As you know, I’m taking the imminent disposal of VN more or less as a given.

As you also know I think they’ll be selling it for a substantial premium to the current share price of the whole company.


It will be what it will be in terms of the price achieved….that’s what happens with a competitive negotiation. I'd reckon it as somewhere in the mid-high £20s per share...... but what is....

.....the value of the rest?

Lets have a look at the parts:

Assumptions:
a) Number of shares : 72,872,871 (per RNS of 2/9) + shares over which there are outstanding management options or warrants, plus the shares underlying the convertible minus the shares held by the Employee Trust (10,613,345 from AR) = total fully diluted (in the event of a triggering transaction) = 83,486,216
b) FX rate : GBP 1 = USD 1.80
c) Convertible being treated as equity rather than debt
d) Some of the information used below is from the AGM and other enquiries and is more up to date than broker estimates – it is assumed it is more correct as well!

Cash:
Cash and cash equivalents $410mn from Interims B/S

Thailand:
SOCO hold 40% of Bualuang. 1P reserves there are 11mn bbls and 2P are 20mn, so SIA has 40% of 20mn 2P = 8mn bbls. This field has quite a short life, as the initial planned production rate is 14,000 bopd, which is over 5mn bbls pa. Accordingly I’d guess that $28 per 2P WI barrel isn’t unreasonable [given that both UBS and MStan use over $30…well over in UBS’s case!] …..so, say, $224mn

Mongolia receivable
Shown as $33.3mn in the interims balance sheet. I can see no reason to argue. When I last asked a few months ago I was told that Mongolia production growth is coming in chunks as the Chinese drill lots of wells and then batch frac them. They were then currently producing 2,000+ bopd and have produced more than 1 million barrels. It is understood that their budget this year is circa $500 million, so they are plainly “going for it”.

Congo (B)
SOCO have 29% of Marine XI (assuming PV complete the conditions precedent to getting their 8.5%). They expect to start a three well programme on Marine XI late this year (rig-sharing with ENI) and will drill an appraisal on Viodo and will also drill the large oval structure (discussed back here http://boards.fool.co.uk/Message.asp?mid=11111668 ) and ANOther well. Viodo is around 30mn bbls gross ….so risking at say 50% (it is an appraisal!) lets say that may be worth 4.5mn bbls. The more interesting well though is the large oval structure, as that is thought to be c 300mn bbls. Risking that at 15% (in the absence of any guidance at this point) would suggest 13mn bbls net to SOCO….so, adding in a “rounding error” for the third well, lets say that SOCO have 20mn bbls net risked in Marine XI. There are considerable differences in opinion as to the right NPV per barrel (MStan use $18-20, UBS use $5)….so lets go in the middle with $12…..which implies a valuation for the Marine XI stake of $240mn (20*12)

Congo (K)
Nganzi,will have 2D seismic shortly and together with Block V and the MOU re Block 7. As they are all fairly unknown quantities (though in a very mineral rich area, as suggested by today’s Tullow/Heritage well on the Ugandan side of the Rift Valley) it’s a guess what is there – and must be heavily risked! On average UBS and MStan have an NPV of $95mn in for SOCO’s 85% share of Nganzi alone….so lets say $120mn for the lot? Bearing in mind that the three blocks together are over 25,000 sq kms, of which only 800 is Nganzi, I’d think that not unreasonable.

Cabinda North, Angola
This is another guessing game. SOCO hold 17% and there is little info on the block (pending resumption of the seismic post Nganzi). However, it is immediately onshore (upriver) from the prolific Block 0! What’s it worth….who knows? MStan include $26mn whilst UBS ignore it. I don’t think it can be ignored – and I do think it could be worth a substantial amount….but lets more or less go along with Morgan Stanley and put $30mn in for now – even though I think that is an extremely low number.

So….what does that lot add up to:

Cash          $410mn
Thailand      $224mn
Mongolia      $ 33mn
Congo (B)     $240mn
Congo (K)     $120mn
Cabinda N     $ 30mn
--------------------------
Total        $1057mn

Sooooo…..at $1.80 FX rates that would imply a NAV estimate for the continuing company of £587mn…..which – by a complete coincidence [!] comes out at £7.03 per fully-diluted share!

I make the point because IIRC £7 or $1bn was the sort of figure discussed between RdS and Davjo at the AGM in respect of what their West African assets might turn out to be worth….whereas the figure of £7 that I have arrived at includes all their cash balances (which it probably won’t….some will pass with SOCO VN and/or be returned to shareholders IMO) and lumps for Thailand and the receivable. Obviously one may need to make adjustments for, for example, any cash balances that are passed on with SOCO VN or OPECO in any event.

But the important point here is that I reckon that one could value the company post-Vietnam at around £7 a share, of which about 260p can be attributed to the African assets – and it is this portion which, IIRC, RdS was suggesting might be grown four-fold in the foreseeable future.

emptyend

So after I bank (or partially bank and take loan notes on the remainder) my multi pound dividend, ..... pause ........, yes, very nice thought, ......I ask myself what trading strategy should I follow?

I have never traded my Soco shares but that may change in a 'rump' environment.
I have no intention of recycling all my multi-pound dividend into the rump, or as I would prefer to call it, 'son of Soco'.

So, is the 'son'' likely to be loved or unloved by the market?
What discount to 'valuation' will the market apply?
Will the son be over loved as a result of the dividends of the faithful being recycled into it?
Will the over love be temporary and after the faithful have climbed aboard will it pull back?
What news flow is likely which will impact the market in the next 6 months?

As a long-term holder I remember that Soco 'went to sleep' for 2/3 years between the initial buzz about Vietnam and the last 2 years when it has blossomed.
Is another period of slumber likely post a successful VN sale?

TomKe

PS I hope you are right!

I have never traded my Soco shares but that may change in a 'rump' environment.
I have no intention of recycling all my multi-pound dividend into the rump, or as I would prefer to call it, 'son of Soco'.

Pretty much the same as in my case - which is why I thought I'd better get an updated handle on the value of what might be left, just in case that scenario should happen to arise without any notice ;-)

So, is the 'son'' likely to be loved or unloved by the market?
What discount to 'valuation' will the market apply?
Will the son be over loved as a result of the dividends of the faithful being recycled into it?
Will the over love be temporary and after the faithful have climbed aboard will it pull back?
What news flow is likely which will impact the market in the next 6 months?

These are all excellent questions - but rather premature. There is no point in considering them until we can see the structure of the deal...but at that point they may be quite important.

As a long-term holder I remember that Soco 'went to sleep' for 2/3 years between the initial buzz about Vietnam and the last 2 years when it has blossomed.
Is another period of slumber likely post a successful VN sale?

I think that each of the different bits of the portfolio could progress at their own speed. Marine XI is clearly ahead of Nganzi which is just ahead of Cabinda North and last by some distance will come blocks 5 and 7. I wouldn't expect much slumbering with 29% of a 300mn prospect being drilled in the near future and a share price of (say) £4-5 (assuming that not all the cash is kept in the continuing business).

ee

Thailand:
SOCO hold 40% of Bualuang. 1P reserves there are 11mn bbls and 2P are 20mn, so SIA has 40% of 20mn 2P = 8mn bbls. This field has quite a short life, as the initial planned production rate is 14,000 bopd, which is over 5mn bbls pa. Accordingly I’d guess that $28 per 2P WI barrel isn’t unreasonable [given that both UBS and MStan use over $30…well over in UBS’s case!] …..so, say, $224mn

Salamander have the other 60%. In their note dated 28th Feb 08, Merrill use £15 per barrel and have Salamander down as having 9m bbls, giving a value of $135m to Salamander.

However, davjo commented here http://boards.fool.co.uk/Message.asp?mid=10944184&sort=w... that Soco's 40% only pays 8% of the development costs, so Soco's $/barrel would clearly be higher than Salamander's.

manzanilla

Accordingly I’d guess that $28 per 2P WI barrel isn’t unreasonable [given that both UBS and MStan use over $30…well over in UBS’s case!] …..so, say, $224mn

Salamander have the other 60%. In their note dated 28th Feb 08, Merrill use £15 per barrel and have Salamander down as having 9m bbls, giving a value of $135m to Salamander.

However, davjo commented here http://boards.fool.co.uk/Message.asp?mid=10944184&sort=w...... that Soco's 40% only pays 8% of the development costs, so Soco's $/barrel would clearly be higher than Salamander's.

Yes its true that Salamander paid more re development - but the development costs are more or less sunk at this point and unless there is some assymmetry in the cost recovery between the parties (which I doubt, as paying the costs was an earn-in to the 60%) then one would surely think all barrels in the field are worth the same.

Perhaps worth asking about in due time.......once we've had the first course.

rgds

ee

Hi ee,

I hope your right with your valuation post-Vietnam at around £7 a share. Because at a valuation of $1bn approx. will still mean Soco are in the FTSE 250. I doubt the management will want to go back to the AIM/main market or anything outside the FTSE 250. At a valuation of £7 post Vietnam is an encouragement for management to sell up SV.

In the past you have stated that no one will know when a sale will come and that a sale can be done by simply picking up the phone to a few share holders. But now you are saying a sale is imminent...Any specific reason why ? What have you heard?

Or is it a simply a case of common sense that it is inline with Soco's strategy and that we are simply at a point where most of the value has been extracted from SV, basically everything that "needs to fall in place" has fallen in place and now is the "right time"?

Given the two guys at the top are American and the USD has gained strength would this have any bearing on the time of the sale? I suspect Roger and Ed have plans for their money and given they are from the states and should they choose to spend their money in dollars then surely the stronger dollar is a benefit.
Maybe it is a good time for them to buy Real estate in the state for their kids etc ?

I personally think once they have recieved the appraisal licence from Vietnam.Gov then that will be a big step forward that will bring the end game forward for SV - i hope this is very soon.

Given the two guys at the top are American and the USD has gained strength would this have any bearing on the time of the sale?

surely any transaction would be in USD, therefore the exchange rate between the dollar and the pound is pretty immaterial if you are suggesting it is in order to invest usd in real estate etc.

cheers K

I hope your right with your valuation post-Vietnam at around £7 a share. Because at a valuation of $1bn approx. will still mean Soco are in the FTSE 250. I doubt the management will want to go back to the AIM/main market or anything outside the FTSE 250. At a valuation of £7 post Vietnam is an encouragement for management to sell up SV.

Irrelevant!

It will almost certainly be lower because the rump won't hold as much cash.

The purpose of the valuation estimate was to figure out how much value, over and above the price announced for SOCO VN and OPECO, there is in the company - so that it is easy to make the adjustments when such an announcement is made. The capital structure of any continuing company may be radically different....and its asset composition may be too.

In the past you have stated that no one will know when a sale will come and that a sale can be done by simply picking up the phone to a few share holders. But now you are saying a sale is imminent...Any specific reason why ? What have you heard?

Nothing - gut feel.

Or is it a simply a case of common sense that it is inline with Soco's strategy and that we are simply at a point where most of the value has been extracted from SV, basically everything that "needs to fall in place" has fallen in place and now is the "right time"?

Thats my view.

Given the two guys at the top are American and the USD has gained strength would this have any bearing on the time of the sale?

Not one iota. It would, however, be a pretty good time for the rest of us who are based in sterling!!!!

I personally think once they have recieved the appraisal licence from Vietnam.Gov then that will be a big step forward that will bring the end game forward for SV

That is one of what is now a very small number of essential items that needs to be tidied up prior to the sale. Most others can be dealt with by negotiated price adjustments (eg re the final gas sales price etc).

ee

ee

Do you think the managemnt structure will change for the "rump"?

I just wonder when senior management will take their well earned rewards and retire...

If this were to happen, whilst financially not changing things, operationally it could be quite different...for good or not so good..

Just a nagging thought..

AB

Do you think the managemnt structure will change for the "rump"?

I just wonder when senior management will take their well earned rewards and retire...

If this were to happen, whilst financially not changing things, operationally it could be quite different...for good or not so good..

Yes I'd think it will. I'd be sure RdS and RC would stay on.....and perhaps Ed too whilst the Thai asset is still held. But they've already flagged board changes for next year (see AR) and I'd be expecting to see at least 3-4 changes.

None of that will have any short-term impact at all though.

ee

Congo (B)
SOCO have 29% of Marine XI (assuming PV complete the conditions precedent to getting their 8.5%). They expect to start a three well programme on Marine XI late this year (rig-sharing with ENI) and will drill an appraisal on Viodo and will also drill the large oval structure (discussed back here http://boards.fool.co.uk/Message.asp?mid=11111668 ) and ANOther well. Viodo is around 30mn bbls gross ….so risking at say 50% (it is an appraisal!) lets say that may be worth 4.5mn bbls. The more interesting well though is the large oval structure, as that is thought to be c 300mn bbls. Risking that at 15% (in the absence of any guidance at this point) would suggest 13mn bbls net to SOCO….so, adding in a “rounding error” for the third well, lets say that SOCO have 20mn bbls net risked in Marine XI.

I see from some Merrill research that the oval prospect referred to above is now called Sendji.

From the same source I also note that Salamander are reported to be drilling "Bualuang Deep" in Q2 and "East Bualuang" in Q4.

Re the post at the head of this thread, obviously the "per barrel" figures need revisiting at some point....but even if one halves my original valuations of Congo (B&K) and Thailand, that would still be over 650p per share (at $1.40 FX) of value outside Vietnam.....

....which ought to make one think, given a share price of barely over £9!

ee