I'm not going to hide the fact that I am disappointed with yesterdays RNS and I decided to sell about one third of my holding which I switched into SLG, however after checking through the figures and speaking to the company I still retain a position which is my largest in O&G.First the simple bit, the FPSO and production rates. Although SIA have tested it upto 60K bopd production has remained around 55K bopd. The reason for this is the FPSO is leased from a company which has borrowed the money from another company and is insured by yet another company. SIA can't simply push through production above name plate capacity without getting approval from all the parties involved including the Vietnamese government. Discussions are progressing to increase the production capacity of the FPSO on a permanent basis.At first glance the numbers in yesterdays RNS could be seen as a reserves downgrade, however not as much as you might think. As it states in the RNS RPS and SIA agree that there is circa 1Bn barrels OIP at TGT, where there are differences of opinion is recovery factors, however it was pointed out to me that it is industry practice that RF's are skewed and the mean of 28-35% is about 33%. If we ignore undiscovered oil for now and take the average of 466-958m we have a mid point of 712m OIP, multiply by the mean RF of 33% and we get 235m recoverable.At the 2011 AGM I asked what the estimated gross recoverable at TGT was, Roger replied it was about 280m. Before we jump up and down about a missing 45m barrels of oil we need to remember that TGT as been producing since late Aug 2011. I have looked back at RNS's over the period and estimate that gross production averaged 30k bopd for the 4 months of 2011 and around 40K bopd during 2012-Jan 2013. I estimate that since TGT has started producing until the end of Jan 20m barrels have been produced from TGT, deduct those from 280m and you are left with a gap of 25m between booked 2P and a mid point estimate of the figures released yesterday, which equates to 7.5m for SIA's working interest (30.5%).At this point I would like to say it has been my personal experience that anyone who is paid for an official opinion has covering there own ass as their top priority, but lets continue with the monetary implications of yesterdays numbers. At the end of 2011 SIA had booked reserves in Vietnam of 121.1m, from the published production figures I estimate that between then and the end of Jan 6.2m (5.2m TGT, 1m CNV) of those reserves have been produced, leaving about 115m. If we then reduce this by the 7.5m difference as estimated above we are left with circa 107.5m barrels 2P. Using the previous transaction between Conoco and Perenco as a guide at $20 a 2P barrel that values TGT+CNV at $2,148m/$6.47 a share. Cash works out to 64c a share, add them up and covert to Sterling and you get £4.59 a share.Remember that figure uses both mid points, excludes any undiscovered upside at TGT and nothing for the African portfolio. If further data can support higher recovery factors/ move OIP to the higher end of the estimate then the numbers could get a whole lot bigger.However I decided to reduce my position because I get the feeling proving up those better RF's/OIP could take longer than I had expected and the market may well lose interest, if SIA drifts substantially below £3.50 I will top up, funds permitting. RegardsUnwize
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