Detailed discussion of Soco's assets should take place on other threads, but this thread is to discuss the latest valuations both by ourselves and analysts, sentiment (ie will the shares go nowhere because there's not much upcoming news) and likely moves in the share price in the next six months. How should the shares be valued? How reasonable is it that any drilling without a firm commitment further than several months away is ignored by the market?
I haven't seen many recent analysts' reports on Soco, but I have one from Cazenove with a core NAV of 1370p and no doubt considerable explo NAV on top of that. I imagine that's approximately concensus, but maybe with crude rising again these concensus NAV figures will start to rise. Has anyone any other recent broker estimates?
My view, as stated elsewhere, remains that in the absence of much to get the market excited the shares will wander aimlessly for the rest of 2009. I've previously guessed that if crude were $65 at Christmas 09, then Soco's SP would be somewhere near £13 then, and I'm still very happy with that guess. What does anyone else think?
Of course unexpected bids and other events may overtake this, but these sort of events may happen to any company, and perhaps Soco (where management seem unlikely to accept bids since they believe there is considerable value not recognised by the market) is one of the less likely companies to be affected by the unexpected. The key new news for Soco might be (a) a bid (IMO unlikely), (b) some sort of presentation by management of the drilling data they claim to have that demonstrates a significant strike has been made at E, currently ignored by the mkt, or (c) possibly hitting oil off the Congo.
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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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In reply to loglorry, post #1061
.....sigh. Personally I put it down to credulous TA traders who have read comments on ADVFN such as
'snot rocket science. People recognise it is cheap and know that news is expected to prove as much. End of.
LOL c'mon ee lighten up looks like your pay day will soon be here. A bit of frivolity while we wait can't hurt surely?
In reply to emptyend, post #1060
Sigh.
OK, let's be pedantic - of course I'm not expecting the whole report to be published! Loose words on my part, a summary of the reserves update will be what's expected and more than satisfactory.
As to date, who knows? You say your understanding is that they will update on various matters shortly. Are we permitted to know the basis of that understanding - is it from the company, or just a feeling in your water?
redhill
In reply to redhill, post #1064
If you are now prepared to be pedantic then you should be able to tell the difference between the words "guess" (used when I guess something), "think" (used when I "feel something in my water") and "understanding" (used when someone in authority has given me to understand that something can be expected to occur).
Note that I never understand feelings in my water....
In reply to emptyend, post #1065
Good clear reply ee, thank you. In that case the next few weeks should be interesting.
I'll bear in mind those interpretations for future reference.........it's always good to know the basis on which someone is commenting. Not that I wouldn't trust your water if that was your source....
redhill
In reply to redhill, post #1066
I think I have generally managed to maintain a similar set of distinctions throughout the 10+ years I have posted on matters - so was slightly surprised to be asked.
I don't trust it myself. In my water I would have expected to be where we are now some while ago.........
good to see it breaking through 400, I wondered if it would cause resistence given chartists thoughts on this thing and round numbers tend to affect the way us humans think a bit, so it's 1600 is old money, will be interesting to see what the company statement says, will it be better than the market expects and drive the price further ? or will it be one of those events which is followed by a sell off as people move on to another trading opportunity ?
Hopefully the first option, I assume something will be said about the drilling planned for this year and confirmation of when H5 will be drilled for example, which will give us some news flow to look forward to,
k
In reply to kenobi, post #1068
I have bought some "trading" stock back today at 363. Shares sold off with Euro wobbles and general markets but the share buy-back should kick in to be supportive. As well as, we hope, the fundamental under-valuation. Also feel that after disappointment of lack of reserves update that expectation very low for results, so less likely to disappoint.
With results due monday 11th March,I was wondering(apart from if anything newor interesting will be said) if any "special" dividend is declared it only applies to existing shareholders (ie goes ex dividend on the same date) , with any (if ) future dividends following a more normal date cycle of declaration,ex dividens & date of record.
May be completely imaterial in SOCO's case,but the "special" dividend case rules were not clear to me.
FH
In reply to flyinghorse, post #1070
Interesting question. Using highly specialised technology (entering into google "investegate special dividend"), I've just done some very elementary reserach. 3 companies were chosen at random (and names already forgotten) - all had an ex div date some time after the announcement, and the payments also needed to be approved by an EGM/AGM, so I'd guess were one announced it would probably wait for approval at the AGM. Possibly at an EGM - though I'd regard that as unlikely unless on was needed for another purpose too :-)
Interesting to see an upward move in the last trades before Monday. I'm not anticipating a dividend due to convertible redemption and keeping cash for future "opportunities".
Having halved my position post operational update, it's still substantial for me so I'd be pleased to be wrong!
In reply to jseth123, post #1072
....mmmm...well we'll see about that! The convertible redemption will cost less than 2 months free cash flow - so they would still have c $220mn cash available currently, even after providing for redemption. IIRC their investment budget hasn't often been over $100mn, even when drilling VN full pelt.....so chances are that cash would be $450mn+ by year end if they did nothing (ML had a $600mn number on that IIRC).
In the event of a special dividend (or any other sort of distribution) the record date would be set at some point in the future....though of course the share price will move swiftly to discount the event.
Well we know they're a conservatively run outfit, so I wouldn't be surprised to see no divi, but we also know they're holding $200M in cash, and have strong cashflows, so the convertible is about $50M, and say $100M just in case cash, so a $50M divi doesn't seem out of the question. call that £35M, 331M shares in issue, say 10p per share, a yield of less than 3%. Doesn't seem impossible, but I think more likely Jseth is right and what we'll get will be a some kind of indication of intention rather than an actual divi. But like Jseth, I hope I'm wrong.
I finished typing that and thought, why do I hope I'm wrong ? do I need the divi ? well it would be nice but wouldn't change my life, probably I would like a divi to signal, that we're ready to sell vietnam and that it might take a bit longer to get the reserves revised but we'll reward the shareholders in the meantime.
K
In reply to kenobi, post #1074
....I'd be thinking more like $75-80mn - so 15p per share ish.
I'd also like to see a commitment to pay out 30-50% of balance sheet cash on a rolling basis (ie every half year). At current rates of production, that should throw off a nice running yield....maybe 8-9% at current share prices.
That is assuming, of course, that Monday's announcement isn't accompanied by "bigger news".
Well that'd be nice, but I guess it depends what else is going on in terms of possible funding requirements.
Paying out such a big divi would I would imagine signal that there is less likelihood of any new deals, and we're in holding position waiting to settle the valuation of the vietnamese assets for a sale.
Of course if soco did pay a 8 or 9% divi, you would expect the shareprice to find its own level. It is a very interesting question as towhat the market price should be, given that the divis are coming from a reduction in the nav (oil in the ground).
G
In reply to kenobi, post #1077
The divis would be coming from a reduction in cash on the balance sheet. As we know, the general position re TGT is that SOCO would expect to be increasing 2P over the next year or so as recovery factors continue to get proved up for different parts of the reservoir.......so in the coming year or two it is reasonable to expect both NAV increases and profit/divi increases.
Beyond that, of course, there will be a point where reserves will be being depleted on a net basis - but, again, they would be turning a barrel of 2P (valued at c.$20 in the ground) into a barrel of production...which would be worth c.$50 post-tax out of the ground.......so it isn't quite the equation you suggest!
yes of course the divis are coming from cash, but the cash is coming from the 55k of oil per day being recovered.
all the other stuff you mention re increasing reserves is jam tomorrow that may or may not come to pass, and is info available to the market now. So is in the price as much as the market wants to value it. I didn't suggest it was a one to one oil/cash, but taking your figures, if every $50 reduces the value of the asset by say $20, and it's a finite resource, unlike say vodafone who's divis may vary over time but could be considered indefinite, how much of a premium should or would the market give to soco ? (or penalty I guess). Its complex as you suggest, on the one side, you have reducing asset, on the other, potential upside. surely 8% would be too high a yield and the price would correct to recognise this ? but to what level ? 8% at say 370 would be 29.6p, so to adjust to a 6% yield that would be 493. Sounds a bit optimistic to me, but we'll see.
K
Recoverable reserves are determined by how much oil there is in the ground to start off with (STOIIP) and what % of it can be recovered (R%).
Today's presentation states the best and worst case estimates for STOIIP as a consensus between both the external third party experts and from SIA's in-house people (slide 13).
On the next page it gives the best and worst case estimates for the recovery factor - these are given separatelyy for the 3rd party and the in-house view(slide 14)
In the table below I have simply combined both sets of numbers so as to clarify the range of figures that are on the table as far as reserves are concerned. I've ignored gas and just focussed on oil.
In other words opinions on likely recoverable reserves range from a low case 132-150 to a high case 336-480.
Each of the two sets of experts think that the best case they can see is between 150% and 200% of their own worst case.
Taking the worst worst case from the external experts (132) and the best best case from the in-house guys (480) there is a difference of 260%
In other words the in-house best case is almost four times as much as the external worst case.
It seems to me that this range of opinions is unlikely to be helpful in negotiating a deal with a prospective buyer with which both sides can feel happy. So that suggests to me that a deal will probably not occur until the range of opinions has been narrrowed. How long that will take I have no idea.
In reply to tournesol, post #1080
Just three quite important points on this that will narrow the gap substantially and quickly (ie by mid-2013).
Come mid-year, they could be in the position of having
This in turn can be expected to lead swiftly on to:
....and, IMO, if they were on the verge of going down the route of issuing B shares in order to monetise a large chunk of the cashflows in Vietnam then they would also be open to receiving offers for SOCO Vietnam at that point.
Accordingly it looks to me as if the remaining uncertainties have a decent chance of being satisfactorily resolved over the next 4-5 months and a bid in that timeframe also seems quite plausible. A range of estimates will certainly remain, of course - but that is always the case whilst fields remain in production. It is certain that the range is capable of being narrowed very significantly over the coming months, due to the factors above.
ee