Soco Share Discussion Threads

[emptyend] 10/1/2018 11:38

Good comments from both Gooseman and kenobi. Certainly there are disappointments, especially over the production guidance ......about which I am awaiting some sort of explanation, as - given the points well noted by Gooseman - investors in general would have had very reasonable expectations of some sort of significant uplift in forecasts, even against a declining reservoir performance. Fluid handling has been doubled (presumably, if it went to plan)......so surely SOMETHING should feed through? Perhaps the explanation is as kenobi surmises, that it is more about providing capacity for the future and that it isn't simply a matter of putting more of the existing wells on production (after having to shut them in due to high water cuts earlier). Curious.Whatever the outlook for organic growth in Vietnam (which is murkier for 2018 than I had expected to see at this point) it is clear there is a firm deal-doing agenda. There is no shortage of consolidation deals to be done - some of which have quite attractive economics. But the common factor in many is that they need capex....and that in turn demands cashflow which fortunately SOCO (and KE, if that happens) seem well-placed to generate.More later, I hope.

[nigelpm] 10/1/2018 11:30

sure, but it's been below a pound in the last month or so, if they announce that negotiations with Kuwait have broken off without something else coming up, then it's pretty likely to drop, how afar, well that's all guess work.

Possibly but I'm not sure you can consider recent share price levels around £1 reasonable particularly with Brent closing on $70.

[kenobi] 10/1/2018 11:28

>>a level of comfort in downside protection it would be folly to sell now.

sure, but it's been below a pound in the last month or so, if they announce that negotiations with Kuwait have broken off without something else coming up, then it's pretty likely to drop, how afar, well that's all guess work.

This isn't a great update, it seems the "transformative" water handling, isn't going to transform anything, (which I think we all suspected anyway, it's the first thing EE and I discussed after the agm), hopefully more wells will be drilled and we'll be able to make use of it. It would have been good to have heard the current production levels, perhaps the expected ones for next year are adjusted downwards to allow for extra downtime to fix the fpso ???
Thats just one of those things I suspect that's going to pop up from time to time.

K

[nigelpm] 10/1/2018 11:22

I'm sure they're working all the angles as best they can, all we can do is sit and wait and see how it develops.

A fair summary and with the cash and balance sheet position (although I take ee's point about it not being overly relevant) providing a level of comfort in downside protection it would be folly to sell now.

[gooseman1979] 10/1/2018 11:07

Very underwhelming update.

AGM update: "The processing equipment will handle an additional 90,000 barrels of liquid per day (“BLPD”) with specific water handling capacity of up to 65,000 barrels of water per day. This increases the handling capacity of the total system to approximately 180,000 BLPD, allowing for higher levels of oil production at the same or a higher water cut rate than previously possible."

Interim Presentation: "2017 Operational Outlook - Reverse production decline at TGT field"

March 2017 Prelims:" SOCO’s production guidance range for 2017 is affected by the additional shut-ins on TGT planned to accommodate rig moves, as well as the extended shut down for the installation, hook up and commissioning of the equipment for additional liquid handling capacity, and the FPSO maintenance shut down. Thus, full year production guidance for 2017 is presently anticipated to average 8,000 to 9,000 BOEPD net to SOCO’s working interest."

The implication to me was that 8,000 to 9,000 BOEPD was a temporary decline that would be remedied by the completion of the new equipment installation. However, this no longer seems to be the case and there is nothing in the update to suggest we will ever see a significant production increase.

Although it may do, there is also no evidence that the agreed FDP will support a recategorisation of reserves back to 2P. The latest update gives me no confidence on this.

Africa a disaster - for all we know the offers are completely derisory.

We are now left pinning our hopes on a merger with no evidence that this will be a significant value outer for SIA holders. Again, it may be, but who knows.

With this in mind, I no longer see that value at current levels and have liquidated my heavily overweight position this morning.

[kenobi] 10/1/2018 11:07

I agree Peter, it's a little disappointing, that water handling hasn't significantly increased the amount of oil coming through. Although to be fair, perhaps it has, but with the time spent installing and getting the kit to work, perhaps it won't be enough to push averages up? It would have been nice to hear what the current production figure is, perhaps it's around those figures quoted? Perhaps we're just behind the curve and after being constrained by water handling, now they've finally got the kit installed, that isn't really a significant constraint at the moment ? Even if that's the case, we know what PV are like, in terms of insisting on not shutting off wells until all the oil is extracted, so it's likely to come into usefulness before too long as other wells age, and their water cut increases.

It's always been a bit mysterious and unclear as to whether there are zones that are drilled and could be opened up, if only we could get agreement. this seems to suggest not, and that we now need to drill more wells to increase capacity. Hopefully the recovering oil price will help oil the wheels at the joint venture, to increase production. Very little said re current operations like well shutoffs that have been an issue in the past, perhaps this is no longer an issue, or perhaps it's just accepted as a fact of life and not note worthy any more. Either way, the narrative is about having to drill more wells to up production. Not much mention of 125/126, but then this is a operations update and I guess not much going on there. As ee says irritating to hear about the FPSO issue, hopefully it can be resolved with minimum down time, perhaps linking to other servicing work.

[nigelpm] 10/1/2018 11:00

Don't think there will be a reserves upgrade.

Based on what? - out of interest.

[invisage] 10/1/2018 10:07

Conservative side of YOUR expectation emptyend. Or one could argue realism in the world of sanity.Call the company. Don't think there will be a reserves upgrade.

[emptyend] 10/1/2018 09:57

I wouldn't over-focus on the balance sheet number, personally. It is never very relevant for a company like SOCO that capitalises drilling expenses and they probably won't have yet considered the detailed carrying cost for TGT. Neither, you'll note, have they yet made any statement about reserves.....not that this is unusual. IMO there is still a reserves upgrade pending, though we won't get to hear any detail this side of a corporate deal being announced/proposed.Interesting to look at the way production guidance is framed......8,000-9,000 bopd but with the possibility of more if the drilling outcome comes in ahead of estimates. That rather suggests they are perhaps erring slightly on the conservative side for some reason?

[greyingsurfer] 10/1/2018 09:55

The start-up of the water handling system on H1-WHP experienced setbacks and delays due to issues resulting from damaged valves and production stabilisation issues. However, the system is now functioning in line with expectations and production guidance has been achieved.

I had hoped for something a bit more encouraging regarding production forecasts with the new water handling now installed given the above. I'm not clear what impact the gas compressor issue will have on this, and the RNS does not make it clear. But the statement that:

Production levels above 9,000 BOEPD are dependent upon the outcome of the 2018 drilling programme on TGT and CNV.

implies that the additional water handling is not providing any assistance with production rates from existing wells, which is not what I was hoping for.

2018 guidance
The 2018 Vietnam work programme includes modification works on the FPSO and drilling of 4 wells on the TGT Field and one well on CNV. Capital expenditure for 2018 is budgeted at $40m. Production guidance for 2018 is set at 8,000 to 9,000 BOEPD. Production levels above 9,000 BOEPD are dependent upon the outcome of the 2018 drilling programme on TGT and CNV.

Given that 4 wells are to be drilled the very cautious tone of the production outlook suggests to me that the company thinks that the likely outcome is that these will do little more than maintain current production, otherwise I might have hoped for something a bit more positive. And that raises the question of what is the additional water handling achieving?

Peter

[nigelpm] 10/1/2018 09:28

Certainly nothing particularly exciting in there and whilst a shame about taking $220m off the balance sheet in PPE it was likely - a reminder that even with that removed we are still going to be in the c.$600m ballpark i.e. well above existing market cap.

[emptyend] 10/1/2018 09:00

Yup - African activity with SOCO has indeed been money down the drain....but of course virtually all expense incurred while oil prices were $100+ ....at which level the economics in Congo at least would look rather different.But had the original Cabinda play worked, or the MPS well....or the WWF mafia taken a more constructive view on Block V ..... things might have been different.On the dividend, that is clearly going to be paid - but the quantum is going to depend on corporate activity. The cash position looks very comfortable and I don't see any reason why it would be less than the 5p paid last year.....but 2-3 months is a long time, corporately speaking, with the new growth strategy.

[richalert] 10/1/2018 08:50

Ok. Dividends will be announced with preliminaries in March.

[richalert] 10/1/2018 08:40

Old Soco is dead. Long live new Socoxxxxxxxx. I suppose this is the result of the downturn in energy, but they don't appear to have had much luck recently. None of the new ventures have really has gone to plan. Not helped by downturn. At least the company is intact and in fairly good financial position. I just rue all the money spent in Africa over the years. Would have been better in my pocket. So where do we go now? Stick and hope for new direction, which, to be fair, will probably happen sooner rather than later, or look for other opportunities. Very much an unknown situation now. What about dividends? No announcement there.

[emptyend] 10/1/2018 08:03

Interesting update, with more to it than meets the eye, IMO. My assessment re the Marine XI and Cabinda impairments is that they have been driven by a quite recent development (or rather the lack of some development). From a technical standpoint, they are impairing because they have better options elsewhere and therefore have no plans to develop the licences under current circumstances. I read this as someone in the value realisation chain not playing ball (perhaps ENI?) and so worsening the economics. However, you will note that offers have been received for both assets so, whilst they have been impaired, they are not beyond some recovery.It is possible that they were expecting a binding offer for one/both by year end and didn't get it. But it is also possible that the KE deal is now so far advanced to be quite high probability and, if it proceeds, they are clear that Congo development won't be carried out by the company - so basically those assets are now unequivocally up for sale.Re the rest, I'm not surprised at the fiddling around with the water handling, though the additional issue with compressors on the FPSO is an irritation.Perhaps of more relevance than all of this is the new strategic direction - and the key word in Ed's statement is "scale". Watch this space, but this now looks to be a public market consolidation vehicle.

[nigelpm] 09/1/2018 23:05

Indeed - some guidance tomorrow might get those who have been on the sidelines to wake up from their comatose state.

[emptyend] 09/1/2018 22:53

....half a dollar now, Nigel......

[nigelpm] 09/1/2018 19:40

Meanwhile Brent is a dollar off $70.

Expecting good things in terms of an update on cashflow in tomorrow's RNS.

[haideralifool] 09/1/2018 18:47

FWIW, SDX had identified KE Egyptian assets as possible acquisitions, see page 26:

hxxp://www.sdxenergy.com/~/media/Files/S/Seadragon-Corp/presentations/sdx-energy-corporate-presentation-dec-2017-v2.pdf

[emptyend] 09/1/2018 12:59

fh1/kenobi,One of the big drivers for this deal will be what KE call a "liquidity event". Originally they were intending this to be their listing in London but that clearly changed.Accordingly you have to think about this not as a simple listing (with an opportunity to sell). Neither is it going to be "just a merger". I guarantee you that, if they merge KE and SOCO, then before the ink is dry on that deal they will be making other moves and adding other assets. Some of that may be debt-funded (and involve a restructuring of KE debt) but you may also find that some will be equity-funded, at which point any substantial holders looking to sell down their stake in the combined entity will offer their stakes as part of a large institutional raise. The key here is that both companies belive their assets are undervalued and that bulking up and adding further assets will be the catalyst to end that undervaluation.The market has been looking and waiting for someone to play "consolidator". This could be it.As for the "plan B" thought, every company has a range of options at various stages of development all of the time. But in SOCO's case it is my understanding that there were two well-advanced alternative plans for the way forward, both of which would involve an initial deal with a series of (different) follow-on deals. It is now clear that the KE discussion is the starting point for one of those streams of activity.

[daniel levi bmd] 09/1/2018 12:14

FYI

ECO (Atlantic) Oil & Gas. Major Multi Billion Barrel Mega Play Coming On Radar!

Dan
x

[flyinghorse1] 09/1/2018 12:01

Kenobi--I did cross my mind that they may go to East Africa :)- given that lack of updates on both sides.
FH

[kenobi] 09/1/2018 11:38

Yes it's all about the valuations in the deal and the valuation the market gives the new entity, we might get a hint about that from soco share price movement, but of course until we know the proposed split of the new group, that's a little difficult.

The management have done exactly what they've promised, looking for deals, at the last AGM, they mentioned that deals would be possible with companies seeking a london listing but unable to get one on their own, this looks like just such a deal. One board member even mentioned a deal that the new team had been looking at before coming to soco, but they were embargoed from discussing for 6 months from their soco arrival, could this be the deal ? is that still possible ? EE seemed to suggest they might have a plan B, there are probably a number of possible deals in the pipeline, (perhaps at both parties ?) and they might not all be mutually exclusive. We just have to trust the management here, they have such large holdings that they can pretty much get any deal through anyway, but it also means our interests are pretty well aligned. My only hesitation is that it seems like there are people who want to cash out in Kuwait, and there's doubtless management in sooc wanting to cash out, could be a share overhang, they're going to have to sell it hard to institutions to avoid a share slump as large shareholders cash out. Hopefully this is just one of a number of deals, and the management will do what they can to get the best deals possible. (I see no reason why they wouldn't)