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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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.
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. The Company’s net entitlement volumes were approximately 15,500 barrels of oil equivalent per day. more »
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Big raise of Chemsa's stake just announced.
An additional 4.5mn shares......taking it up to nearly 29mn shares (8.71%).
Chances are they came from another "connected" holder - but, even so, I'd think quite significant.
Chemsa is the old Maugein family vehicle - which, inter alia, is advised by RdS.
I'm a little embarrassed to make this kind of trivial comment but.....
....am I alone in thinking there is a nice slow burn kind of thing materialising now with an almost daily 1% ish kind of gentle increase?
Looks like a get rich slowly kind of situation to me......
:~)
I think the 'game changer' is the commitment from the company to start paying Dividends. As I speculated in late December the low rating of SIA must be for a reason and one reason could have been that the market had concerns that the cash inflow would all be spent on exploration.
I think the company is trying to boost the current valuation hence the charm offence with the analysts and the promise to pay dividends. In theory it does not matter the stock market valuation of the assets you buy but for a quoted company if the takeover premium for the purchased assets is too large it could cause concern amongst its existing shareholders that the acquiring company has overpaid. It is in the interests of the company being acquired to reduce that premium.
I see the charm offensive by Management to improve the current valuation as being the rationale action of someone preparing an asset for sale. If they can maintain a Dividend of 40p per year then I am not sure I want them to sell it!. A secure oil backed retirement income would suit me.
TomKe
In reply to TomKe, post #1085
Since the announcement about dividend/B shares, I can't be alone in thinking Soco is now a very good share to accumulate in a pension fund. Potentially a very good annual return causing me to make it the largest percentage share in my portfolio by a margin.
In reply to TomKe, post #1085
Yes - I can't argue with that. And as one whose full pension doesn't kick in for a few years yet, I'd have to say that it would suit me too.
More importantly, it would also be likely to suit the excecutive management, who are a few years down the track relative to me.
Whilst I continue to think a sale is probable, I've never lost a moment's sleep over continuing to hold the shares. My pro-rata share of the profits at 2013 levels is more than I ever earned from full-time work....and, as long as they maintain capital discipline (and I see every sign that this is indeed being strictly maintained) then those earnings will come back to shareholders in one way or another in the fullness of time.
ee
In reply to TomKe, post #1085
I see the charm offensive by Management to improve the current valuation as being the rationale action of someone preparing an asset for sale. If they can maintain a Dividend of 40p per year then I am not sure I want them to sell it!. A secure oil backed retirement income would suit me.
Could be, or a company wanting to have the price of the company higher for another reason, perhaps because they are considering some corporate activity involving SOCO paper, and the higher the value of the paper the better. Or maybe some of them are thinking about retirement or semi retirement and they might want to cash out some of their shares leaving a good chunk to pay themselves divi's in the future ?
I wonder if they are still considering floating off the vietnamese unit as a route to monetisation ? this might be another reason why they would want the share price to be higher too, (because if soco is priced at £4 and floats assets at a value of 6 or 7 pounds their might be more demand for soco and less for soco vietman production, for example),
all speculation of course, The only downside of the investment as a pension is that when there's a recession or oil prices fall then divis would naturally fall too. The other side of the coin is that over time you might expect the oil price to rise, so until production starts to fall, the investment is index linked. Of course when the licences run out in 20 years or so, that part of the investment (ie excluding africa and any other bits), falls to zero value, but as ee suggested, you get more out, double or more by producing the oil than selling it to the next man. Of course you need to balance that against what else you would do with the money over the same time period,
I hope that the unknowns start to be reduced over the next few months, as we are hoping,
K
Hi kenobi,
Interesting set of scenarios opening up !
Not sure that I'd want a chunk of pension monies over the next 15/20 years subject to these specific operational/commodity price/currency, interest rate and political risks (to name but a few !) though.....
ATB
In reply to kenobi, post #1088
Hi kenobi,
Points well made but there is risk in everything! My expectation is that the oil market will tighten and its price increase. I subscribe to the 'Pealk Oil' view put forward by the late Matt Simmons and so I would hold in the expectation of higher rather than lower oil prices.
http://en.wikipedia.org/wiki/Matthew_Simmons
If I am being sensible then I should prefer the sale option as I am over invested (gambling!) in Soco and I should diversify or di-worsify as my previous attempts at diverification should more correctly be called. I think it unlikely that the company will turn into a 10/15 year income stream but I am quite relaxed holding the shares on that basis.
Tom
A tithe from the Mr & Mrs Cagle.
In reply to TomKe, post #1090
Tom,
I think we're on the same page, I too believe in peak oil, however there are changes coming and here, that might effect the peak, and it might not be the predictable bell curve that hubert or simmons predicted. I say this because I think unconventional oil might turn out to be a game changer that moves peak oil significantly. And who's to say there won't be other advances regarding getting oil or liquids or gases in other ways ? So where I once thought that we might get a crunch, well by now, I'm thinking it's moved some time into the future, and that perhaps if there is an economic crash or world recession, (which is inevitable at some point ?), we might well see $50-$60 dollar oil for a while, at that point the divis wouldn't look so good, we have yet to see how the world would tollerate say $200 oil ? at the moment I guess it would cause a crash, if we are all driving hybrids and electric cars in the future perhaps we'll be less susceptible to oil price changes. And at that point the divi's would be looking very good indeed. I like you am over invested in soco, so I would be looking to reduce at some point in the futures if it turns into soley a income stock. I am wary now, as to whether the management will be able to get enough data to convince a potential buyer of their recovery estimates. But I speak from relative ignorance, so perhaps they will. I would be cautious of betting on that. Having said that, if they deliver on production increases via the fpso, and H5 does the sporting thing and turns out to be a big find, (not to mention some luck down the road from the gorillas in virunga, then with hindsight this might look like an excellent investment at this level.
In summary, I agree there is risk in everything, however taking cash now at a buy out level means you can either stay in cash or decide to re invest however you choose. Most people here were no planning a 20 year payback period, although that is of course one of the options !
cheers K
and Chemsa back down to 7%
http://www.investegate.co.uk/soco-international--sia-/rns/holding-s--in-company/201303211827416029A/
Looking at the time the recent price decline started, it was March 20th.
This was the date the latest South China Sea incident occured
http://uk.reuters.com/article/2013/03/26/uk-vietnam-china-idUKBRE92P0A520130326
In reply to adam, post #1094
Complete coincidence.
The Paracel Islands are well-known to be a highly-disputed area and are well over 300 miles from any operations. See the very clear slide 7 in SOCO's results presentation for a map.
Vietnam is in dispute with China, the fact that the disputed zone is a modest distance from Soco operations is tangential to whether it has a bearing on the risk premium of Soco equity. All Vietnamese assets will be affected by the rising risk premium of the possibility of a military conflict with a super power. Indeed the whole region.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9950791/The-dangerous-drift-towards-world-war-in-Asia.html
In reply to adam, post #1096
There is no substantive difference between the situation now and the situation at any poinin the last 5-10 years. Popping up every time there is a skirmish or an article that has an eye-catching headline really doesn't change the fact that the situaton has rumbled on for decades and is quite likely to rumble on for several more yet. Or alternatively, the latest skirmishes may actually prompt an interest in settling the issue once and for all.
Whatever the outcome, it won't have a bearing on SOCO's assets (because it affects other areas in Asia) and it won't affect the price of oil lifted from the fields (other than perhaps positively).
And, by the way, the whole focus of the article you link to is actually on China's dispute with Japan - not its claims in the South China Sea which are disputed by half a dozen nations!
Oh but there is....
The industrialsation of China has accelerated and their energy needs have shot up..
https://www.google.co.uk/publicdata/explore?ds=d5bncppjof8f9_&met_y=eg_use_pcap_kg_oe&idim=country:CHN&dl=en&hl=en&q=energy%20consumption%20china
China is throwing its weight around a lot more and has energy and fishing requirements.
Also, in the article there are reasons to be nervous that the politburo is not entirely in control of the military
Also, more prosaically, there is or likely to be a fair number of Asian or Vietnamese investors on the share register, both retail and funds, that might be more sensitive to the news wires in the region. Whilst you might be sanguine about the recent skirmishes, it is likely that, given the illiquidity of the shares especially, that it is indeed a factor that has impacted the price. Like it or not.
The dispute(s) have been going on for some time and the claims in the 'nine-dotted line map' are not new.
http://en.wikipedia.org/wiki/Nine-dotted_line
What is new is the 'hotting up' of the dispute with Japan, the US declaration that they will move their forces to confrount China, or support their allies (chose your own view), the recent Chinese military exercises near Malaysia, the Vietnamese fishing trawler which was, it is alledged, last week shot up by a Chinese warship, and newspaper articles speculating about the possibility of a war in the Far East.
Add to this the succession of the Communist Party leadership in China as the 'dons' appoint new 'don of dons' and you have as the ancient chinese curse says 'interesting times'.
I don't think these geo-political factors are the reason the sp has been volatile, it is Soco we are talking about and the sp is always volatile.
Tom
In reply to adam, post #1098
I'm indifferent about the price in the short-term, but what you say is patently incorrect. If the skirmishes were an issue, they would ALSO be hitting the price of Premier Oil, whose blocks are nearer China's 9 dash line. Premier produce nearly as much oil as SOCO do in Vietnam - and their share price has recently been rising.
As I said, none of those issues have changed in the last 5-10 years. China's energy needs have been rising inexorably for decades - and the fact that they need a resolution to the issue of claims with Japan and others merely points just as much to the imperative to reach a lasting negotiated solution.
1) Not so. PMO is a larger stock in terms of market cap
2) It is more widely held. SIA has a few very tightly knit shareholders as we know, so the free float is a lot smaller with SIA.
3) As a corollary of the above, trade volumes are much higher with which look to be about 2m per day for PMO. See here
4) Soco barely muster 200-300k a day, so a tenth of PMO. See here
5) Premier has significant assets in the NS, Falklands, Norway, Paksitan et al and is not "seen" as a Vietnamese play. UK production is 20k boepd according to their presentation , Norway looks to be 40% of 35k boepd, Pakistan 15k boepd, etc
6) On a reserves basis of a toal of 772 MM 2P reserves only 56 MM are booked to Vietnam - about 7%.
7) PMO announced their results on 21st March and this may have had more of a significant bearing on trading, even had there been any otherwise noticeable reaction.
So it patently doesn't follow that PMO should be a proxy for such skirmishes, whereas it does for SIA.
That's true, but in the last 10 years they have tripled and they have a cetrally planned economy. It is a conscious decision that they have made to not throttle their expansion by lack of economic access to energy. Guess what - right on their door step is a very large province of oil.....
http://www.japanfocus.org/-Suisheng-Zhao/2978
In contrast, the state-centered approach is based upon neo-mercantilist thinking that relies on bilateral diplomatic contacts with oil producing countries to beef up energy security by the use of national resource and state-owned enterprise investments in overseas energy assets and tight control of exports and imports of energy products. Although market-oriented economic reform has been the direction of post-Mao reforms, the market-oriented approach has not gained momentum in the energy sector because the Chinese leadership has considered China's energy security strategically 'too important to be left to market forces alone'. [2] Taking over offices in 2002, 'President Hu Jintao and Premier Wen Jiabao decided that securing reliable supplies of petroleum and other scare resources was not only crucial to sustained economic development, but also integral to China's national security'. [3] In 2003, Premier Wen Jiabao formalized seven small search groups to prepare for the first time a long term energy security strategy at the national level. Since then energy security has been prioritized by the Beijing leadership as a national security issue.
I think you are missing the point. We would like to think that is the approach they would take, but they may have a different game plan that is more "muscular".
Also, from the lack of communique from the ASEAN summit it seems that they intend to divide and conquer.
In any event, whether or not that is their intention, the fact is that many market participants perceive that and therefore it affects the risk premium, hence price.
To what extent though is a different question... If China sinks a foreign boat for "violating" their waters in the nine-dashed line then I guess we will understand their negotiating tactics.
In reply to adam, post #1101
I'm losing the will to live and have other important things to do, so this will be my last comment on this non-issue.
Yes PMO is larger in terms of market cap (and EV, given their debt) - but so what?
I was making the point that their share price has been rising. It is a directional point, unrelated to liquidity, market caps etc. If the market was seriously concerned (as you have been suggesting) their share price wouldn't be rising - they produce 15,200boepd in Vietnam....and according to their recent results (note 2) their Vietnam operations account for 57% of their operating profits!
It is complete hogwash to suggest that the market would sell SOCO International (LON:SIA) based on Vietnam concerns whilst simultaneously buying Premier Oil (LON:PMO). It is clear that whatever the reason for the recent weakness in SOCO International (LON:SIA) (and the error-strewn Nomura note is as likely a reason as any) it has nothing at all to do with any coincidental marine skirmishes.
ee