Soco Share Discussion Threads

[ohisay] 24/9/2018 18:51

Nice one Ed - you'd reminded me of a long gone investment in Melrose which I escaped from intact but if these are the same assets I think its the roulette wheel..

[buywell3] 24/9/2018 18:48

To not accept the fact that the market is decidedly unimpressed with the Merlon acquisition is to adopt the ostrich position




Which many here have done for the last 3 years



And continue to do even today

[emptyend] 24/9/2018 18:45

kenobi,They've never drilled a $100mn well. I think the biggest gross cost has been c$40mn and I don't think any have cost SOCO more than c.$20mn.I'd be interested to hear why they think that investing and developing this, while selling off Marine XI for someone else to develop is a good deal. I suspect that this is much more of a sure thing, if less potential upside, and they didn't dare risk the company betting on Marine XI. And having spent a lot of money in africa, they just wanted to get out.It is very straightforward, I think. The Merlon deal can turn drilling into money extremely quickly. Wells put onstream and oil trucked away. Marine XI monetisation depends (I think) on getting ENI to play ball. They tried that - and failed. I don't think there is any conclusion to be drawn about relative upside.

[fangorn2] 24/9/2018 18:07

In its latest market outlook, J.P. Morgan says "a spike to $90/bbl is likely" in the coming months thanks to U.S. sanctions on Iranian oil exports, which have been falling sharply and could lead to a loss of 1.5M bbl/day from the market.

Commodity traders Trafigura and Mercuria think Brent could rise to $90 by Christmas and pass $100 in early 2019, forecasting nearly 2M bbl/day of crude could be taken out of the market.

[ed 123] 24/9/2018 18:03

Anyone remember Melrose Resources? They acquired some Western Desert assets with their buy of Merlon in 2006. It included production and some exploration opportunities. So, Soco's proposed buy has some similarity to Melrose's in 2006. Melrose tried several shots at exploration (istr) but without any meaningful success. So, after a few years Melrose found itself with decling production and no likelihood of exploration success to top up that production. Eventually Melrose Resources agreed to be taken over by Petroceltic. The idea was that the remaining production Melrose Resources had bought could fund the exploration ambitions of Petroceltic. Unfortunately, Petroceltic had a series of exploration write-offs, the oil price fell and in 2016 Petroceltic went in examinership (Irish version of administration). Melrose shareholders lost nearly all their money. Merlon rose from the ashes of administration and is now largely in the hands of Yorktown private equity.

Obviously the hope is that Soco don't follow all the way in the steps of Melrose Resources. However, Merlon/Yorktown have long experience of the Western Desert and they are sellers.

Yorktown are not distressed sellers and $80 oil has returned. If Merlon don't have the capital to invest in production here, is it because Yorktown see better uses for their capital elsewhere? Are Soco really making the best possible use of their liquidity?

What's the chance that this will look like a good deal for Soco holders in 2 years time?

I'd rather be a Yorktown investor than a Soco one. The market seems to agree.

[general george] 24/9/2018 17:54

Have spoken to Soco today.

Total field production in 2017 was 7800 gross. There is no net and gross apparently.

From that 7800 the profit share is worked, as per slide 34.

At $75 profit oil to soco at 18% less 3% for Stratton is $26m a year. Cost oil is 30% but why wernt Merlon receiving this? In fact recoverable costs went from 140m to 156m in 6 months.

Soco told me Merlon were selling out as they didnt have capital to spend on maintaining production.

2016 production was 10,500bopd odd, according to Egypt oil and gas news, quoting the Petrosilah Chairman.

Thoughts?

[tiswas] 24/9/2018 16:53

I am tempted to buy back in at these levels, but with reservations.

Directors, former and present along with family members own 100m+ shares from memory. I am very surprised that they, and the non execs in particular have appeared to stand by and watch £300m+ of net worth disappear in to thin air. In some cases they may also have material wealth outside of Soco but I am surprised how they appear to have all stuck together and no one has appeared to break ranks and shake things up a lot sooner. To my mind they have all been asleep at the wheel for too long.

On the plus side they always used to talk about investing "their" money when they do a deal and so are very cautious. I am not smart enough to work out how clever a deal this is but on the basis that they are putting a lot of their own money to work I hope they have got it right, this time.

But there again I believe I recall quite liberal use of the word "transformational" in accounts and rns releases in recent years, referring to their plans.

Not sure that they, or the market, have used that word to describe this deal?

[kenobi] 24/9/2018 14:19

I would say that the management had what they believed good reasons for pulling out of the KE deal. I hope you're right ee, and things do look better in 2020, it seems to me that this is a bit of a tough, lower end of the market type proposition, not unlike mongolia, which also needed many many cheap wells each producing low volumes. But you know where there's muck there's brass, perhaps this will turn into a money spinner for us. The fact is we're not in a position to drill $100M wells like we have been in the past, and the management need to find the deal they think will show the best return. I hope this is just the first of a few deals that arise, over the next few years, but I hope we don't take on too much extra debt. I'd be interested to hear why they think that investing and developing this, while selling off Marine XI for someone else to develop is a good deal. I suspect that this is much more of a sure thing, if less potential upside, and they didn't dare risk the company betting on Marine XI. And having spent a lot of money in africa, they just wanted to get out.

K

[lauders] 24/9/2018 14:08

If we can get the ball rolling with positive drilling results on a fairly frequent basis from SIA and their new acquisition it may well be the start of a more positive time for SIA. They haven't exactly had much to share in the way of good news with the drill bit for a while. How long will it be before drilling news starts flowing once all the regulatory matters and approvals are out the way and Merlon officially becomes part of SIA? If positive drilling results are the answer it cannot come fast enough as far as I am concerned!

[emptyend] 24/9/2018 13:47

I'd just observe that the KE deal hasn't closed yet. Lets see if it does. I suspect the industry view would be that the price is surprisingly high.I'd also note that the other interpretation of the different share price responses is that the market has got it wrong. The market has certainly got it wrong at least once...and quite possibly twice.The Merlon deal is, by definition, a deal that the company preferred rather than pressing ahead with KE. They have seen the details and we, the market, haven't. This is especially important where there is value that is hidden and not reflected in the current company metrics and superficial deal terms. It is my belief that SOCO's interest here is primarily related to the "land grab" opportunity to drill lots of wells cheaply over the next two years...and that, as a result, the proforma reserves, resources, and production that they might be looking at for 2020, say, are likely to be very different indeed to the historic 2017 numbers.

[ohisay] 24/9/2018 13:06

EE Of course it was certainly a conscious decision of SIA to walk way from the Kuwait deal but my comment was based on the immediate shareholder/market reaction.
After SIA acknowledged it was in discussion the share price jumped 10% to 125p . Here on the latest deal its drifted down almost 10% from 88p.
Crude sentiment I know but maybe it reflected a feeling with Kuwait that there would have been more upside in being linked to a larger /more diversified group.Maybe there were good reasons to walk post DD, I dont know.

I note that Kuwait were trying to get an IPO away last year at 1 bn$ and its now gone for 650m$.Personally I would have preferred Kuwait to the current deal ,but not invested here since sold at 115p post dividend and my current view of SIA is that I'm not inclined to buy until I see now this transaction washes out.
But GL all.

[deld] 24/9/2018 11:35

$100 oil might be too late for the North Sea. Just reading that only four exploration wells so far this year. It was the late 1960s when that little drilling was first recorded.

[fangorn2] 24/9/2018 10:09

Major Traders Are Talking About $100 Oil Again

"Reasons to be optimistic, although i'd expect $100 oil to be recessionary"

[emptyend] 24/9/2018 09:59

ohisay,It is complete inaccurate to describe the KE deal as "the one that got away". There was a clear and conscious decision by the SOCO board to kill that deal at a late stage, following due diligence.

[general george] 24/9/2018 09:51

Agreed Stepone,

It would be nice to have some proper FCF figures.

[tyler19] 24/9/2018 09:43

The earnings downgrade for 2018 is consistent with reduced production in Vietnam. The takeover won’t be completed till h1 2019. The production fall in Vietnam was very much anticipated given the drilling delays. Have Jeffries changed their investment recommendations?

[general george] 24/9/2018 09:42

Ohisay.

That deal would have been excellent. Shame

[stepone68] 24/9/2018 09:40

See page 15 of the presentation George - makes it clear what Soco think the deal will deliver in terms of production. I can't imagine shareholders will be very happy if production turns out to the half that shown. (I know I won't!)

[general george] 24/9/2018 09:35

Stepone.

The literature I found on Merlon website says 7900 gross in 2017

With 1.6m barrels to Egypt.

Has production doubled in 2018?

[kenobi] 24/9/2018 09:31

Well they kept saying it was immediately accretive to soco's cash flow, but also that it needed a large amount spent on expo, so whether this will cancel out the benefits remain to be seen. I guess it depends on how many wells they drill, and how much oil they produce.

Interesting to see jeffries downgrading earnings for 2018 from six cents to five cents.
I wonder if management would agree with this.

hxxps://pressoracle.com/2018/09/23/fy2018-earnings-estimate-for-soco-international-plc-soclf-issued-by-jefferies-financial-group.html

[tyler19] 24/9/2018 09:07

I think the RNS is fairly clear that its net and not gross - "... expected average production of 6,500 – 7,000 bopd (net) in 2018". It also mentions that acquisition is immediately accretive - " immediately accretive to SOCO’s operating cash flow per share"

Having said that if you search the net you do get confusing reports, still I think its good value at this point. Egypt has some very good hydrocarbon resources. Admit there is political risk in Egypt but things are getting better. Risk reward looks favourable.

[stepone68] 24/9/2018 09:03

It says on the presentation, on every page in the footer "Note: Merlon 2P reserves, 2C resources and production are on a net working interest basis and are based on SOCO management estimates".

Doesn't that make it clear?

[general george] 24/9/2018 08:51

Soco is undervalued as the BoD have made a mess of this aquisition detail.

Wtf is it? 7800 net or gross. Whats the estimated FCF?

Easy enough for OPHR to do.

Why are the Soco board finding it so difficult.

[dunderheed] 24/9/2018 07:49

In the same way GBP is undervalued?