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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Redhill, id have to agree with you there. There's always a place for considered debate and different points of view.
Personally I'm very disappointed with the IMS today. Well, I'm not that disappointed in that it reads like a "we are preparing for departure" announcement. However, I find the lack of comment on the production levels and targets very disappointing indeed. There is obviously something going on within the joc so come clean, otherwise people assume there is a more serious problem.
Personally if just welcome an rns that said "we are putting Vietnam up for sale".
As out stands I'm still a believer in that the shares are cheap on a cashflow basis
Sorry, pressed submit in error.
And that the shares are well under Mac and a trade sale valuation so I am relaxed on that score and have even bought more recently.
My guess is that Vietnam (the company?) Will have an offer within the next four months.
D
Mark the three main points you are missing I suppose is that Soco have a very active (now) buy back program are probably nearer a sale of assets and have a lot more cash on the balance sheet than Coastal. Coastal has more explo upside (unless Africa comes off) but has sunk less into infrastructure.
I hold both and as you know I like Coastal a lot. The netbacks at Coastal are very good as they are also with Soco.
The market is going risk off in a big way but with the large buy backs Soco are making in the market I feel the downside is better protected. Also its proximity to the sale of assets in Vn will help put a floor under the price.
You are right to post and I certainly welcome your comments. Thanks.
Log
I think you need to look at the netback/tax rates & therefore cash generation between the two rather then headline production numbers.
Precisely!! On a 2P "in the ground" basis, I'd estimate Soco's VN barrels are worth getting on for double the NPV of CEO's Thai barrels. Once their capex starts to come down, taxes will rise.
I'm looking forward to hearing the managements explanation as to why target production seems to have almost halved (90k to 55k), on phase 2 production since the last AGM
I don't think managemernt's target has changed. As to an explanation, we've already had one. AIUI, the original start-up for Phase 1, as publicised by PV, was 40,000 bopd. Over time, Soco appear to have got PV to move on that figure but very likely as a result of PV management changes, they seem to have reverted to the original plan for now (40+15). However, Soco are pursuing the matter and seemingly making decent progress. AIUI, PTTEP are also supportive in this quest as far as they're able, albeit they are apparently cautious in not rocking the inter-governmental relations boat. What we need at some point in the not too distant, is an announcement that the planned Miocene perforations have been executed, coupled with plans to either expand the existing facilities or hook into Bach Ho. That's when the disbelievers will believe. In a way, you can understand PV being ultra conservative as failure to deliver on plan no doubt results in medals being removed from chests. Increasing facilities would be a significant step for the JOC to take. Fingers crossed it'll all happen before Interim Results!
I have divsted 90% of my Soco holdings several weeks ago (and reinvested proceeds somewhere else). Am also disappointed with TGT production levels (granted the netbacks are very good and the agreeed/negotiated $6/bbl premium to Brent for contracted sale to BP is also very good) but thought that TGT performance warranted some more explanation. Will continue to hold my now very small position here though but wont be adding until more details on TGT becomes available.
JPGH
In reply to davjo, post #505
Hi DJ,
What I had hoped to see in the IMS was some mention of discussion of plans to up production capacity. It's clearly going to be needed, they are not going to go on producing TGT at only 55k for ever. As you say the indications are that is being pursued, but I'd be a lot happier to see it confirmed. So I'm disappointed not see any mention of it. But I guess maybe we will see no formal announcement until either a) the plans are finalised or b) the company/SV are bid for.
I think the Vietnamese are just being very cautious. The have seen what happened at Bach Ho where they maximized production only to see production rates drop off substantially and a possibility of Bach Ho ceasing production as early as 2020. They are in the process of extending their existing refinery at Dung Quat while the Nghi Son refinery is still in the planning process. That is a lot of infrastructure about to come on stream so I would imagine that they want to be sure they will still have some oil to refine.
In reply to davjo, post #505
Davjo,
well, at the last agm, the targets, were very clearly 55k by christmas, and that was described as taking it slowly, and then 90k when phase 2 came on line. (although probably with some kind of ramp up).
Todays targets are 55k when phase 2 starts up, nothing said about infrastructure. This seems like a bit of a let down for holders who had been expecting the 90k figures. These targets don't seem very challenging, no doubt they'll be used to judge bonuses next year.
I wonder what figures we're going to hear at this years AGM.
Even more frightening the suggestion that PV are spending a lot on infrastructure, and they want to make sure there is some oil left for when that comes on line ! I must admit I'm not up on when the oil refinery will be completed, but the idea that tgt ramp up might be years away when an oil refinery is commissioned is worrying.
K
304k more today
http://www.investegate.co.uk/article.aspx?id=201205161754395199D&fe=1
Thanks for the feedback... but I remain unconvinced of the case for Soco cf Coastal.
Isaac - thanks on the market cap. I must have misread some figures there. Going back to fundamentals, I make Soco's £892m vs Coastal's £1,010m. So Coastal's is around 10% higher.
Re cashflow: per Coastal's quarterly report of yesterday, it generated US$80.9m of operating cashflow in the first quarter of this year . $435m operating cashflow is forecast for the full year. How does that compare to Soco? It used the first quarter's cashflow to pay back $30m of debt (leaving $47m owed but lots of headroom in a freshly negotiated $100m revolving credit, should it need it) , buy a jackup rig (which it needs to drill the 50 wells it has planned to fully develop one part of its acreage), buy a couple of MOPUs (mobile offshore production units) and drill about 4 wells. I prefer that use of cash to buying back shares - it can do the latter once it has spare cash over and above CAPEX that will drive production and reserves growth (and operating cost reductions). What I find stunning about Coastal is how quickly it has been able to take discoveries into substantial production: around 6 months. This is due to the shallow water and shallow drilling depth of its prospects/discoveries (wells each take a matter of a few days to drill). That has a hugely positive effect on the NPV of its resources.
Anyhoo, I'd better stop ramping Coastal, as this is the Soco board. :0)
I am confident that both companies shares will be worth considerably more than the market is currently pricing them at, in the fullness of time.
Best,
Mark
PS I'd better get back to writing up my notes on the Aminex AGM: I found Stuard Detmar, and his proposed Encore-moves-to-Africa ;0) strategy most impressive - but we'll have to wait & see on delivery.
In reply to marben100, post #511
PPS I'd better make it clear that the "operating cashflow" is after taxes & royalties and is based on a netback of $48.73/bbl. That is expected to rise to a netback of over $57/bbl next year leading to $625m of operating cashflow in 2013 (figures from First Energy). First Energy put an NPV of $16-$19/bbl on Coastal's 139mm discovered recoverable bbls, as at the end of March
In reply to marben100, post #512
G'day Marben :-)
PPS I'd better make it clear that the "operating cashflow" is after taxes & royalties and is based on a netback of $48.73/bbl. That is expected to rise to a netback of over $57/bbl next year leading to $625m of operating cashflow in 2013 (figures from First Energy). First Energy put an NPV of $16-$19/bbl on Coastal's 139mm discovered recoverable bbls, as at the end of March
I don't know where First Energy get their figures from but I do know that Soco's VN terms are superior to that of Thai concessions. Hence, Soco's 124mmbbls will be worth more than CEO's 139mmbbls. Thai terms can be found here :-
http://www.ctlo.com/mediacenter/Publications/2011-03-29-ThailandPetroleumConcessions-03March2011325679.pdf
The most significant clause is the Special Remuneratory Benefit tax. This is a "windfall profits tax" brought in years(decades?) ago to counter excess profits made from high oil prices. You will note that this tax can be as high as 75% on profits...after maybe 15% royalty has been imposed on CEO's production. Crucially, the SRB doesn't really impact on the bottom line until past accrued losses and capex falls away. All the time CEO is spending loads of money on the assets, SRB is mitigated somewhat but come the day that expenditure declines, SRB will surely kick in with a vengeance. I haven't looked for ages but have CEO commented on the SRB lately?
Outside of the US, I (and the market generally I believe) have always valued reserves on a M&A basis. IMO, First Energy are way out on suggesting CEO's bbls are worth $16-$19. More like $11-$13 in my view, given the potential SRB impact. I rate Soco at $19-$20/bbl...akin to the recent Perenco/Conoco deal.
Just offering an alternative comparison of viewpoints ;-)
In reply to davjo, post #513
G'Day Davjo,
Thanks for that. Yes, the SRB is taken into account - as you say, it is a kind of windfall tax on revenues benefitting from "high" oil prices. See Coastal's latest presentation for details:
As you know only too well ;0), calculating the NPV/bbl of reserves depends on a multitude of factors:
Whilst Soco's NPV/bbl may benefit from a better fiscal regime, the development CAPEX/bbl and timescales are in Coastal's favour. Not sure about operating costs (probably low for both companies). I have to assume that First Energy (and other analysts who arrive at broadly similar figures) have done their sums properly and that their NPV/bbl is realistic, taking all of the above into account.
Cheers,
Mark
In reply to davjo, post #505
Always a pleasure to return to a board that has had a couple of dozen posts since I last saw it, and to find that I can add nothing useful to the comments of davjo, Isaac and peterg, who seem to have covered all the relevant points.
I suggested to djp yesterday that the IMS was de minimus primarily because it was being sent from the departure lounge. That remains my view. One either agrees or one doesn't - and if one doesn't then, sure, there are plenty of other apparently-attractive opportunities out there. Like Isaac, though, I think they can wait for now.
The only small point I'd note is that oil which is not produced today remains available to be produced tomorrow - so, providing there is a plan to do that in the next year or so, it should make little difference to M&A valuations (either oil is produced and is cash on the b/s, or it remains in the ground and available to be produced).
Good to see Marben and djp yesterday :-)
ee
In reply to marben100, post #514
Hi Marben,
I just had a look at those Coastal slides. I notice the tax rates are calculated on EBITDAX, which exclude exploration expenses. So, as dj suggested, if you take away the $250m projected capex (and presumably also the $165MM loss carryforward mentioned on slide 34) you end up with a very high tax rate on real underlying profit. I may be totally wrong about that, in which case sorry, and please put me right!
Tom
In reply to swanvesta, post #516
Tom,
Note that the SRB depends on two factors: oil price and amount of drilling done (as mentioned in the slide). I presume the high tax rates only apply at very high oil prices and with no drilling.
Concerning the former aspect of the SRB, the impact of that is to limit profits made in a higher oil price environment - but it also cushions falls in a lower priced environment. So, the sensitivity of Coastal's NAV to the POO is lower than might be expected. I'm happy with that as I'm not seeking a play that is highly geared to the oil price. On the second aspect, Coastal will be doing significant drilling for many years to come, so are unlikely to be paying high tax rates for some considerable time. Bear in mind that the DCF methodology will make cashflows in the next 1-5 years far more significant to NPV than those many years hence (dependent on the discount rate used).
AFAIAC there are two "bottom lines" to this: 1. Coastal's actual & projected cashflow is excellent; 2. I have no reason to doubt the analyst calculations of NPV/bbl which should take all aspects of the SRB and other taxes into account.
Cheers,
Mark
In reply to marben100, post #517
OK Mark, thanks for bringing Coastal to my attention - it's been interesting. I'm aware I am increasingly off-topic (and I'm no O&G guru either, so I should shut up), however I have to ask re slide 26: Why would anyone be interested in tax rates on revenue figures that exclude major tax-deductible costs!?!
Tom
Edit: My point being, isn't it obvious the tax rate (on revenue) will fall if revenues fall and the major portion of costs remain fixed?
In reply to swanvesta, post #518
why not start a thread on Coastal and move the discussion there?
I think it is very useful to discuss Coastal on this Soco thread. The companies are quite similar in many ways and so the pricing of their respective assets should be similar too. Since the thread is about Valuation and share price direction what better way than comparing Soco to other companies with similar assets.
There is another Coastal thread but posting a comparison there on Soco would run into the same complains. At least since Soco is highly followed on s'pedia it means it gets some good coverage posting here.
On a different note it is good to see the share price holding up against the general market sell off. Looks like the increased share buy back is soaking up enough shares to tread water. Hopefully, if macro events can be resolved we'll we should see some out-performance in a positive direction too.
Log
another 200k bought back today, without moving the share price up !
http://www.investegate.co.uk/article.aspx?id=201205171711566153D&fe=1