Vietnam Assets

I'm out of these at 372p after having held them for 3 years. I've done ok but nothing spectacular. The update today in my opinion was poor and in particular not what the market was expecting. Production is OK but its capped at 55K (gross) because of problems with the FPSO and there doesn't look like there is a natural/easy solution to that. Furthermore the reserves update given today was appalling. They give a massive range of OIP numbers and a huge range of recovery factors and one has to ask the question why bother? At the lower end reserves come in much lower than the 121m 2P they already have booked but the market is looking for much more. Still no news on the gas sales price being agreed for CNV. I'm very glad that Jam is a preserve for Soco holders because it is more and more Jam tomorrow here. Log

In reply to loglorry, post #247

Fair shout. There's plenty of smoke and mirrors in that RNS this morning and I took the view immediately that the uncertainties would also unsettle the market and got my trading holding away around £3.85. Will look to get back in around £3.50.

The bigger picture however is that it's still generating vast swathes of cash and I'm happy to be involved but just with a smaller % of the folio.

I suspect they are now much more vulnerable to a lower bid as well.

nigel - yes I keep hearing about all this cash being thrown off. I think someone said back in 2011 they were forecast to throw off pretty much the market cap in cashflow in the next 18months. That was when production was forecast to ramp up to 110K/boed or thereabouts.

But today we see:-
"Net cash and liquid investments as at 31 December 2012 was $211.4 million (30 June 2012: $178.0 million and 31 December 2011: $113.5 million)."

So cash up to $211.4 from $113.5m in a year or from $178m to $211.4 in the last 6 months.

Certainly not bad but its a £1.2bn market cap company and the rest of the convertible to pay off from that cash pile too soon.

However what really put me off was the reserve update which was just a non-statement. STOIP of 466m to 958m - lets take the low end (because the market will) and take 28.5% WI and 28% recovery comes out at 37m bbls net to Soco. Or the top numbers 958 x 28.5% x 0.5 = 136m net to soco against 121m booked 2P. OK there is some upside but this isn't going to blow the market away. The netbacks are very good and premium to Brent etc. but there is considerable risk too.

Sorry guys I know this won't be popular. Coastal or SMDR are a much better bet in this region IMHO.

Log
Long coastal only now (in the region)

Looks like a horrible day, and too late to sell I think (now 363p)

KMcK

Above logic is fine, but no mention of $95m spent on minority interest - needs to be added on to cash generated.

$128m for 6 months in that case. I make that 50p/share/year cash generated.

jseth123 yes add in the $95m and yes its fine but it's not setting the world on fire as I said. Also you gotta wonder about the really rather poor update on reserves - there was just no information there except a very wide range indeed. Also still no resolution or hint thereof of the FPSO issue and guess what we are still waiting for gas contract pricing at CNV - yawnnn.

Log

Hi Log,

I'm inclined to agree with you - it's really not setting the world on fire. As I came out of the AGM last year I said to others I thought this would happen: timings would spill over to this year and management would be looking for "another excuse" to explain the discrepancy for their estimate and the market/potential buyer's estimates. I also said I didn't think I'd be holding if there was another AGM...but here I am.

It is a lot of cashflow though, and I'm not sure I'd forgive myself if I sell after all this time to then miss out on good results (if they come) from H5...etc. There is a lot of things not to like though:
1) Not getting recovery rates signed off
2) Potential for "official" reserves to shrink rather than grow
3) Soco not being in control of the development
4) Politics associated with 3
5) No credible plan for producing any additional 2P within the time frame of the licence

So I've talked myself round to selling, probably, but I'd agree with KMcK that I've missed the boat for selling today though...

I would not be so sure about no deal. Auditors are very conservative,and to be fair to them the field is relatively new,and any bidder would form their own view. Given that many oil stocks trade at ahigh discount to NAV there is plenty of scope for a purchaser & willing seller.
Some irony also that SOCO is a current purchaser & using that cash surplus till the 2012 AR on 11th March 2013

I also noted that the headline statement said that RPS was preparing a reservoir engineering view on STOIIP and recovery facors,not a specific CPR. The aquifer poses some interesting issues-on the plus side less water injection,increased recovery,on the downside water breakthrough,and water handling issues,and stacked pay development headaches.
FH

In reply to loglorry, post #247

Production is OK but its capped at 55K (gross) because of problems with the FPSO

As far as I know there are no "problems" with the FPSO. It has been producing steadily at design capacity for some time - which is actually a small positive in the release. What hasn't happened are the tests of production capacity that I had hoped to see by now - to see how far production can be pushed. PV appear to be be dragging their feet, again. I gather that they have now agreed to do so - hopefully they will this time.

Peter yes I agree that its chugging along at boilerplate capacity. However as we've discussed there was to be some attempt to increase this and there has been none and no hint of one in the NR.

How do you feel about that ridiculously wide range of reserve numbers?

I am dissappointed by this release. Clearly progress has been painfully slow by comparison with the impression given at the AGM.

I'll be waiting to see if this drop in SP trigger buy-backs.

As far as I know there are no "problems" with the FPSO.

no problems but equally little or no progress on trying to extend capacity beyond the boiler plate 55k in the past 6 months or so, 

Considering in half year results august 22nd they said
since start up; peak production of over 60,500 BOPD to date as the FPSO capacity limits are gradually tested

It is disappointing to find that 6 months later we are still producing at 55k, despite the time we have had to gradually test higher volumes.

K

In reply to jseth123, post #253

>>So I've talked myself round to selling, probably, but I'd agree with KMcK that I've missed the boat for selling today though...

well looks like I might see you at another agm in the summer !

the q2 drilling won't quiet be finished, and we'll have some happy estimates by then !

K

It's a shame that it seems reserves figures are quite a bit less optimistic than indications received informally at various Soco AGMs.

How much weight and trust to put on face-to-face meetings with management is an issue that regularly divides small investor opinion. One group of investors loves to meet management, and indeed sees the insights from doing so as their competitive advantage. Another group almost avoids meeting management, since they think that'll distort their viewpoint, and prefers to rely on published data only.

Soco management have acquired a reputation around the bulletin boards as being honest and telling it straight. Plenty of investors here have been to over half a dozen Soco management meetings of various sorts, and have come to trust what they hear. If what has happened today is a let down of reality versus the impressions given informally by management at AGMs, is that a kick in the teeth for the whole meeting-management-to-be-ahead-of-the-published-news investment approach?

http://www.businessweek.com/news/2013-02-13/soco-says-in-talks-for-assets-in-south-east-asia-west-africa

Production is expected to average 16,000 barrels of oil equivalent this year mainly from operations in the Te Giac Trang field in Vietnam, Cagle said. That’s higher than the 15,496 barrels it produced in 2012......

Soco International Plc, a U.K.-based oil explorer operating in Vietnam and the two Congos, said it’s in talks to buy more assets in those countries as it sells a stake in an exploration block in Angola.

In reply to loglorry, post #256

How do you feel about that ridiculously wide range of reserve numbers?

It's not the reserve report that many of us were hoping for, and it doesn't look like reserves will be upgraded formally for some time. That's the downside, which perhaps reflects some overexpectation by many of us. However, as flyinghorse has pointed out:

I also noted that the headline statement said that RPS was preparing a reservoir engineering view on STOIIP and recovery facors,not a specific CPR

And for that the wide ranges are probably not ridiculous, they are just the sort of wide range of numbers that a cautious auditor is likely to produce. Perhaps the RNS could have been written better, though I am not entirely clear how. I can see why the company don't intend to commit to reserves figures at this stage, since they are clearly convinced that significantly higher recovery rates can be achieved - and have already been achieved from some of the intervals at TGT (and higher ones of nearer 60% have reportedly been achieved by Perenco from the same sands elsewhere). The assessment is ongoing, and based on current wells and injectors. More will be drilled over the year, so there is good reason to think that the company's view may come to be reflected in the assessement over time.

However, it's not the headline grabbing update we hoped for, and that is not surprisingly going to be reflected in the SP. Even though there is useful confirmation of production working as forecast and lots of cash being thrown off, with potential upside confirmed - though unfortunately it remains potential at this stage.

If I had been sharp, like you, I might have sold this morning - though I suspect the size of my holding might have made it difficult to get the early prices - with the intention of buying back when the dust settled, but that sort of thing has never been my stongest suit.

Not great news today, however the drop in SP may just ecourage a bidder to make their play. If there is a bidder in the background I would expect them to make their move soon and the market may focus on this and therefore supporting the SP in the Short term. ...time will tell I guess

In reply to bankerbasher, post #263

bankerbasher, you could well be right looking at the sp action, unless these are buybacks.

Anyone seen any brokers notes suggesting they are "in play"?

There won't be a hostile T/O.

The final buyer won't be buying in the market or 'pouncing' when SP depressed. Being able to negotiate a lower price in light of negative news, perhaps, but nothing to so with SP

IMO etc

Just sold half of my holding at ~375p