The share price of Soco International (SOCO) plunged on release of full-year figures that revealed production in decline and a steep fall in net earnings. The frontier oil and gas producer booked $79.5m (£53m) in exploration write-offs on the Albertine Graben Block V in eastern Congo, but the more worrying number was a $60.5m fair-value impairment on Soco's oil reserves. Even if you disregard non-cash charges, earnings were down by a fifth year on year to $154m.
Some form of impairment was predictable given lower in crude oil prices, but Soco's was also based on the transfer of a "substantial amount" of the proven and probable (2P) reserves within its flagship Te Giac Trang (TGT) complex to the 2C contingent category. "Substantial" is putting it mildly: the TGT 2P reserves (net to Soco) were reduced from 87.5m to 36.5m barrels.
Soco and its partners in Vietnam are reassessing plans to exploit the in-situ resources at TGT. According to Soco, "there is no agreement" on the "scope of development and level of investment going forward". The reduction in 2P reserves is prudent in view of the oil price environment, which makes their exploitation less likely. But shareholders will also be concerned that a portion of the 2P reserves was reclassified as 3C due to uncertainty over the range of oil-in-place estimates (3C is the high, therefore less realistic, estimate of contingent resources).
The group's working-interest share of production came in at 13,605 barrels of oil equivalent per day (boepd). That’s down a fifth on the previous year, but Soco's net share could conceivably fall again this year by as much as 3,000 boepd as the partners at TGT pare back production in response to reduced oil price assumptions. The highly anticipated H5 development is on schedule to produce its first oil during the autumn, but the initial flow rates won't have a major impact on overall production.
Brokerage and investment house Stifel expects adjusted EPS of 14¢ for 2015, based on adjusted pre-tax profits of $93m.
| SOCO INTERNATIONAL (SOCO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 177p | MARKET VALUE: | £587m | |
| TOUCH: | 174-177p | 12-MONTH HIGH: | 429p | LOW: 168p |
| DIVIDEND YIELD: | † | PE RATIO: | 62 | |
| NET ASSET VALUE: | 293¢* | NET CASH: | $166m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 48.0 | 31.0 | 3.8 | nil |
| 2011 | 234 | 159 | 26.4 | nil |
| 2012 | 622 | 446 | 62.7 | nil |
| 2013 | 608 | 333 | 31.7 | nil † |
| 2014 | 448 | 153 | 4.3 | nil † |
| % change | -26 | -54 | -86 | - |
£1=$1.50. *Includes intangible assets of $209m, or 63¢ a share. †$213m (40p a share) was returned to shareholders via a B/C share scheme in Oct 2013. $119m (22p) was returned to shareholders in Oct 2014. The board has proposed a cash return dividend of 10p per share, to be approved at the AGM on 10 June 2015. | ||||
