Vietnam Assets

Ive only seen two broker notes this morning:

BoA ML have issued an amusingly entitled note "A look under the bonnet reveals a well oiled machine". Essentially it says, Buy with 511p TP and NAV saying cash set to rise to $620m by YE13 with the key being the board meeting in March about use of cash.

RBC say - In our opinion, the lack of clarity on TGT reserves will continue to put off some
investors, but the upside case (combined with SOCO’s strong balance sheet and
cash flow) should help retain the interest of many shareholders. And in time,
perhaps with help from industry, we expect the share price to close in on our
core NAV.

So, a bit of a yawn from me. Until we have clarity over the monetisation of Vn and use of cash the shares will just bump along. Personally I stil thnk an eventual takeout with a value of 525p is the most likely so am happy to retain a reliable cash generating machine till then.

In reply to tiswas, post #267

I must say, Tiswas, that I had put the constant rising price (from the May lows) down to investors becoming a bit more "risk on" and seeing a company with high and rising cash flows with low capex requirements - a perfect, lower risk oily run by management with a track record for selling assets and the endgame getting closer and closer.

Just hope the strategy/board meeting in March doesnt bring about a decision to go off and explore elsewhere. Maybe a HOIL like development/explo deal woudlnt be too bad though.

In reply to djpreston, post #268

Cheers Darron, a better reason for the sp recovery than my wishful speculation!

You saw the businessweek comment above with Roger's remarks about buying more assets?

SOCO seems to be very prone to sell-offs after bad news as I suspect there are a lot of investors/gamblers using it on spreadbets and the bookies are very adept at taking out stop losses and making margin calls which has a waterfall effect on the SP. Once they have been settled the SP usually starts to work its way back . I have used this on many occasions in the past to top up my holdings but am a bit top heavy at the moment with my last top up when they pushed it briefly under 280p

Thanks Darron - I don't think Soco is bad value here but its also nothing special given today's update. I know blasphemous as it might seem.

I just can't see how if reserves are so underestimated at TGT they wouldn't have managed to get a bit more of a positive noise from RPS. Looks to me that RPS are unconvinced and so Soco have had to publish some very wide figures they came up with them along side their own much rosier ones. As highgate55 points out taking the average numbers you get a reserves downgrade!

At the end of the day there are better companies out there with similar risk profiles now IMV.

Log

In reply to djpreston, post #269

Darron,

You mention doubts about Soco's future exploration activities, and in this regard, their exploration record in recent years has been poor.

They relinquished the TGD licence, following analysis of seismic. However, they spent a huge amount of money in drilling TGD and I have never understood why they did not shoot the appropriate seismic before commencing drilling.

Are you able to clarify this point?

Regards,

GD

In reply to loglorry, post #272

Cross post from TMF

I'm out and about at the moment but crunching the numbers gives ;

1 an agreed RPS worst case reserves at TGT figure of c. 49m at a c. 30 % recovery factor on 466m plus 53m of STOIP. At $20 dollars a barrel that gives a lowest possible value on TGT alone of circa 1 billion USD

2 an upper case on RPS numbers of c. 122 m barrels recoverable at 35% recovery rates across 958m + 152m STOIP, worth c €2.5 billion

3 using management guidance of at least 50% recovery rates gives c. 175m barrels , at $20 per barrel that gives a $3.5 billion valuation

...all this for TGT alone!

CNV has always been discussed as circa 50 percent of the size of TGT , though further upside at the latter may skew this relativity going forward.

From memory the whole of Vietnam had booked reserves of c 120m barrels?

My money is on a substantial reserves upgrade this year.

I hold and view a deal is likely this year at a major premium to today's share price.

Cheers

/snip

I'm not seeing anything other here than a reservoir analyst playing it safe and suggesting that more data is required re production to support bigger numbers , I can live with a range of 1 to 3.5 billion USD for now pending that additional data. Shame they weren't prepared to take a stronger view but that's life.

In reply to extrader, post #238

I'm now back and working through a rush of 40 posts.

1) I agree that the flagging of end 2013 for reserves changes is a very relevant point - consistent with my expectation all along that the reserves won't be upgraded before a deal is done in VN

2) Re dividend comment, I would expect that on 11th March

3) the issue re the CPR appears to be one of judgement over recovery rates. The independent expert would plainly prefer to see more of the reserves actually recovered before venturing an opinion. Ideally all of them, I imagine...... ;-)

4) deal timing? who knows? It only takes one etc etc - and there is now a decent slab of data. Any serious buyer would make their own assessment of the technical data - and not rely on the CPR.

5) production testing of the FPSO would seem to remain to be undertaken. This is key IMO to the whole process.

6) cash levels and rate of generation are an important part of the picture (well-remembered jseth123)

Re KMcK:

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

...hope you bought there then, given the 381p finish  ;-)

Too busy to consider much more at present.

ee

The road to ruin is paved with people ignoring 3rd party valuations and trusting what the company says. Cashflow is good no question though but it's not knock it out the park good either. 

By why o why put out a statement on reserves that could be anywhere between 59mmbbls to 175mmbls net for TGT. It is just meaningless. Can we trust manamgent and assume it is the much higher number? Maybe but maybe not as well. Furthermore, trusting managment doesn't really get you anywhere because there is no dividend to rely on so you have to just wait for a buy out and buyers trust reserve reports not what the seller is telling them what its worth. 

Sure it might go higher and todays close was pretty strong so that's comforting but I can't see a buyer emerging that quickly based on todays report and I'm sure plenty have run the numbers already.

Meanwhile we have press reports that Cagle is looking for further explo in Africa. Fine and all well and good but most holders of Soco are looking for an exit not to have the cashflow spent on drilling campaigns in Africa. 

Good luck to those who hold but far too much risk here if the numbers come in on the low side or there are any operational problems things will head much lower. Better value elsewhere.

Log

One other thing,

The expiration of the option to sell its 80 percent Cabinda stake in Angola has been extended to mid-February, Soco said today in a statement.

Mid Feb, that'd be tomorrow then by the usual calculations associated with the term mid (ie 28 days divided by 2, = 14 ),

Seems an odd thing to write and issue on the 13th of the month

K

In reply to sirlurkalot, post #260

Hi sirlurkalot

"...is that a kick in the teeth for the whole meeting-management-to-be-ahead-of-the-published-news investment approach?"

It's good to see your comment in the context of today's rather obfuscating RNS by Soco. I'm strongly in the camp of NOT expecting anything from AGMs or other meetings, although I do sometimes attend them.

My position is simple - I just don't trust myself not to be swayed by good presentations. On the occasions when I do attend I need to remind myself that I'm susceptible, and adopt a cautious attitude.

And it can operate in subtle ways. I well remember a presentation by Brian Hall of Aminex in which he very charmingly presented the case that all exploration was risky, that his experts were no better than the best from other companies, and that without a bit of luck the share price could gently drift off.

Of course everyone thought "He's hiding a great upcoming result" and they all rushed out to buy!

Aminex has been one of my worst investments as I've constantly topped up with rights issues, in the hope that the lucky drill would one day come along.

The greatest proponent of meetings is carmensfella, and he clearly has a special BS filter in his brain, which allows such meetings to add to his useful knowledge and understanding. But I know few others.

I have two friends here in Edinburgh who are cautious, mainly large cap., investors, and who haven't previously touched the explo sector. However they attended the last Petroceltic meeting and were persuaded that the company was a marvellous prospect destined to perform.

In its previous incarnation as Melrose Resources it has managed to be my second worst performer in the sector, and it's not got any better since the AGM.

Beware the smooth tongue of the clever presenting director! Your point is well made

KMcK

In reply to loglorry, post #272

As highgate55 points out taking the average numbers you get a reserves downgrade!

Not entirely sure that is true. I can't find a previous breakdown of where the declared reserves are (if anyone has one please send me a link). However, CNV is said to be around half of TGT in size (in terms of declared reserves, rather than upside) , so rhomboid's assumption that they accounted for about 80 and 40mmbbls respectively (with a little from Africa making up the balance) sounds about right.

In that case highate's calculation, based on their RPS's mean estimates comes out just below what's booked. OK, that's a downgrade, just. But given that we would expect RPS to be cautious, and there looks like a lot of potential upside in the RF, it's not a negative report.

OK, it's not  the sort of "we've just increased our contingents by 400%" sort of release that WZR (keeps) putting out, but their SP just goes down when they do that anyway!

In reply to KingMcKong, post #278

Beware the smooth tongue of the clever presenting director! Your point is well made

Actually I thought it was a very cheap point made extremely predictably.

Put companies and director into two camps: those who seek to exaggerate and talk up their assets to the market and those who try their best to play a straight bat. I would agree that the former should always be treated with caution. And, ex-post, one can point to loads of examples where directors appeared to be giving a straight story - but events have turned out disappointingly for investors.

There is an easy explanation for this - which is NOT that they set out to mislead........ It is that, even if directors make their very best guess with 100% honesty about what will happen, circumstances, events, acts of god, random happenings, contractors not doing what they are paid for, contractors screwing up (eg TGT-2X), geology,  data errors, pure luck and a whole bunch of other things can conspire to make it appear that they were being misleading.

I don't think that directors are any better at  foretelling the future (for that is what it is, unless you have 100% control over events - which is something that non-majors never EVER have!) than anyone else - but I DO think that most of them try to give a pretty straight story on the way things will develop. There may very well be a bias towards "hoping for the best" - but there are also plenty of directors who have seen SW10's Law in action for long enough to know when they should row back on their hopes in public pronouncements. All they can do is make a best guess at what will happen, using all their knowledge and experience.

The problem for them is that they are damned if they do and they are damned if they don't -  and I can tell you that these things seem to be a helluvalot more straightforward when viewed from an armchair than when viewed from the sharp end of trying to run and manage businesses which have multiple groups of stakeholders. I'm not surprised that Directors frequently get it wrong - but I think it is disgraceful cheek for shareholders to jump to the view that they set out to mislead.

As to SirL's core contention (ie it is all noise, so ignore it), that is often true. But then it is sometimes not true. The problem for investors (and indeed directors) is that you can't usually work out which comments are more likely to be true ex-ante....whereas any fool can make such "analysis" ex-post.

ee

Reserves figures are on pg 98 of the 2011 AR

There is an easy explanation for this - which is NOT that they set out to mislead........ It is that, even if directors make their very best guess with 100% honesty

I've been thinking along these lines all day to be honest,  that they may well believe that the reserves are understated (and they may well be right),  and hence gave that kind of feedback to the agm.  However as tom cruise said in a few good men, "It doesn't matter what I believe,  it only matters what I can prove".  Sadly they have miscalculated re what the experts will certify.   

It doesn't matter what they believe only what they can prove,  if they cannot prove it to the satisfaction of these experts,  can they convince a buyer of it ???  well of course that need not be a binary yes/no answer. 

I would be interested in hearing a little more detail to be honest,  has the connectivity theory been disproven for example ?  If it has,  thats fine,  again it was their theory,  not a certainty,  or is it still considered likely but not proven to the level required to reassess the reserves based on it ?

We've been waiting so long for this report,  and to be honest for me this was the sort of time I was thinking there would be enough data (6 months after start of phase 2),  that a deal could be done,   that it is a big disappointment.   But never mind,  at the end of the day,  the price is where it was a month or so ago,  we're 5% or so off the peak,  It just feels we're looking at later this year or 2014 to get to where we thought we might be in sept 2012.   That might turn out for the best as if  we get a good result in H5, and this builds into the bigger picture,  the end result might still be good. 

Of course it doesn't mean a deal won't be done sooner,  but to my mind it sure makes it look less likely.  

I wouldn't be surprised if the price drifts off back towards 350 in the coming days allthough,  maybe we need to hear what they say in march re divis and other plans. 

One thing that I'm very disappointed with is that they haven't got production beyond 55k, after all this time. Is it really an fpso problem ?  and how come they managed to produce at over 60k at start up,  but haven't managed to streamline things to average at that kind of level so much later ?

evening all, 

K

Reserves figures are on pg 98 of the 2011 AR

Thanks highgate. But they don't show how much is attributed to TGT

In reply to kenobi, post #282

I've been thinking along these lines all day to be honest,  that they may well believe that the reserves are understated (and they may well be right),  and hence gave that kind of feedback to the agm.  However as tom cruise said in a few good men, "It doesn't matter what I believe,  it only matters what I can prove".  Sadly they have miscalculated re what the experts will certify. 

.....mmmm...maybe - but I wouldn't be too certain of that. I have certainly miscalculated on that score - but, once again, that may only be a matter of time. The reports I hear imply that they think the market has misread the RNS.......

....in which context I am interested to see that Merrill said today

Independent assessment validates our NAV; upside remains
Soco hired the independent consultant RPS to assess oil-in-place volumes and
recovery factors on the TGT field, the core asset in Vietnam. Discovered oil
resources are estimated at 466- 958mmboe, with a recovery factor of 28 to 35%,
validating our 300mmboe base case for recoverable oil from TGT. Further upside
of 53-152mmboe of undiscovered resources in place has also been identified.
Importantly, management believe recovery rates of 45-50% are ultimately
achievable. This is based on experience of their own and other producing fields in
the basin, thus potentially adding a further 110mmboe to reserves. A full
Competent Persons’ Report (CPR) is likely to follow in due course.

As for

I would be interested in hearing a little more detail to be honest,  has the connectivity theory been disproven for example ?

I think the answer to that is no. It is in the process of being proved up but, since most of the 50+ producing zones still haven't been perfed and production-tested in parallel (needed for communication checking on each zone), this is clearly going to take time (and always was!).

And re:

One thing that I'm very disappointed with is that they haven't got production beyond 55k, after all this time. Is it really an fpso problem ?

Who has suggested there is any problem with the FPSO? I've seen no such suggestion - certainly nothing from the company or JV. You need to think about what it means to switch production between wells -  they've got lots of wells that can be produced, all at differing rates. With switching on and off causing some downtime (especially with new wells, I'd guess) I don't find it surprising that they aren't running continuously at 100%!

What IS needed fairly soon though is a proper capacity test of the FPSO - hopefuly we won;t have long to wait.

ee

In reply to emptyend, post #280

Hi, ee

and Happy New Year!

I feel you're jumping to the defence of company directors a bit too fast. The remarks by sirlurkalot and myself were not directed specifically at the Soco board, and my example of Aminex was not intended to imply that Brian Hall or any other director of that company has intended to mislead.

My essential point is that I don't trust myself to see through the sure, unsure or plain wishful thinking that many company statements may contain. And there are more than enough companies (see ShareSoc) that have directors paying themselves very handsomely whilst giving rubbish returns to their shareholders.

The question asked was whether meetings enhanced or confused ones perception of a company. All I'm claiming is that my personal experience has been rather negative. I've felt encouraged when I shouldn't have been and missed opportunities where I've misread what has been presented

KMcK

In reply to emptyend, post #284

>>.....mmmm...maybe - but I wouldn't be too certain of that.
I don't understand what you wouldn't be too certain about, that the management's views on reserves are much higher than the experts are willing to certify ? I can't see how you come to this conclusion. Perhaps eventually they will, but since the statements at the agm were in light of a fall/september cpr, clearly it is the case.

>>I think the answer to that is no. It is in the process of being proved up but, since most of the 50+ producing zones still haven't been perfed and production-tested in parallel (needed for communication checking on each zone), this is clearly going to take time (and always was!).

maybe it's just me, but given the significance of this, and that it was muted at the agm, I'm not sure that this point deserves lower billing than say the other main difference the recovery factor (which they did highlight). Perhaps they are less confident of the connectivity than the recovery factor ?

>>Who has suggested there is any problem with the FPSO?
sorry I wasn't clear, not suggesting there's a problem with the fpso, other than getting beyond boiler plate spec. I meant is the fpso really the bottle neck ?? or are we having problems producing beyond this level either geological or political with the partners.

>>What IS needed fairly soon though is a proper capacity test of the FPSO - hopefuly we won;t have long to wait.
yes agreed, and as I recall and quoted somewhere earlier today, at start up they quoted peak throughput at over 60k, so disappointed that they haven't progressed further on this. If it is due to changes to produce specific data for the cpr, then fair enough. It wouldn't have hurt to mention this. They said the average for jan was 5450 or something they could easily have said but at times we've run upto 62,000 or 65,000 and as start to work to optimise production we would expect to reach closer to this level average production.

K

In reply to KingMcKong, post #285

Happy New Year to you too :-)

Trust you've recovered from an overdose of  t'Laddie at Hogmanay ;-)

I feel you're jumping to the defence of company directors a bit too fast.

I appreciate that there was no particular assertion - but the subtext of the argument that has been repeated ad nauseam over the years on bulletin boards is that "you can't trust the blighters".  All I'm doing is pointing our that even the best-intentioned, most honest, best-researched prognostications can STILL be wrong (and usually are!) due to factors well beyond anyone's control - and often well beyond any reasonable expectation. That is particularly the case in the oil business, I think, where we aren't selling millions of widgets.....we are making tiny, very expensive holes in the ground, having chosen the location based on imperfect information in the hope that there is something valuable at the bottom that can be moved to the surface. Much can go wrong - and frequently does.

My essential point is that I don't trust myself to see through the sure, unsure or plain wishful thinking that many company statements may contain.

I'm not sure anything can be done about that. Nobody has a crystal ball or perfect antennae.

And there are more than enough companies (see ShareSoc) that have directors paying themselves very handsomely whilst giving rubbish returns to their shareholders.

Well, whilst I appreciate that there are some egregious examples (especially on AIM) that shareholders are right to be concerned about, I would suggest that it is perfectly possible for directors/managements to be doing a great job but, due to matters beyond their control, fail to deliver for shareholders. Boards then have a dilemma - shareholders obviously haven't made money so resent paying management....but the reality is, in many cases, that unless management pay meets the expectations of the employee/director, then they could leave - and if that happens then the outcome for shareholders may be even worse!

The trick is trying to align compensation with controllable metrics - and, in an industry like oil and gas where so much depends on partners, contractors and other third parties, this is genuinely extremely difficult to accomplish on a continuous basis.

The question asked was whether meetings enhanced or confused ones perception of a company. All I'm claiming is that my personal experience has been rather negative. I've felt encouraged when I shouldn't have been and missed opportunities where I've misread what has been presented

I think there is a bit of a small sample bias problem here......maybe its only the ones who have their meetings in Edinburgh who are useless?...... ;-)

All the best

ee (ducking and leaving rapidly ;-))