Soco missive triggers sell-off

A broker warned just three weeks ago that things could only get worse for the oil exploration sector. They were right. Fear of the unknown has just wiped millions from Soco's market value after the Vietnam- and Africa-focused firm admitted it could not give any firm forecasts for 2016. Preliminary guidance was disappointing and a share price plunge of as much as 24% means a rally since the market crash in August has almost completely unravelled.

With production averaging 12 thousand barrels of oil equivalent per day (kboepd) in the first ten months of the year, Soco has increased guidance for 2015 from 11-12 kbopd to 11.8-12 kboepd, thanks to the early start-up of the H5 wellhead platform of the Te Giac Trang (TGT) field in the Cuu Long basin.

TGT has averaged 34kboepd, with Soco's 30.5% stake worth 10.2kboepd. One month ahead of schedule and under budget, H5 started pumping in August and is currently producing from five wells. Unfortunately, production of 9kbopd is behind both expectations and an initial 11-12kbopd flow rate, although bosses think unperforated intervals will increase that.

Soco's updated reserve assessment report has been completed, too, and will be presented to the Vietnamese authorities soon. A new field development plan (FDP) should be submitted in the first quarter of 2016. Until it has been approved, no firm production target has been agreed, although preliminary is just 10-11.5kbopd.

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"The delay to the original Q4 2015 schedule reflects the complex architecture of the revised geoscience model and integrated approach to field development and reservoir management," explained the group. "The scope of the development programme in the updated FDP is expected to include additional wells and facilities options to increase water handling capacity."

Issues with reservoir pressure maintenance at the Ca Ngu Vang field has forced a cut in 2016 forecasts to 25% below 2015 levels. Production reached 1.8kboepd from January-October thanks to higher-than-expected uptime.

Budget-wise, the group still expects capital investment to reach around $90 million (£59 million) in 2015, although some of the $25-$30 million cost of the Mer Profonde Sud in Congo could be also be booked before the year end if drilling begins ahead of schedule, currently pencilled in for the first quarter of 2016.

Soco is still working with PetroVietnam and SOVICO Holdings to decide a Production Sharing Agreement over the Blocks 125-126 offshore Vietnam. As it looks to maximise value from its Africa portfolio, management is looking forward to the $52.7 million earn-out payment from the sale of its Mongolia interest in 2005. But how much of this shareholders will see is uncertain.

"The company remains committed to its long-term strategy of targeting cash returns to shareholders and pursuing future growth; at the same time, with the current oil price uncertainty and potential capital commitments, SOCO believes maintaining its balance sheet and strategic flexibility is important to deliver long-term value and growth to shareholders," said Soco Wednesday.

"Therefore, the board will decide on the level of future cash returns in light of the oil price, cash flow generation from Vietnam and expected capital expenditure at the time."

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