Remove ads

Introducing the LemonFools Personal Finance Calculators

Soco Plumbs the Depths

GoSeigen
Lemon Slice
Posts: 894
Joined: November 8th, 2016, 11:14 pm
Has thanked: 178 times
Been thanked: 195 times

Soco Plumbs the Depths

#102354

Postby GoSeigen » December 7th, 2017, 9:20 am

Well, I know that's what it's meant to be doing, but I am referring more to the share price which briefly dropped below 100p today. The darling of The Motley Fool, Soco International spawned a generation of now-silent fanboys and rampers and even its own jargon ("imminent") ;-) but has suffered a massive loss of credibility since its heyday -- along with some other old-fashioned concepts like peak oil and democracy!

I have a small holding scrabbled together on the way down. TBH it still doesn't look good enough value to build a larger stake, but AFAICS the company really is not much changed from the old days -- some familiar faces on the board and the assets in Vietnam, Congo etc still retained and being developed.

What do others think, is Soco still worthy of second oily in a portfolio to BP/Shell? And at what price -- is waiting for a target around 50p unreasonable?


GS

dspp
Lemon Quarter
Posts: 2247
Joined: November 4th, 2016, 10:53 am
Has thanked: 1204 times
Been thanked: 368 times

Re: Soco Plumbs the Depths

#102385

Postby dspp » December 7th, 2017, 10:30 am

GS,
No opinion. I stood aside from SOCO, Cairn, etc those years ago. I am concentrating on HUR as I expect you know. Is there any particular reason to pay attention to it right now in and of itself ? Is it finding anything new in respect of FB that I should be paying attention to from a HUR perspective ? Where is EE these days ?
regards,
dspp

StepOne
Lemon Slice
Posts: 374
Joined: November 4th, 2016, 9:17 am
Has thanked: 45 times
Been thanked: 54 times

Re: Soco Plumbs the Depths

#102400

Postby StepOne » December 7th, 2017, 11:13 am


PeterGray
Lemon Slice
Posts: 383
Joined: November 4th, 2016, 11:18 am
Has thanked: 80 times
Been thanked: 94 times

Re: Soco Plumbs the Depths

#102479

Postby PeterGray » December 7th, 2017, 2:54 pm

I still hold a lot, though slightly less than half I did at my peak - which was long enough ago to be a price below what it is now.

Sentiment has turned against, partly obviously the change in PoO, and the reticence of the partners to spend which led to a lot of reserves being moved from 2P to 2C - as there were no current plans to drill the wells to extract them.

Since then the PoO has risen and a capex program been agreed, and partly executed, which should see production increasing, and could in time lead to some of the 2Cs becoming 2P again. Alongside that the SP has continued downwards!

I continue to see Soco as undervalued at these prices, based on the existing VN production alone. In addition they have just finalised the remaining 3 25 year production licences in block XI offshore Congo (where they hold 40% and are operator), for which I think no one is assigning any value. They are not vast amounts of oil, but are exploitable, ENI is developing in the adjacent block. It's likely the whole interest will sold off which if it happens will crystalise a chunk of value no one is paying much attention to.

Clearly it can go further down, and until there is some firm news that is a real possibility, but I don't see the current price as a realistic valuation.

Peter

emptyend
Posts: 14
Joined: November 4th, 2016, 11:00 pm
Has thanked: 1 time
Been thanked: 12 times

Re: Soco Plumbs the Depths

#103104

Postby emptyend » December 10th, 2017, 10:11 am

PeterGray wrote:Sentiment has turned against, partly obviously the change in PoO, and the reticence of the partners to spend which led to a lot of reserves being moved from 2P to 2C - as there were no current plans to drill the wells to extract them.

Since then the PoO has risen and a capex program been agreed, and partly executed, which should see production increasing, and could in time lead to some of the 2Cs becoming 2P again. Alongside that the SP has continued downwards!

I continue to see Soco as undervalued at these prices, based on the existing VN production alone. In addition they have just finalised the remaining 3 25 year production licences in block XI offshore Congo (where they hold 40% and are operator), for which I think no one is assigning any value. They are not vast amounts of oil, but are exploitable, ENI is developing in the adjacent block. It's likely the whole interest will sold off which if it happens will crystalise a chunk of value no one is paying much attention to.

Clearly it can go further down, and until there is some firm news that is a real possibility, but I don't see the current price as a realistic valuation.

Peter


I agree with Peter. Unlike him, I have about 70% of my max holding (which was when the shares were about 60p in today's money)......but of course since then the company has distributed close to 90p per share, so GoSeigen's premise isn't wholly accurate. ie....ex distributions the absolute (and very brief) peak of the share price was at around £5 in todays terms.

But it is right to observe that the company has changed little over that period at least in terms of oil in place - save for the ticking clock of production. What has changed is the following:
1) oil price now c.$60 compared to over $100
2) As a consequence of that (and the haitus in agreeing the full field development plan for TGT) reserves were reclassified nearly three years ago, downgrading a chunk to "resources". They haven't disappeared - and we now have an agreed plan for TGT.....and, before Christmas, we will have an agreed budget for 2018. As Peter says, that may facilitate a reclassification of reserves (though it might also facilitate a deal of some sort before that happens).
3) African exploration has been largely discontinued. The market rarely gave much credit at all for anything in Africa, but it is noteworthy that there are now a clutch of development licences held on Marine XI in Congo B (following the successful Lidongo well) and those are available to be monetised in an asset swap.
4) $50mn was finally received from the 2005 deal to exit Mongolia.

As for the implied lack of change on the board, that plainly isn't right. By SOCO standards, 2017 has been a year of radical change at board level. New team, new deputy Chair, retirement of one of the two founders (and perhaps the other quite soon?) etc. I suspect that more concrete evidence of change will emerge shortly.

The strategy has been reset as one aimed at cash-generative growth. The dividend will continue to be paid (amply covered out of cashflow).... probably at a rate of 4-5p per share pa (though not necessarily in a conventional dividend pattern of payments). There will be deals to bring in new assets (most likely in Asia) and to dispose of non-core assets (viz Africa).

It should be noted that over 20p per share is represented by cash - so I'm afraid that trolling the idea of a 50p target is plainly nonsense. I'm expecting the shares to rerate by at least 20% within the month, as the company will be providing an update once the 2018 budget meeting for TGT has occurred. The market has simply been wrong to take the share price down from the 120-130p area, and I expect that will become clear in the next 10-14 days.

dspp
Lemon Quarter
Posts: 2247
Joined: November 4th, 2016, 10:53 am
Has thanked: 1204 times
Been thanked: 368 times

Re: Soco Plumbs the Depths

#103109

Postby dspp » December 10th, 2017, 10:15 am

Thank you EE for a thoughtful view. Have you an opinion on fractured basement that anybody in HUR should listen to ? regards, dspp

emptyend
Posts: 14
Joined: November 4th, 2016, 11:00 pm
Has thanked: 1 time
Been thanked: 12 times

Re: Soco Plumbs the Depths

#103234

Postby emptyend » December 10th, 2017, 4:53 pm

dspp,

Re fractured basement, I'd just note that the 9-2 experience suggests that fractured basement is trickier than many would hope. If you don't manage to hit a heavily-fractured zone then production rates can disappoint. I've commented a couple of times on the HUR thread on ADVFN (not very recently), but people apparently not bothered - and I've no position.

rgds

dspp
Lemon Quarter
Posts: 2247
Joined: November 4th, 2016, 10:53 am
Has thanked: 1204 times
Been thanked: 368 times

Re: Soco Plumbs the Depths

#103308

Postby dspp » December 11th, 2017, 9:43 am

Thank you EE. That is most helpful. regards, dspp

GoSeigen
Lemon Slice
Posts: 894
Joined: November 8th, 2016, 11:14 pm
Has thanked: 178 times
Been thanked: 195 times

Re: Soco Plumbs the Depths

#104341

Postby GoSeigen » December 15th, 2017, 12:05 pm

emptyend wrote:
PeterGray wrote:Sentiment has turned against, partly obviously the change in PoO, and the reticence of the partners to spend which led to a lot of reserves being moved from 2P to 2C - as there were no current plans to drill the wells to extract them.

Since then the PoO has risen and a capex program been agreed, and partly executed, which should see production increasing, and could in time lead to some of the 2Cs becoming 2P again. Alongside that the SP has continued downwards!

I continue to see Soco as undervalued at these prices, based on the existing VN production alone. In addition they have just finalised the remaining 3 25 year production licences in block XI offshore Congo (where they hold 40% and are operator), for which I think no one is assigning any value. They are not vast amounts of oil, but are exploitable, ENI is developing in the adjacent block. It's likely the whole interest will sold off which if it happens will crystalise a chunk of value no one is paying much attention to.

Clearly it can go further down, and until there is some firm news that is a real possibility, but I don't see the current price as a realistic valuation.

Peter


I agree with Peter. Unlike him, I have about 70% of my max holding (which was when the shares were about 60p in today's money)......but of course since then the company has distributed close to 90p per share, so GoSeigen's premise isn't wholly accurate. ie....ex distributions the absolute (and very brief) peak of the share price was at around £5 in todays terms.

But it is right to observe that the company has changed little over that period at least in terms of oil in place - save for the ticking clock of production. What has changed is the following:
1) oil price now c.$60 compared to over $100
2) As a consequence of that (and the haitus in agreeing the full field development plan for TGT) reserves were reclassified nearly three years ago, downgrading a chunk to "resources". They haven't disappeared - and we now have an agreed plan for TGT.....and, before Christmas, we will have an agreed budget for 2018. As Peter says, that may facilitate a reclassification of reserves (though it might also facilitate a deal of some sort before that happens).
3) African exploration has been largely discontinued. The market rarely gave much credit at all for anything in Africa, but it is noteworthy that there are now a clutch of development licences held on Marine XI in Congo B (following the successful Lidongo well) and those are available to be monetised in an asset swap.
4) $50mn was finally received from the 2005 deal to exit Mongolia.

As for the implied lack of change on the board, that plainly isn't right. By SOCO standards, 2017 has been a year of radical change at board level. New team, new deputy Chair, retirement of one of the two founders (and perhaps the other quite soon?) etc. I suspect that more concrete evidence of change will emerge shortly.

The strategy has been reset as one aimed at cash-generative growth. The dividend will continue to be paid (amply covered out of cashflow).... probably at a rate of 4-5p per share pa (though not necessarily in a conventional dividend pattern of payments). There will be deals to bring in new assets (most likely in Asia) and to dispose of non-core assets (viz Africa).

It should be noted that over 20p per share is represented by cash - so I'm afraid that trolling the idea of a 50p target is plainly nonsense. I'm expecting the shares to rerate by at least 20% within the month, as the company will be providing an update once the 2018 budget meeting for TGT has occurred. The market has simply been wrong to take the share price down from the 120-130p area, and I expect that will become clear in the next 10-14 days.


EE, Thanks for your thoughts, nice to see you drop in on this now quiet backwater! Sadly the banking board posters decamped elsewhere so discussion is not what it once was.

I think one challenge for Soco share price for now is the big drop off in revenues. I would become more bullish when they bottom out, might have to wait for clear evidence of firming crude prices for this to happen?? Maybe sooner than that if production ramps up again. I have no idea what plans are in this respect but happy to wait and see.

Cash is a double-edged sword -- puts a base under the share price plus a bit of M&A optionality but in the meantime gives very little return. If I wanted cash I could hold it myself. So not sure how much value should be put on it. I hold a small mining share and they are ploughing cash into developing the mine which underpins years of future production. Hopefully we'll see similar with Soco.

Added a few at just over £1, will add more on the dips.

GS
P.S. Any thoughts on macro, banking or other topics? Would be great to have a vintage EE post on the Banking or Bonds board! No TMF mods here :-)

emptyend
Posts: 14
Joined: November 4th, 2016, 11:00 pm
Has thanked: 1 time
Been thanked: 12 times

Re: Soco Plumbs the Depths

#104425

Postby emptyend » December 15th, 2017, 5:27 pm

Hi GS.....its been a while ;-) Possibly pre-2008 financial crisis?

Re SIA one should note the very high volume today and especially the big closing auction. Sellers being cleared out ahead of next week, I suspect......
Production plans will be key to sentiment - as you indicate - but I am expecting them to be able to give good indications on the ooutlook next week as it is possible that the OpCom meeting has already taken place to set investment budgets for next year. Importantly, these may well kick through into reserves, with 2C getting reclassified to 2P. In an ideal world they would also negotiate a licence extension - but I'm not counting on that just yet.

Cash is just a matter of balance sheet security. I'm expecting a good chunk of that to be spent or committed, despite maintaining the dividend. I also think they will do debt-funded deals to improve balance sheet efficiency. Going forward I am certain they will be looking at cash-generative development projects and seeking to grow production quite agggressively.

Suspect your additions at £1 or so will pay off well and quickly. I'd like to think the shares could double over the next 6 months, with the right package of deals. And before people dismiss that as wishful thinking, remember that prior to the reserves reclassification in 2015 the shares were still at 250p even after the oil price had fallen - so a material reversal of that reclassification should also lead to a material reversal in the share price. I suspect that institutional interest on the back of some deal (or production/reserves) news will propel the price much higher very quickly. It would be very difficult to build a big stake I think once things start moving - so the smart money has IMO been getting in over recent weeks. (My money, of course, is plainly not smart.....)

cheers
ee

ps......not really much to say at present on banking/macro. Banks mostly over-regulated, which is killing them. Macrowise I think it is politics that will dominate investment strategy. Fixed interest looks expensive too at this point. I quite like India and Indian Ocean focus, together with UK exporters, FWIW.


Return to “Oil & Gas & Energy (Sector & Companies)”

Who is online

Users browsing this forum: No registered users and 3 guests