Soco Share Discussion Threads

[stemis] 20/9/2018 10:43

I think that's a fair point. Is SIA + Merlon more undervalued than SIA alone was (assuming you think it was)? I'd say not - they've nearly doubled production and 2P reserves (I believe) for an almost double in EV. So why would the acquisition change the markets view of SIA as an investment in the short term? Indeed what the acquisition has done has removed any speculative interest (if any existed) that SIA was going to pull some amazing deal out of the hat. Can't really see the share price going anywhere from here. The bulls have been saying SIA is undervalued all the way down.

[kenobi] 20/9/2018 10:41

Hum, this info about 2020 is a little worrying in terms of possible upside, in that we're at the mercy of others to get regulartory approval for the deal, to get started, can rigs be got in time ? I do wonder if you're looking at having upto 4 riggs drilling simultaneously, wouldn't it make commercial sense to buy a rig or two ?

What worries me is that we're told it's cash generative, but how much of that cash is needed to drill the 150 new wells to double production ? what's been holding back production is that the former owners didn't want to invest that sum, prefering to take the cash no doubt, but given our plans and the race by 2020 to secure acarage, are we actually going to see any cash from this, or will it all plus more be consumed to up production for the next few years, and at what point do we see some return ? 150 wells needed over the next 5 years, is $300 M odd ? more than the price paid for the company !

Ed seemed very pleased that they could do what they wanted here without having to lobby pv, I think we're seeing some of the frustrations with PV here, he mentioned that initally they were going to drill earlier the the year but PV didn't want to , so some spend will roll over to next year,

K

[tournesol] 20/9/2018 10:31

I guess the question to ask is "if you didn't already own shares in SIA before today, would this news make you want to buy some?"

I sold the few shares I had in Soco in the mid 90's (p not years!) for a small loss. After an absence of some time I had bought back in between 108 and 115 and had thought I'd timed my return well. But realised my error and decided to cut my losses.

I do have a modest holding in SDX which is entirely focussed on Egypt and which seems promising. And much larger holdings in HUR and PMG both of which have N Sea assets with good potential. These 3 holdings have considerable potential, are more about development of existing discoveries than exploration and have management which in 2 cases is very very impressive and in one case is getting there.

I think in the short term I'd be more likely to top up one or more of the above positions rather than return to SIA.

But very good luck to those of a different persuasion.

T

[nigelpm] 20/9/2018 10:15

Yes ken - I picked that up from the conference call - still ongoing!

However, that's in addition to existing production levels.

[kenobi] 20/9/2018 09:59

one of the issues seems to be that the expo licence expires in 2020, so it's a race to explore as much as possible, secure as much acreage as possible in a development area,
they have one rig drilling, plans to add 2, 3rd and even 4th rig,
to get as much as possible done before 2020, and secure as much as possible for a 25 year production licence.

K

[nigelpm] 20/9/2018 09:56

At their current depressed prices I think I much prefer Ophir .

I've loaded up on both - seems rude not to.

[kenobi] 20/9/2018 09:24

hum, looks like we're buying from a private equity company,

the 7900 figure seems to be from 2017, perhaps calendar year ?

difficult to judge if production has fallen as new production hasn't kicked in while declines are happening, this link mentions fifty wells, so low production per well.

[dunderheed] 20/9/2018 09:21

21577, Definitely and I'd have preferred the Santos acquisition to this!
I hold neither I hasten to add and unfortunately, am not convinced to buy sia based on this acquisition. Still 'thinking' on Ophir.
Will keep on side lines here though as may be surprised in future.

[kenobi] 20/9/2018 09:20

sounds like they have a jv with the national oil company,

hxxps://energyegypt.net/merlon-jv-petrosilah-to-invest-55-million-in-oil-exploration-in-egypt/

the numbers seems surprising, as of april this year production had been increased by 1000 to 7000 barrels, with further plans to increase to 7500,

yet now we're being told production last year was 7800, but to expect 6500 to 7000 next year, oh and they invested 55M to increase production.

that 7,800 figure seems suspect to me,

hxxps://energyegypt.net/merlon-jv-petrosilah-to-invest-55-million-in-oil-exploration-in-egypt/

[ohisay] 20/9/2018 09:16

Map to boot.



At their current depressed prices I think I much prefer Ophir .

[kenobi] 20/9/2018 09:08

NY boy

"So they were top bidder in an auction for Merlon, which nobody seemed overly keen on (nice link Nigelpm)."

on that basis is it ever possible to do a good deal ? surely if others were keen, it would push the price even higher making the value for money less ? Isn't it better that others weren't overly keen ? Perhaps the soco management can see some benefits that others can't ?

disappointed to be issuing paper at this level, I wonder if there will be a tie in for the new equity or this might cause an immediate overhang ? could this be why the shares haven't responded positively ?

K

[emptyend] 20/9/2018 09:06

Management will undoubtedly have looked at hundreds of potential deals over the last couple of years - and they have been an underbidder on some and pulled out of at least one deal at a late stage. In the meantime they have been heavily criticised for NOT doing a meaningful deal and the share price has nearly halved (albeit partly because of the production issues in VN).It is a bit rich of those people who have been moaning about "nothing going on", "management doing nothing" etc to keep on complaining when they have just announced a deal that nearly doubles the EV of the company.As with all deals of this type, the proof of the pudding will be in the eating. But, I see no reason to pick holes at this stage - given that the deal appears to tick all the strategic boxes that management have trailed for years. The company has walked away from many, many deals on valuation (or risk) grounds and they have finally done one in a country that is widely regarded as "sensible" or "attractive" in terms of geology and also political risk.Part of the consideration is cash which, with the RBL deal, makes the balance sheet much more efficient. And part is in shares, with lock-ins, which provides an incentive on Stabell and others to deliver. Overall, I'd say it looks fair to good - so it will be interesting to see what the analysts make of it.

[dunderheed] 20/9/2018 09:04

Nigel - I have no idea but don't like the drop in production and feel this looks like a lot of drilling required to maintain profiles.
That 'feeling' isn't going to be reduced with googling.
However as above, it'll keep the lights on for sure but unlikely to set the world on fire - there is evidence of some potential upside but recently wtgr to current sia mgt they don't really seem to be the people to do this - again imho!
I realise that the respective local mgt team will come across to fill that gap but they'll still need good / different ops mgt to achieve this - again imho.
I'm not criticising or running down the deal - I'm just saying I am underwhelmed by it and perhaps should not be surprised and have expected this but, was probably 'influenced' by EE's previous "talk up" of expectations of Jann and Mike?

[kenobi] 20/9/2018 08:59

I'm not saying it's a bad or good deal, I'm just having a look at the info I can find, I look forward to hearing more from management. No point crying over spilt milk, we are where we are, We don't want to be like the Irishman who when asked for directions said, "I wouldn't start from here if I were you",

(apologies to the fine nation of Ireland),

K

[nigelpm] 20/9/2018 08:54

We don't really have enough details to examine nigel tbh?

Google is your friend - lots of info out there about Marlon.

[stemis] 20/9/2018 08:50

If the full cycle break even is $34/bbl, what is the tax on the excess above this?

[dunderheed] 20/9/2018 08:50

We don't really have enough details to examine nigel tbh?
However on the face of it - it certainly doesn't look earth shattering but it certainly will keep the lights on for the directors until the end of their careers - whether it really adds that much value to the "end game" - I am not so certain - as it didn't appear to be a particularly sought after asset and imho will not add that much appeal to sia for the eventual "sell out"?
But again as above wtfdik?

[nigelpm] 20/9/2018 08:45

Always worth remembering :


The SOCO directors holding SOCO shares have irrevocably committed to vote in favour of the Proposed Transaction at the general meeting of SOCO shareholders. At the date of this announcement, these SOCO shares taken together represented approximately 16% of SOCO's issued share capital.

If you think they would go and do a bad deal or even a "mweh" deal you probably need to re-examine the details.

[emptyend] 20/9/2018 08:44

Just on the license points, kenobi, it seems that the 2040 date assumes a 10 year extension (which is at the option of the licenseholder). Also the concession is operated through a 50/50 JV with, effectively, the government. There are only two parties involved.

[nigelpm] 20/9/2018 08:40

If you win an auction, you're paying more than anyone else thinks it's worth, but essentially a 'fair' price.

Not always the case - opportunity and ability to execute are also important.


And if the sellers were hoping for $400m, and got half of that, IMHO that means not many were interested..

Also not necessarily the case. An auction of this nature will only interest a very small % of total buyers who might be interested in that asset. You certainly won't have managed to get total potential interest.

[dunderheed] 20/9/2018 08:37

Mweh.
Good post Kenobi and pretty unimpressed with this BD team for what, over a years project work?
I think far better ops have come and gone over the last few years which was when sia should have pounced bwtfdik? However is better than nothing.
From my perspective this is just a story of lost opportunities and stagnation.

[kenobi] 20/9/2018 08:29

yes on the face of it we're paying a couple of dollars per recoverable barrel, and there may be potential upside, opex is $6 per barrel which is low, but does that factor in drilling of the wells or is that operational costs once done ?

although the 2P figures quoted are 24mbl net and 2C 37 mbl so not sure where the 100M figure is coming from,

I noticed somewhere else it said that the current production is 7800 barrels per day from around 50 wells, so that's pretty low level production per well. Isn't that just the sort of opportunity we walked away from in mongolia because it would take a lot of wells drilled, for not much production ?? Obviously they see things differently here, I would be interested to hear why.

In the soco document it says that full cycle break even point is around $34, so I guess that will be the figure including the drilling of the well.

soco doc suggests that potential greater than 500M barrels, with a historic success rate of 50%. What it will be in the future is our gamble, but I'm guessing below 50% as you probably start drilling the most promising prospects.

still 30% of 500M is 150M, and maybe there is more upside, although you can bet current management have done there best to paint the current situation in the best light.

Is it a little worrying that production last year was 7800, but now they're predicting 6500 - 7000 for this year ? how long is it going to take to grow production ? why are they predicting a decline in the first year ?

I am assuming the target of 15000 production by 2023, refers only to the egyptian production not the whole of soco ?

Does Merlon have a psc ? is it the 100% owner or is there a national oil co or other partner ? the 2p figures say net, if no partner net of what ?

It says the license is extendable to 2040, I wonder when the initial licence expires and needs renewing ?


The market doesn't seem that excited,

K

[emptyend] 20/9/2018 08:26

Note SOCO's pre-deal EV is around $240mn.....so doing a $215mn acquisition is quite a material move.

[robs12] 20/9/2018 08:25

GG, no, not implying they overpaid.
If you win an auction, you're paying more than anyone else thinks it's worth, but essentially a 'fair' price.
And if the sellers were hoping for $400m, and got half of that, IMHO that means not many were interested..

From the market reaction, it looks like the rabbit is grey and no tinsel ;-)

[general george] 20/9/2018 08:19

Robs.

How do you know nobody was over keen? Or you just trying to make it sound like they are over paying?

Seems to me a good deal. Long life assets adding that much recoverable for $215m.

You are correct on current production. Not good enough!