the next 2 years. I continue to be very patient
Mike
In reply to kenobi, post #7
No there is nothing there. But they also don't yet have all the data from the phase 2 wells, so I'm not surprised that we won't see it until the AR.
As things stand, the FPSO is rated for 55,000bopd (but might be able to do more) but (importantly!) also has capacity to handle 75,000 bpd of water. It is evident (from the references to low water cut in the RNS) that they have quite a bit of room to convert water-handling capacity into oil handling capacity - but AFAIAA they do not yet have all the data to enable decisions to be taken on the best way forward.
This is a very complicated issue with many moving parts - and it is evidently under continuing discussion. Ideally I'd want to see a clear and comprehensive FIRM plan for production of both phase 1 and phase 2 being agreed at some point in the next couple of months. I'd guess that is most likely to look for an FPSO upgrade to handle c 80,000bopd or so via conversion of water-handling.....but perhaps they will need more data on water cuts before getting to that point?
ee
The TGT-10P well was planned to be drilled to the H3N fault block north of the TGT-7X well and was designed to also penetrate across a fault to the southern part of the H2 fault block to establish the existence of hydrocarbons in an area not currently mapped as oil bearing in the mid-case
Bit of an odd comment since the H2 block houses the TGT-5X appraisal which tested 7098 bopd + 2mmcfd in the Oligocene and 8104 bopd + 5mmcfd in the Miocene. IIRC, that's the highest Oligocene yield during the appraisal campaign. Since 10P is a fair old distance from H4 (from where it's being drilled?), I imagine the downward trajectory of the well is targeting the Oligocene in H2?
Re the 55,000 in Q3, it wasn't entirely clear to me from the wording whether that figure included anything from Phase 2. I know it likely doesn't but I'd have preferred them to have reiterated their Phase 2 expectation. Note there's no mention as to how Phase 2 oil is to be exported...via H1 or Bach Ho?
As to Viet reserves, I'm not seeing much scope for upgrade since CNV output vs remaining licence period looks out of kilter(although an additional well, IF it gets drilled, may improve the outlook), plus future TGT output levels again look uncertain vs the licence period. I think they probably need TGT to plateau at around 100,000 bopd to justify what's already booked!
In reply to davjo, post #12
The important word there is "southern" - because if you look at the mapping from the Macquarie presentation, you will see that the block marked H2S is separate from the area containing TGT-5X. H2S is a pretty big area of possible reservoir - so would represent quite a big upside if it is shown to contain hydrocarbons, especially if it has the same productivity as H2
No - I think that is deliberately ambiguous. They could get to 55k by just opeming up the Phase 1 wells per the original plan - but IMO it is more likely that they will upgrade the FPSO at H1 to raise capacity there to nearer 80k -90k and produce that from a mixture of phase 1 and phase 2 wells. At production startup from phase 2 though, it is quite possible that they will be getting up to 55k by taking the phase 2 wells on and off production....and given that they now expect the H4 platform to be producing from July or August, that isn't long to wait. They must all be under pressure to take decisions about the reservoir plan for TGT, because that has quite a few knock-on implications, esspecially re logistics and lead-times.
Watch this space for further news, IMO.
ee
Re the 55,000 in Q3, it wasn't entirely clear to me from the wording whether that figure included anything from Phase 2. I know it likely doesn't but I'd have preferred them to have reiterated their Phase 2 expectation. Note there's no mention as to how Phase 2 oil is to be exported...via H1 or Bach Ho?
>>This is my concern that phase 1 and 2 will all go through the fpso, to save costs, PV after all won't particularly
mind if there's lots of oil left in the ground when the licence runs out, or if SOCO achieves a lower price for SV because production rates are lower than expected, indeed as suggested above, perhaps this will mean they will be in the hunt to buy SV, since the difficult partner objection holds no down side for them. I have previously expressed concerns that the production won't reach 55k on phase 1 before phase 2 comes on line and that then muddies the water re target production and where it's coming from.
As to Viet reserves, I'm not seeing much scope for upgrade since CNV output vs remaining licence period looks out of kilter(although an additional well, IF it gets drilled, may improve the outlook), plus future TGT output levels again look uncertain vs the licence period. I think they probably need TGT to plateau at around 100,000 bopd to justify what's already booked!
So on both cnv and tgt we might be in a position where PV is blocking increasing capacity, where this capacity would materially effect the total recoverable in the duration of the licence. If this is not resolved, I do not see how this can fail to effect the sale price of the assets (even if it's through preventing a reserves upgrade), I hope that my concern is unfounded and that agreements can be reached with PV to increase production, but my (and the markets no doubt) concerns remain.
K
In reply to davjo, post #12
Might that explain PV's reticence to increase production? Or am I too cynical :-)
Davjo, I read on another thread your mention of a Lizeroux carried interest. You suggested this should reduce reserves valuation by around 12.5%. Has that changed?
The results presentation is on the website
In reply to emptyend, post #13
The important word there is "southern" - because if you look at the mapping from the Macquarie presentation, you will see that the block marked H2S is separate from the area containing TGT-5X. H2S is a pretty big area of possible reservoir - so would represent quite a big upside if it is shown to contain hydrocarbons, especially if it has the same productivity as H2
Ah yes, that's what they must mean. I guess it’s most likely an Oligocene target though. It’s interesting that they’re devoting so much time to the Oligocene, considering it’s a fairly low proportion of reserves.
In reply to swanvesta, post #15
Davjo, I read on another thread your mention of a Lizeroux carried interest. You suggested this should reduce reserves valuation by around 12.5%. Has that changed?
Nope…..(of SV, excluding Opeco)…that's as of the present mind. Their percentage will obviously grow over time as back payments are settled, to 20%. I think the process is expected to take five or six years.
While it is certainly a better problem to have a difficult partner than difficult geology, there is some very clear frustration with PV:
PetroVietnam setting a very conservative production target.
Activity focus is on convincing PetroVietnam that the TGT
reservoir has higher daily production potential and that
increased daily off take will not result in any detriment to
ultimate reserves
To put that in the public presentation suggests a lot of anger/concern with PV's behaviour to me.
Are PV in a position where they could afford to keep production down for 5/10 years?
ET
In reply to ExTownie, post #16
Thanks ET - beat me to it ;-)
From the presentation:
In sum....leaves me more optimistic on TGD drilling but less optimistic on being able to sort out PV so that everyone is looking to maximise production and reserves asap. I have a feeling this is tied up with the possibility of a sale - and it is difficult to say how the politics etc will get resolved. All it needs is for a new agreement on the best way forward....but that is a going to be a complex process itself and very difficult to read from the outside. An RNS in due course indicating that a deal had been done on the TGT production plan would certainly be well received.
ee
In reply to davjo, post #17
I don't think so. Have a look at slide 27....H2S is very different to H2 - and much more productive (prospectively) in the Miocene.
ee
In reply to ExTownie, post #19
Are PV in a position where they could afford to keep production down for 5/10 years?
If they have good reason for thinking that faster production could damage overall recovery rates then probably yes. However, I think suggestions that PV would try to slow production with the aim of reducing the value of the licenses to licence holders are wide of the mark. Soco management seem pretty clear that production can be increased without damage to the reservoirs, and clearly their job and current emphasis is to persuade PV of that. I don't think it's particulalry surprising that a NOC is placing considerable emphasis on long term total recovery, but equally, I doubt there's much reason to suppose that there's more than caution behind their current approach.
Interesting comments from Ed in conversation with DJNW
LONDON (Dow Jones)--International oil and gas firm Soco International PLC (SIA.LN) expects production in 2012 will be even higher than in 2011, as it continues to develop its offshore Vietnam oilfield, its Chief Executive said Wednesday.
The company is also looking to acquire new exploration acreage in southeast Asia that could transform the company, CEO Ed Story told Dow Jones Newswires in an interview.
Story estimates that group production in 2012 will grow by around three times the level in 2011 and expects further substantial growth in 2013. "Conservatively, we probably have about 16,000 barrels of oil equivalent a day this year [2012] compared with 5,400 barrels a day last year," he said.
Story noted that the production rise will come from development of its Te Giac Trang field as Soco installs a second platform later in the year and drills more production wells.
"You're seeing the beginning of what is an exponential growth in production capacity, revenue generation and obviously cash flow," he said.
"We've demonstrated very good results to two governments there [in Southeast Asia] and we see other opportunities and intend to move on them. At least one of which, if we're successful in acquiring the acreage, could be transformational," he said.
Soco is looking for opportunities in West Africa, in and around the Congo, where it has operated historically, he added.
In reply to emptyend, post #20
Yes, the two main things I picked up were the comment regarding TGT reserves, and "sole risking" TGD.
On the former, I hadn't considered the possibility that they may have already drilled some of the largest, but my reading was that while the diagrams would appear to confirm the potential for significant upgrading of reserves, the message is don't expect it anytime soon!
On TGD, the wording is clearly more positive than in the prelims. It would seem to imply that the decision to drill may depend on being able to find someone willing to farm in. Hopefully their data will be good enough for that.
Ed Story comment:
IIRC they wrote off their option on Iraq....but the "promising" one could be that sort of thing? [Edit...reading the Dow Jones interview posted by Darron, it would seem probable that the biggest potential remains in SE Asia.
Of course they spent all last year saying similar things about new ventures - though it is always difficult to know whether these things are going to come off or not.
ee
In reply to djpreston, post #23
Story estimates that group production in 2012 will grow by around three times the level in 2011 and expects further substantial growth in 2013. "Conservatively, we probably have about 16,000 barrels of oil equivalent a day this year [2012] compared with 5,400 barrels a day last year," he said.
Story noted that the production rise will come from development of its Te Giac Trang field as Soco installs a second platform later in the year and drills more production wells.
Reading between the lines of that I don't see much confidence of major increases in TGT phase 1 production this year, given that production for last year for TGT was for just over 1/3rd of a year. However, he does say "conservatively", so presumably he's hoping there may be more.
Results presentation up :
http://www.socointernational.com/tmp_downloads/n26q134k126l136x59u26p118r6p93b85b121y82r12z83k10/annual-results-presentation-for-ye-2011.pdf
In reply to Isaac, post #27
Oh dear. The link does not work.
Previously the differences in motivation between a public company (Soco) and a NOC (PV) were relatively small as to be almost immaterial; the exploration goals were largely shared. Now we're moving into a different stage and there are clearly (and understandably) different aims and motivations.
The publicly-held company is primarily interested in exploration and so far seems to have been rather good at it. This company now needs to be able to demonstrate that it has a stake in field that is productive and can be for a long time. It needs to be able to demonstrate that now because, like anyone who has plans to sell an asset, it wants to advertise it in the best possible light. When you sell a car you don't try and convince your potential buyer that the metallic paint under the grime will polish up beautifully - you do that work yourself to impress them.
By contrast, the NOC now has a strategic asset in its pocket and needs to keep that asset in as good condition as possible for its stakeholders for as long as possible. Not for him thrashing the Ferrari round a racetrack to show off its performance, more keeping it cossetted in the garage for the day when the stakeholder wants to start making careful use of it.
Anyone interested in buying the part-share in the Ferarri knows that they will be sharing with this very conservative owner with a long-term view. They too may not be able to take it on track days or pan-continental thrashes - and that could affect their view of the value of the asset. In such a scenario, I can't help wondering if the person who will value the asset most highly will the one who is already part-owner.
SW10