Vietnam Assets

In reply to kenobi, post #286

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

Easy. You were starting from the assumption that management was as optimistic as we were - and they were probably more realistic (aka better-informed). It is not inconsistent to expect recovery rates of 45-50% to be proven in time at the same time as believing that 28-35% is reasonable based on currently-available data.

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 ?

Mooted? The recovery factor is a general broad assumption underpinning the data. The connectivity issue may affect STOIIP - but only if the right combinations of wells have actually been tested to provide the data....and I'd guess not enough have!

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.

This is a good question. My understanding is that there have been partner delays to actually executing tests that have been agreed to - and I believe there is no problem at all in actually producing - just finding somewhere to put it safely. The reason for foot-dragging isn't clear - but there's not much new there.....partners rarely move at the same speed wherever they operate.

>>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.

IIRC they have previously made the point that taking wells on and off and fiddling around trying to optimise this or that are all things that reduce production. They shouldn't have to keep stating the bleedin' obvious (I paraphrase ;-)). I imagine that the commentary with the prelims may illuminate these areas a bit.

>>Easy. You were starting from the assumption that management was as optimistic as we were - and they were probably more realistic (aka better-informed). It is not inconsistent to expect recovery rates of 45-50% to be proven in time at the same time as believing that 28-35% is reasonable based on currently-available data.

well all my optimism was based on what I heard about at the agm, that being that they would have a cpr, that the reserves hadn't been looked at in a long time, they were likely to be revised up in September, that they had found pressure changes matching at different zones suggesting they might have connectivity and much larger reserves and that recovery factors of 45-50% were considered likely at tgt. Maybe with hindsight it's all proved much harder to prove, but that just re enforces the point I was making that we haven't got any reserves upgrade even 5 months after the management suggested we would have one, and that it would be significant. So I would suggest it is primarily them that were too optimistic, and understandably, we people here, were fired up about the prospects, based on their guidance. Now whether or not ultimately they are proved right, which we all hope they will be, it remains that in terms of what they can prove, at this moment (after 5 months additional work), is not as high as we were lead to believe it might have been.
This follows on from kmck's points, that the management presentations, whether they believe it 100% or just paint the best possible outcome, need to be taken with a pinch of salt.

I recall discussions here specifically with Davjo, where he said well of course a reserves review can move the figures lower as well as higher, and I couldn't help but think of him today and what he might have written if he were still with us, (and also the debate as to whether p2' s could be increased without the infrastructure in place to exploit them, is this perhaps why we were not quoted breakdown of reserves in p2 etc ?)

will be interested to hear what further detail is published next month,

cheers K

In reply to emptyend, post #287

Hi again, ee

..maybe it's only the ones who have their meetings in Edinburgh who are useless?...... ;-)

!!!!!!!! LOL !!!!!!!! - made my evening :-)

I've already had a personal e-mail complaint from someone in Edinburgh who thinks I'm referring to her! It just proves that you can't trust modern communications at all!

I agree that there are lots of hard working and well-meaning company directors around and that events alter things all the time. But I don't think we should dismiss the core theme of the best ways to gather good data about companies. If we add together AGMs, published accounts, RNSs, presentations and any stray meetings, we can still get an RBS, LLOY or worst case a Marconi. The institutions and public were still buying right up to the fat lady singing.

I tend to side with Pyad - to quote (non verbatim) - "nobody knows that much about what's going on. Look at the numbers, take a butcher's at the Director Speak, test the EPS growth, grab some yield whilst you wait, and stick in the main to large caps" On balance you may come out on top.

I admire carmensfella and his LoQs and all the rest, and I've had a load of successes with explo, even in bongobongoland. But I've never had that much joy from director presentations.

The nearest thing was Tom Cross who was such a growly and dismissive sort of character you just had to trust him. And that worked pretty damn well :-)

KMcK

(just about recovered from Xmas, New Year, skiing with marben...now it's Lent and I'm off the booze. I'll report back if there's any positive effect on the portfolio :-)

Reserves figures are on pg 98 of the 2011 AR

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

I have a note that the end-2009 figures were 39mmboe CNV and 85.2mmbo TGT, for 124.2 mmboe in total (P1+2). I'm assuming this comes from a company RNS or presentation, but I don't know which one. The corresponding P1 figures are 24.0 and 46.7mmboe.

Allowing for production I'd therefore assume the current figures for CNV would be around 35-36mmboe.

If you ignore the prospective resources and take the mid-point of OOIP and recovery factors given by the consultants you end up with TGT figures a little under the 85m i've given above (and a fair amount of that has now been produced as well, of course). On this basis (low 30%s recovery), SOCO looks a little undervalued to me. If management are right and recoveries are 50% then there is sizeable upside, if SOCO can get whatever agreements are required with its partners to increase production considerably above 55k bopd - bearing in mind the point that davjo used to keep making, that reserves are only useful if you can produce them within the remaining licence period.

In reply to kenobi, post #289

Maybe with hindsight it's all proved much harder to prove, but that just re enforces the point I was making that we haven't got any reserves upgrade even 5 months after the management suggested we would have one, and that it would be significant. So I would suggest it is primarily them that were too optimistic, and understandably, we people here, were fired up about the prospects, based on their guidance. Now whether or not ultimately they are proved right, which we all hope they will be, it remains that in terms of what they can prove, at this moment (after 5 months additional work), is not as high as we were lead to believe it might have been.

Maybe that is true. It is impossible to say. All I'm saying is that perspectives on things change with time and events - and we certainly don't have the whole picture from management's perspective. For example (and I'm just flying a kite here, not seeking an argument or pointles debate) perhaps it suits them to keep the reserves picture under wraps for longer than expected because they need a bit longer than originally thought to 1) revise the production plan for the FPSO 2) drill H5 3) develop (and get reserves credit for) the connectivity understanding and 4) do a deal? We will probably never know.

I also thought of dj yesterday. I'm sure he'd be having a wry chuckle :-)

ee

In reply to loftyd, post #291

I have a note that the end-2009 figures were 39mmboe CNV and 85.2mmbo TGT, for 124.2 mmboe in total (P1+2). I'm assuming this comes from a company RNS or presentation, but I don't know which one. The corresponding P1 figures are 24.0 and 46.7mmboe.

Well dug out. That sounds about right in relation to my own understanding (though I haven't dug any numbers out myself). Proven will be a higher % now of TGT.

The other "pending item" in relation to CNV that may have a reserves impact (but certainly has a value impact) is the gas sales deal.

I would think there is some risk that CNV reserves could be reduced (pending a success with the planned well) but you are also right about the TGT upside - and that will continue to become clearer with more production data (and developments on the FPSO capacity etc).

In reply to KingMcKong, post #290

The nearest thing was Tom Cross who was such a growly and dismissive sort of character you just had to trust him. And that worked pretty damn well :-)

Of course he also paid himself pretty well relative to the peer group - as you may recall me pointing out to him at the last AGM ;-) .  Perhaps most of the time investors actually get what they pay for with managements (bar a minority of cases of mislabelling, where you only realise you've bought a donkey after an extended period of testing? The horsemeat scandal also has investment parallels.). The end result with TC was certainly a good one - though the timing of the hostile bid was pure serendipity in the light of events.

I don't think we should dismiss the core theme of the best ways to gather good data about companies. If we add together AGMs, published accounts, RNSs, presentations and any stray meetings, we can still get an RBS, LLOY or worst case a Marconi. The institutions and public were still buying right up to the fat lady singing.

I'm very much of the view is that as many sources as possible should be used. The problem with most of them is that they only deal with history - and the investment task is to consider the future. Some have argued that you should simply ignore management - but I frankly think that is nuts, because management are the only ones who have the up to the minute picture....and, one hopes, they also have a much better idea of the future!!!!  The tricky bit is deciding what weight to place on the various sources.....and I just think that placing zero weight on management is wrong in at least 90% of cases.

Glad you enjoyed the joke :-)

Lets leave it there as we are OT here?

cheers

ee

For example (and I'm just flying a kite here, not seeking an argument or pointles debate) perhaps it suits them to keep the reserves picture under wraps for longer than expected because they need a bit longer than originally thought to 1) revise the production plan for the FPSO 2) drill H5 3) develop (and get reserves credit for) the connectivity understanding and 4) do a deal? We will probably never know.

pointless debate indeed,  maybe having comissioned a report at the time of their choosing,  and delivered part of a report 5 months later,  they find that they need more time ?  to drill h5 ?  wasn't this in the plan all along ?

to do a deal ?  surely the report is most likely a pre requisite ?  

revise the fpso plan ?  yes maybe,

you have to judge management on what they achieve,  you can make excuses for them if you like.  Theres no doubt that delivering tgt ahead of time and on budget and the fpso,  was a outstanding achievement.  since then getting production up to the levels they committed to,  hasn't.   I recall seeing a graph at the agm before last showing start up phase 2 production at 110k, and cashflow projections based on this.  Well here we are,  a lot of months after start up phase 2 and the reality,  for whatever reason is half of that.

I can see exactly how Merril have come up with the quote you posted earilier,  either the chap didn't attend the agm,  so had a different expectation,  or he's wise enough not to take any notice of talk from directors about things they're not willing to go on the record in the results.  Also it sort of fitted their previous view and no doubt straight forward to go along with,  we told you so.  Whether they're right or not we'll see.  I'm not convinced by arguements that this is what the directors wanted,  more likely they've fought tooth and nail to convince the cp's of their point of view,  extending the data collection for months,  and against their own expectations have been unable to convince them.  But lets all make our own decisions about that.  I will be attending this years agm,  but will make sure I'm listening through my rose tinted glasses filter. 

I suspect that there's some politics in the back ground here.  The objectives of soco are unlikely to be the same as the other partners.  So if SOCO want to modify production to get a cpr,  and the other partners just want to produce oil in the most convenient way,  with least interuptions,  this is bound to cause some friction. As ES said at the last AGM,  some of the partners if they have a producing asset are happy to just produce,  and less concerned about optimising production or what the quoted reserve figures are.  Yes,  because they're not planning to sell. 

Anyway,  after the excitement of the last few weeks/months it's back to normal,  a deal might be done at any time,  but being conservative,  the next excitement is the results next month,  and the q2 drilling campaign,  after which we'll be in a better position to plan for higher production since we'll have a clearer idea of what the higher production levels might be,  (depending on the infill/ H5 result),   Then we might start to think that we need 6 months data from H5,  and a cpr completed at the end of the year ??   which might run through to easter if this one was anything to go by.  and assuming the partners co operate,  the world economy grows,  and the oil price is solid,  then perhaps a deal sometime next year ?  

cheers K

In reply to emptyend, post #284

Regarding Merrill's comment below:
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.

Although the RNS says:
The field is early in field life and without a directly comparable field analogue.
http://www.investegate.co.uk/soco-international-%28sia%29/rns/operations-update/201302130700107400X/

So, how do these two comments fit together since the TGT field has no direct comparable field analogue!

Not sure there is much point in this endless debate the numbers for TGT in the release yesterday are clearly a lot lower than expected by many. The range is also so wide that they are not particularly useful. Dismissing the lower end of the numbers is foolish as is just ignoring the RPS numbers and going with what management think they should be? The M&A chances have also decreased and the chance of production rising over 55K is also very small in the medium/short term.

It's not the worst update in the world but I struggle to find many positives. The idea that management think the RNS was misunderstood is pretty laughable. Maybe they should have been a bit clearer in what they mean then they certainly had months and months to write it.

Good luck to holders though and I'd certainly feel like getting back in if the price drops a bit to mitigate some of the risk that I believed was finally being resolved.

Log

In reply to uncommon13, post #296

Yes - at first sight that looks odd.

But I suspect there are different ideas about the relevance of analogues and that the company are looking at a wider definition than the consultant (hence no directly comparable)

Hi Log,

The M&A chances have also decreased and the chance of production rising over 55K is also very small in the medium/short term.

well I agree re M&A,  not sure how you are so sure re the production numbers.  You may well turn out to right, but I wouldn't dismiss the possibility of production going to above 60k for example.

It's not the worst update in the world but I struggle to find many positives. The idea that management think the RNS was misunderstood is pretty laughable. Maybe they should have been a bit clearer in what they mean then they certainly had months and months to write it.

I agree,  I think it only looks really bad if you had expectations that it would be much better.  The management clearly did based on what was said at the agm,   if this was the expected outcome,  they would have done well to not have mentioned it at all.

K

The problem here is that the variables such as the recovery factor and reserves make such a large difference to the valuation as many well know. Perhaps management were just being exceptionally prudent in this RNS by giving the complete range knowing full well that in reality the upper end of the range is nailed on.

They have a vested interest in a fall in the SP in the short term by way of share buybacks and not having the assets bought before the full extent of future cashflows are complete.

Just a theory. probably wrong.

But going back to these numbers shows the extent of variance :

http://boards.fool.co.uk/tgt-numbers-12747497.aspx?sort=whole#12748117

In reply to kenobi, post #295

Sensible thoughts kenobi in post 295 (or at least thoughts I share so perhaps I would think them sensible!).

I'm resigned to another year of waiting with not much happening. I simply can't see a takeover or sale of assets while there are still material uncertainties, but very happy to be proved wrong on that point!

Maybe there will be a small dividend declared with the 2012 results but for anyone holding for a takeover that is almost irrelevant.

I sold 20% of my Soco shares yesterday to use the funds elsewhere but intend holding the remainder with the hope of a 25+% return in a year's time (or will that be two year's time......?).

Just an aside regarding the debate about trusting directors (of any company, not specifically Soco).
There are two types of trust - do you trust the directors not to tell lies and hopefully few fail that test, and do you trust the directors not to be over-optimistic whether in conversation or at AGMs. I'd suggest it's the nature of being closely involved with a company (particularly a small-ish company) that directors can't help but err to optimism. Looking at it another way, if they weren't optimistic for the company's prospects why would they stay with the company rather than move on elsewhere? The biggest flaw always seem to me to be timescales - everything in life and business takes longer than it should, even after including what seems a reasonable contingency, and almost all companies seem to get caught out by this.

redhill

In reply to redhill, post #301

The biggest flaw always seem to me to be timescales - everything in life and business takes longer than it should, even after including what seems a reasonable contingency, and almost all companies seem to get caught out by this.

That is certainly true - but note well my previous points about third parties and control. If you aren't in control and you rely on third parties (as is the case for virtually all companies in this sector to some extent) then there is a risk of slippage from forecasts. There is no escape from that problem.

. I'd suggest it's the nature of being closely involved with a company (particularly a small-ish company) that directors can't help but err to optimism. Looking at it another way, if they weren't optimistic for the company's prospects why would they stay with the company rather than move on elsewhere?

Gosh what a sensible chap you are,  not only the above,  but if they didn't appear positive erring on the side of optimism,  wouldn't people wonder what they were doing in those positions ?   and perhaps invest elsewhere. The reality is they're always positive,  soco always has a story to tell at the agm,  sometimes they're right, cnv, tgt,  sometimes they're wrong,  tgd, africa so far, and this year the way things have panned out since the agm.

we as investors have to take our own views on this  and if we choose to go with their optimistic views or go even more optimistic,  then we have to accept that sometimes reality will let us down.  eg, tgt current production and reserves levels. 

K

In reply to kenobi, post #303

The reality is they're always positive,  soco always has a story to tell at the agm,  sometimes they're right, cnv, tgt,  sometimes they're wrong,  tgd, africa so far, and this year the way things have panned out since the agm.

we as investors have to take our own views on this  and if we choose to go with their optimistic views or go even more optimistic,  then we have to accept that sometimes reality will let us down.  eg, tgt current production and reserves levels.

Pretty sensible advice.

I'd just add that in this sector much of the risk-taking and optimism is based on geology - and if oil isn't there, it just isn't there! So....in other words.....it may very well have been the right risk-adjusted thing to do to drill two wells on TGD despite the fact that the outcome disappointed! Faced with the same set of opportunities and information, I'd hope that they would do the same again.

What we should be looking for is sensible management, taking sensible risks. We don't want to back explo companies where management takes no risk at all....

What we should be looking for is sensible management, taking sensible risks. We don't explo companies where management takes no risk at all....

Absolutely agree,  and I'm not saying that the decision to drill tgd a couple of times was wrong,  given what they thought they had at the time it was sensible.  yet the second drill giving it a cos of 90%  was that sensible ?  I recall the agm,  ES saying yes we're giving it a 90%cos ,  and after a pause saying,  although nothing is 90% in this business. 

In this instance,  it seems that perhaps the more prudent info was the throw away comment at the agm rather than the considered published statement.  Maybe it was 90% and we were just the unlucky 1 in 10,  but I can't help but feel there was a bit too much optimism in that figure, 

back to waiting !

K

In reply to kenobi, post #305

yet the second drill giving it a cos of 90%  was that sensible ?  I recall the agm,  ES saying yes we're giving it a 90%cos ,  and after a pause saying,  although nothing is 90% in this business. 

In this instance,  it seems that perhaps the more prudent info was the throw away comment at the agm rather than the considered published statement.  Maybe it was 90% and we were just the unlucky 1 in 10,  but I can't help but feel there was a bit too much optimism in that figure,

Well I don't think you'd get anyone to disagree on that one. Of course we might have been extremely unlucky - but it just reinforces the point that step-out wells in reservoirs that have had only one hole (screwed up by the mud men) drilled in them are never really 90%....whatever the technical maths of the geologists might suggest!

Regarding Merrill's comment below:
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.

Although the RNS says:
The field is early in field life and without a directly comparable field analogue.
http://www.investegate.co.uk/soco-international-%28sia%29/rns/operations-update/201302130700107400X/

So, how do these two comments fit together since the TGT field has no direct comparable field analogue!

Possibly not the clearest bit of text in the RNS, particularly when viewed like that. However, my understanding is that the first bit of the quote is based on actual recoveries achieved on intervals of TGT and by Peremco on the same sands in the adjacent licence, where apparently they exceeded 50%.

That doesn't prove that recovery rates will be that high throughout, but it does provide pretty hard evidence of what may be achievable.