Vietnam Assets

In reply to emptyend, post #166

Hi ee,

I had forgotten about tax & royalties, but to some extent that is covered by the deliberately over cautious gross margin assumption of $60 per bbl from a $90 per bbl achieved price.

If say, to allow for taxes, I make the net margin $50 per barrel that would put Soco on a conservative forward PE of 4 or less. Ignoring growth, hasn't this become a value play again, within the parameters of our old friend Stephen Bland? Priced below tangible (-ish, but real & not accounting) net assets, net cash & low PE, several potential outers - only missing item from being a full pyad is yield. I know it's bongo bongo land, which has proven to be irrelevant in respect of Soco, in fact quite the opposite when viewed against what Brown & Osborne have done to North Sea operators!

Regards
Sanjeev

p.s. yes, you have a couple of years' more practice than I do ;) - hope the grandchild is doing well & Happy Christmas

In reply to snaj, post #167

Happy Christmas to you too, Sanjeev.

If say, to allow for taxes, I make the net margin $50 per barrel that would put Soco on a conservative forward PE of 4 or less. Ignoring growth, hasn't this become a value play again, within the parameters of our old friend Stephen Bland? Priced below tangible (-ish, but real & not accounting) net assets, net cash & low PE, several potential outers - only missing item from being a full pyad is yield.

Well I'm not sure that it would tick all Stephen's boxes in the way that banks might have done in the past (;-)), but yes it would seem to be qualifying in very many respects. Even yield is something that prospectively one might reasonably be starting to anticipate, given the clear strength of cashflow. Of course there is also his list of intangibles....such as smell....but, as you point out, despite his misplaced misgivings of a decade ago re ...err....."foreign parts", the political risk has in fact been much higher in our own back yard:

I know it's bongo bongo land, which has proven to be irrelevant in respect of Soco, in fact quite the opposite when viewed against what Brown & Osborne have done to North Sea operators!

Still - I'm not bothered about trying to convince anyone else these days. I'm content to let nature take its course.

ee

In reply to snaj, post #167

Sanjeev

If say, to allow for taxes, I make the net margin $50 per barrel

Just for the record, mid-range royalty is 8%. Crude Sales tax 4%. Income tax 50%. Profit repatriation tax 3% to 5%. At $90 oil with $12 opex, I make poste tax netback approx $33. For each $10 increase/decrease in oilprice, netbacks move by around $4.25, so the current trend at say $110/bbl is probably seeing netbacks of $41.50.

Cheers

In reply to davjo, post #169

Just for the record, mid-range royalty is 8%. Crude Sales tax 4%. Income tax 50%. Profit repatriation tax 3% to 5%. At $90 oil with $12 opex, I make poste tax netback approx $33. For each $10 increase/decrease in oilprice, netbacks move by around $4.25, so the current trend at say $110/bbl is probably seeing netbacks of $41.50.

Just small points:

a) I'm not sure that the repatriation tax necessarily applies as profit may be held in the JV or in SOCO Vietnam - which in turn may benefit from bilateral tax treaties?

b) Brent is c $107 and TGT gets a premium of around $5 or so

c) Gas and the gas/oil production ratio has some impact too

Suffice to say that he netback position is "comfortable", whether we are looking at $40 or $50; the big "variable" in the economics is the rate of production.

ee

In reply to davjo, post #169

davjo & ee

Many thanks - looks like I still underestimated the tax take, thus lowering the bottom end of my guess at possible outcomes.

Still looks like an incredibly attractive reward-for-risk proposition - just need to be patient ;o)

Being very much a novice investor and likely ill equiped to interpret seismic charts etc, I wondered what I am doing wrong when performing a (very) rough calculation of TGD based on the recent Macquarie presentation slides:-

Taking potential OIP based on a cylindrical shape from slides 12 & 13 with a radius of 1km and height of 200m gives rise to some 600million cubic m of oil, equating to 3.6 billion barrels. (1 cubic m = 6bbls)

Soco retaining a 60% share of TGD and say 50% recovery rate would lead to circa 1billion barrels net to Soco.

At $15 per barrel and circa 300million shares this could equate to $50 per share.

Could it be so?

In reply to postmanpat, post #172

You are being a bit over enthusiastic. Your 3bn bbls assumes the volume is entirely filled with oil, which it won't be. Best case would be an assumption of porosity in the region of 30%. A recovery rate of 50% is at the top end of what is possible, 20% would probably be a better starting assumption - it might improve on that, or be lower, but there is no reason to make such an assumption at this stage.

But yes it is true, TGD could prove to be a major resource, worth a great deal per share, even if well short of $50. However, we are at present a very long way from that, and it may well yet prove the case that there is nothing recoverable there at all.

Many thanks for the clarification. As you say TGD still has the potential to be a major asset but as yet unproven.

In reply to peterg, post #173

Best case would be an assumption of porosity in the region of 30%. A recovery rate of 50% is at the top end of what is possible, 20% would probably be a better starting assumption - it might improve on that, or be lower, but there is no reason to make such an assumption at this stage.

But yes it is true, TGD could prove to be a major resource, worth a great deal per share, even if well short of $50. However, we are at present a very long way from that, and it may well yet prove the case that there is nothing recoverable there at all.

Perfectly correct cautions.

Note, however, that the OP was basing calculations on:

a cylindrical shape from slides 12 & 13 with a radius of 1km and height of 200m

.....whereas the structure is likely to be very much larger than that! Indeed the mapping provided at present suggests that the inner fan (with more than 400m of pay) looks to be 60-70 sq kms in area (eyeballing the scales in relation to the block outlines).

Furthermore, one shouldn't overlook the fact that about 10% of that structure would seem to lie underneath the TGT field - and thus that is upside potential which has already been secured.

In view of the drilling record on TGD, one would be very unwise to count chickens etc.....but the numbers that might be involved are non-trivial.

ee

Furthermore, one shouldn't overlook the fact that about 10% of that structure would seem to lie underneath the TGT field - and thus that is upside potential which has already been secured.

And of course there is part of the vietnam dilema,  some would have us sell out now asap on the other hand,  what would they write about dumb management decisions if someone else makes a go of TGD,  especially if some of it was under tgt,  and that area is sold on with nothing in the price to reflect the potential ?

On the other hand what would people pay for the potential of tgd based on the soco experience so far ?  not too much I would venture. 

Who would even dare suggest a cos for TGD now ? after the quoted 90%cos  we had last time it would take a brave person to take a guess. 

I think the management have said that this is the final chance at TGD regardless of results,  though we have had some speculation here that perhaps 2 holes might be drilled.    

Of more immediate importance is how is the plan for upping production on TGT 1 going ?  has this been agreed and what are the timescales,  and secondly what is the progress on TGT2 development drilling ?

(not to mention any upside extension to the field to the east, or other upgrades due to Siesmic/recovery rates/ production data), 

But of course no harm dreaming of the TGD potential. 

K

Came across a historical article from last year, that contains a few interesting snippets re the FPSO:

Inter alia, the project managers said that they were asked to raise the FPSO spec from 45,000bopd to 55,000bopd halfway though the project - which would tie in with the idea that different numbers for plateau were in circulation pre-production.

In reply to emptyend, post #177

Inter alia, the project managers said that they were asked to raise the FPSO spec from 45,000bopd to 55,000bopd halfway though the project

There seems to be a misunderstanding of production numbers for TGT this year.  Phase 1 one is expected to reach 55,000bopd in the near future and Soco have stated phase 2 should have 40,000bopd productive capacity but given phase 2 is only tied back to phase 1 at the moment they aren't going to be able to put 95,000bopd through the FPSO, it might be capable of exceeding its offical stated capacity but it won't be 95,000bopd. To acheive 95,000bopd they are going to need a "bigger boat" or a new pipeline to other facilities, neither are likely to happen this year.

Regards

Unwise

In reply to unwise2, post #178

at the moment they aren't going to be able to put 95,000bopd through the FPSO, it might be capable of exceeding its offical stated capacity but it won't be 95,000bopd.

Well - that is partly right ....in that they cannot put through 95,000 bopd "at the moment".

However, there is water handling capacity of 75,000 bopd on the FPSO and a big chunk of that can be converted (and then converted back when the water cut rises later in the field life). Chances are that this will be enough to accommodate the additional 40,000bopd - but until every section of every well/reservoir is tested (and the FPSO capacity tests can finally be done) they won't decide exactly how to handle the production; one option would be to tie in to Bach Ho and another option would be to hire another FPSO on a shorter-term basis than the Bumi TGT-1.

But you are likely correct that it won't be a "flick of the switch" to raise production to 95k and the ramp-up will again involve quite a bit of testing. And it might also be that expectations for TGD would have a bearing (as a commercial find there would mandate either a connection to Bach Ho or another FPSO).

Lots of moving parts in the short term - but should get much clearer in the next couple of months IMO.

ee

ps...there is also the possibility of other considerations at work (eg why would you invest in a new FPSO if you thought you may sell out to someone who already has one going spare?)

In reply to unwise2, post #178

Good point unwise.

How does the FSPO work? I had assumed it was no more than a 300,000 barrel tanker with some facility to liquefy the gas and store it for sale. Is that wrong?

If it is right, then why is it not a simple matter of using a larger diameter pipe to fill it? 

MD

In reply to MadDutch, post #180

MadDutch

I'm no expert but I suspect it would involve a lot more work than a bigger pipe. Hopefully someone with more technical knowledge can answer your question.

Unwise

Did the alarm clock go of this morning? Seems like someone woke up.....

Finally. Atleast it is going in the right direction................

It's so much easier to make money in a bull market, so if you want to make money find a bull market and hold.

Time for Soco to sell Soco...I smell euphoria....If Shell is bidding for Cove then the Sector is IN PLAY!

In reply to Isaac, post #182

Oh god, he's been on the sherry!

Lol compounder.

Isaac, why is the sector in play because shell has bid for cove? Dragon is in for Bowleven, someone had approached Ithaca, many assets have been bought recently and many other bids as well.

Obviously the sector is most definitely in play, just surprised it's taken you so long to realise. R&D costs are higher than the per BBL values of reserves on the exchanges, so m&a is

Just wondering if you'll apply Isaac's law when soco had gone up 20%?.

Darron

It has'nt taken me so long to realise _ I know as well as anyone else it has been in play....I just think it is significant that Shell is bidding for Cove. The majors are naturally cautious and tend not to bid in the market & have talked about in recent years of growing organically etc

So the fact that Shell is now bidding for Cove and Exxon is rumoured to be after GKP is quite significant IMO As it demonstrates the majors are prepared to drill on Wall St - A place where there is hardly a lack of buyers for good quality assets & as such are likely to pay a premium.

Shell being Shell have the ability to bid for exploration licences and win in most parts of the world if they wanted to.

The market clearly agrees with me of Shell's significance hence the reason for strong rises in various e+p stocks. As you say the sector has been in play for a while but the market has'nt fully reacted.

And no I don't plan to sell Soco for a 20% gain, the core holding will stay until the end game. That has been the strategy for sometime & I have always been very confident that it will work out in the end. If you bet big with reasonable risk and decent upside & it comes to plan one can make a sizeable sum - Only dillema of a bid now is there is not that much value in the markets.....

And no I don't plan to sell Soco for a 20% gain, the core holding will stay until the end game

With one sentence you have plunged the Stocko community into despair.

Nice going..

Buffy